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Lies, Damned Lies, and Veja-El Clarín

Source: Brasil247

Translation: C.E.B.

On May 30, 2015, the Brazilian newsweekly Veja accused Máximo Kirchner, son of president Cristina Kirchner, and ambassador Nilda Garré of maintaining offshore bank accounts.

The story was immediately picked up by the Argentine daily El Clarín, a principal opponent of the Kirchner government.

The problem: It was all a lie, as the very bank where the accounts were supposedly opened confirmed. Read an account of the incident by Marcelo Justo of Carta Maior.

Veja has embarked on these sorts of agitprop campaigns many times before. Consider the phony list of Swiss accounts of government, party and police officials, shown above.  Continue reading


Deep Float | Petrobras Underwater, Fire

A napkin outline of the Pasadena scheme

A back of the napkin outline of the Pasadena scheme


There is curiosity today as to the identity of a “deep throat” witness in the Petrobras corruption megascandal.

One month after Operation Car Wash was carried out, in the middle of this year, a career public servant with 30 years of service approached federal agents in charge of the task force and denounced Petrobras for ignoring “signs of criminal behavior” and “intentional mismanagement” inside the state-run petroleum giant “in order to divert funds without awakening the suspicions of auditors and inspectors.”

Together with the acquisition of the Pasadena Refinery in the U.S. – the most emblematic of the charges involving the case — the witness named former Mines and Energy minister Edson Lobão as the “godfather” of one of the suspects and [alleged that] current Petrobras CEO Graça Foster was responsible for the nomination of two other senior executives in the foreign trade division, supposedly responsible for a sale of assets to Nigeria that had led to losses for the company.


Was it a note with awful grammar from some General Nigeriano Ubuntu offering you a handsome sum for laundering some huge amount of cash through your account?

This is the Nigerian Third World Corruption scam. Purge it from your e-mail client. A variant is the wealthy but oppressed damsel in distress, for those more responsive to an emotional stimulus, and might be called the Rwandan Woman in Fear for her Life gambit.

During a four-hour closed session held on April 28 in Rio de Janeiro, – the transcript was appended to the Car Wash case file on Tuesday — the «informant», whose name will not be released during continuing investigations, described six cases of alleged criminal misconduct, chief among them the acquisition of  Pasadena, initiated in 2005. The deal, valued at US$ 359 million at the outset, wound up cost US$ 1,2 bilhão, causing Petrobras to suffer a US$ 793 million, according to the federal accounting tribunal (TCU).

[ … translation to come …]

Continue reading

Putrid Paper | The Brazilian Municipality as Issuer


The latest episode of predatory competition and fraudulent auctions involves the Pension ministry, which dstributes massive fundage to the retired.

In this case, new information is available on the affair within the confines of Operation Micah — one of the largest white-collar cases ever investigate, as far as I can see.

Part of the problem appears to be that the federals are at a disadvantage –in terms of dimension. There are over 5,000 municipalities to be kept tabs on.

The press office of the Ministry of Social Insurance informed today that Minister  Garibaldi Alves Filho has ordered the firing of aide Gustavo Alberto Soares Filho, suspected of involvement in two criminal organizations assused by the federal police of money laundering and mismanagement of pension funds for municipal  civil servants. The Ministry said that Soares Filho worked as a coordinator of the Planning Directorate for the Department of Pension Services for civil servants. Continue reading

The Big Payola | Globo and Banco Rural


Source: DoLaDoDeLá

We all know that at the beginning of  the 2000s, Globo Participações was on the brink of  collapse. It had tried to get the federal government to back a financial recuperation plan along the same lines as Proer, a program created by the Cardoso government to rescue banks from what used to be called “contagion” or “systemic risk.”

The proverbial “too big to fail.”

In 2004, an investment fund demanded that Globo file bankruptcy in the United States. It was then that the debt restructuring became an urgent matter. At around the time, the Marinho brothers sold off their shares in a number of repeaters and affiliates.

A supervisor of mine at the time, in an effort to convince me that the bosses were committed to jobs and salaries, said that “the poor guys” had had to give up the family helicopter — as if they had a choice between making this sacrifice or doing away with their human resources. Tell me another one … Continue reading

F&A | Ruy Moura’s Breakfast Reading


It has always surprised me that Brazil’s gargantuan and complex business ecosystem   seems unable to produce something along the lines of Dealb%k — an exemplary use of that in-the-moment blog format that keeps readers checking in periodically throughout the day, rather than simply reading it once through and lining the parakeet page with the leftovers.

The business pages of the major Brazilian dailies are heavy on macroeconmic trends, market movements, and the like — stuff you can cover sitting on your ass in front of a Bloomberg Box —  but very light on hard business stories with real protagonists and consequences: Company X overcomes Problem A to accomplish Objective 1.1, or Bank C offers Subsidiary Z to Company Y for X gazillions.

Only the largest economic groups and deals get such coverage, which is not much use to the venture cap, hedge fund or M&A guys who fish a smaller pond — and whose activities are newsworthy themselves, to boot.

So, then, a Brazilian Dealb%k?

The plain old Blogspot Fusões & Aquisições is a step in the right direction, although I  wish it would publish a masthead and take itself seriously as a journalistic source.

Its principal analyst — its only analyst, it seems — appears to be Ruy Moura, founder of Acquisitions Consultora Empresarial Ltda.

Moura’s daily clipping file has climbed to the top of my breakfast reading list, along with the planning ministry’s clipping of various media sources, broken down by topic and searchable.

I think there is a substantial editorial market for the Dealb%k style of coverage.

The only potential competitor I can think of in the Brazilian editorial market is Relatório Reservado, a one-page tip sheet circulating daily to a private circle of subscribers and relying heavily on market rumors.

Exame magazine has a deal flow blog that is useful to check in on as well.

This is the sort of story I find myself missing:  Continue reading

ANEEL Presents the 20% Solution


ANEEL formally announces its new regulatory regime for energy pricing.

Pundits say that it will prove to be a highly popular policy if it can deliver the promised results. A good part of the coverage of the local press coverage is mind-numbingly negative on those prospects.

See also

On January 24, Brasil Econômico op-eds that alarmist buzz about the risk of rationing is mostly baseless.  But let us return to that later. The ANEEL anouncement from Friday:

During an extraordinary session held January 24, ANEEL approved new electricity pricing tables that will reduce the cost of electrical energy to users.  The average savings to the end user will be 20.2%. Residential users will see their electricity bills reduced by at least 18% (see table, below). For industrial users of high tension lines, the discount will approach 32%. The new price structure is in effect as of today, January 25.

The reductions are the result of Law No. 12,783/2013 — it provides for the immediate renewal and renegotiation of transmission and generation concessions expiring in 2017 — as well as Provisional Measures 591/2012 and Decree 605/2013.

The two executive mandates create a special tax allocated to a reserve account — the Energy Development Account  (CDE)

created by Law 10,438/2002 with the objective of developing energy in the states and improving the competitive capacity of various alternative forms of energy, as well as to universalize the provision of electrical energy in Brazil.

The funds managed by the CDE flow from the annual payments by concessionaires for the use of public property, as well as fines assessed by ANEEL. Since 2003, the quota is paid by all energy resellers doing business with the end user. In other words, part of the  CDE comes out of the taxpayer’s poakets.

The idea is that the refusal of most of the largest electricity generators and transmitters to take part in the plan is to be offset with funds from the CDE.

MP 605/2013 assigns the  CDE two additional tasks. One is to compensate for discounts in usage rights to the distribution system and in cost to the end user. The other is to compensate for the refusal of some energy generation concessionaires to accept the deferral proposed in the Law of the Energy Sector in exchange for price reductions. 

In a workmanlike overview of the situation, Globo noted:

In December 2012, Mines and Energy secretary Márcio Zimmermann went so far as to state that it would be imipossible to reduce rates as deeply as initially announced due to the refusal of certain energy companies to embrace the deal.

The Sign of Four


The terms of the deal were refused by Cesp (São Paulo), Cemig (Minas Gerais), Copel (Paraná) and Celg (Goiás). All four are state-owned firms in states governed by the  opposition PSDB.

“It is surprising to see, last month, how many persons were … sustaining baseless disinformation over the level of our hyrdoelectric reserves and the entrely normal activation of the thermoelectric plants. As you would expect, these predictions failed to pan out. Brazil has not failed to produce a single kilowatt that it needed, and now, during the rainy season, the thermo plants will no longer have to bear the load,” said President Dilma.


The principal changes that will allow lower prices were:

  1. Reallocating the energy quotas of generators that renew  concessions early, at an average price of R$ 32.81 MWh.
  2. Reduction of transmission costs.
  3. Reduction of the sector’s tax burden.
  4. Removal of subsidies from the price table, with direct support of the federal treasury

Reductions and adjustments

The effect of this reduction is structural in nature. That is to say, it will promote a permanent change in the price structure of the industry, in that it will permanently do away with figuring costs into the pricing tables in the past.

Different Rates. ANEEL will establish a different rate structure for every energy distributor, based on the specific characteristics of each.  Lower energy prices should guarantee quality energy supply; it should also ensure that service providers receive sufficient revenues to cover their costs and to invest in the maintenance and expansion of the energy sytem.

Meet Your Meter Reader

Because meters are read at times that vary from one distributor to another, the full effect on the consumer’s monthly bill will not manifest itself until the first full billing cycle after the new price structures are implemented.

That is to say, during the first month under the new pricing scheme, depending on the expiration date of the previous contract, part of the user base will be billed under the old scheme and another part under the new,

With the new price table taking effect on January 24, for example, a customer whose bill is dated February  10 be billed half of the old price and half of the new. As of February 25, all users will see the benefits reflected in their bills.

Types of consumer. Other factors may lead to changes in energy prices, such as the terms of energy supply contracts. “Captive” residential and low-income consumers — those with no choice in the selection of a distributor — will all pay the single price negotiated by the concessionaire.

Variations in prices will also occur based on the level of tension provided to the end user, defined as the tension available in the distribution system, varying from 110V to more than 2,300 volts This variation divides consumers into two groups: Group A (≥ 2,300 volts) and Group B (≤ 2,300 volts). Group B comprises residential or low-income customers, among others.

Group A consumers pay predefined prices for energy and for peak and off-peak usage of the network. “Free market” consumers have different characteristics, in that they can trade for energy with other suppliers, under special conditions.

Learn more. ANEEL  has published a a number of documents and content on its Web that explain how your energy bill is calculated, how the concessional renewals and price reviews work, as well as tips on the most economical way to use electricity.

The table below shows the savings to customers of the various low-tension service providers.

AES SUL 23,62%
AMPLA 18,00%
BOA VISTA 18,14%
CAIUA 18,08%
CEA 18,04%
CEAL 18,00%
CEB 18,11%
CEEE 18,13%
CELESC 18,48%
CELG 18,00%
CELPA 18,83%
CELPE 18,04%
CELTINS 18,20%
CEMAR 18,00%
CEMAT 19,29%
CEMIG 18,14%
CEPISA 18,00%
CERON 18,00%
CERR 18,04%
CFLM 20,92%
CFLO 18,00%
CHESP 18,01%
CJE 18,34%
CLFSC 19,66%
CNEE 19,69%
COCEL 18,41%
COELBA 18,96%
COELCE 18,05%
COPEL 18,12%
COSERN 18,00%
CPEE 23,38%
CSPE 18,01%
DEMEI 18,36%
DMED 18,08%
EBO 18,00%
EDEVP 18,16%
EEB 18,65%
EFLUL 18,17%
ELEKTRO 18,47%
ELFJC 18,04%
ELFSM 18,97%
EMG 18,14%
ENERSUL 18,24%
ENF 18,07%
EPB 18,01%
ESCELSA 18,01%
ESE 18,00%
FORCEL 18,01%
IGUACU 18,11%
LIGHT 18,10%
RGE 22,00%
SULGIPE 18,33%
UHENPAL 25,94%

Electricity In the Air | A Hard Charging Government Plan Takes Shape



“It’s reckless to say that there’ll be rationing, but it’s also reckless to say there won’t be,” –Ricardo Correa, Ativa Corretora

Source: Carta Capital.

President Dilma Rousseff has signed the law that extends the concessions of electricity generators and reduced taxes on the sector in order to offer electricity at a reduced cost to the consumer. Under Law 12,783, date January 11, 2013 and published in the Official Diary on January 14, 2013, generation concessions can be renewed one time only, for a period of 30 years, in order to ensure continuity, efficiency and lower prices.

In order to get their concessions renewed, the concession holders must meet the requirements of the federal energy regulator, ANEEL, with respect to rates and quality of service. ANEEL will also oversee the passing on to the end user of investments needed to maintain the quality of service and continuity of operation of the nation’s hydroelectric plants.

Naturally, capital market operators and the government have sparred over the risks and costs of the new regulatory regime.

As Luis Nassif accuses the mainstream media of exaggerating the risk of rationing due to an unusually dry tropical autumn, stock market analysts interviewed by two reporters from O Globo lament the effects of the new policy on the profitability and dividend payout of the affected companies — colorfully described as a «dividend blackout».

The Panic Newsroom

Andre Barrocal of CartaCapital writes:

What President Rousseff could not have imagined is that 2013 would begin with  electricity transformed into a major headache. This happened thanks to the combination of real factors — hydroelectric construction projects behind schedule and very little water in the reservoirs after a dry spell — together with an erroneous reading of the scenario by certain sectors of the mainstream media, who reported that a return to the energy rationing of 2001 was imminent.

Confident that talk of a return to rationing was «ridiculous», Dilma put together a political initiative while on vacation in Bahia — a vacation she decided to interrupt and return to Brasília to supervise directly. Energy regulators and other officials in the area were instructed to offer reassurances to the public and calm the concerns of citizens and the business community. The keystone of this initiative was a press conference held on January 9 with Mining & Energy minister Edison Lobão “There is no risk of an imminent shortfall and I expect there never will be,” he said.

Absolute confidence, however, depend on the summer rains, which were less than generous in late 2012, to the point that reservoirs … were at their lowest level since 2001. ONS, the National Electrical System Operator, which manages the flow of energy throughout Brazil from areas of oversupply to areas of shortfall, was obliged to modify its planning for this eventuality.

Nassif reprises an embarassing moment for Globo and the Folha de S. Paulo, both of which reported that an «emergency» meeting of the technical oversight committee of the E&M ministry had been called. The meeting was routine and went off as scheduled. Globo, Veja, and the FSP were obliged to issue a correction.

Nassif explains:

The electrical energy market is divided into two segments. There are long-term contracts, negotiated between major consumers — including energy distributors — and their suppliers. The other is the so-called spot market, used for short-term transactions.

Incorrect information such as was published by the FSP can cause volatility in the prices fixed by the spot market. It can also cause companies to suspend investments and activate contingency plans.

In this case, the market was not affected because big business and major investors have their own sources of information, and the Internet was effective in defeating the rumor and correctly reporting the MME’s response to reports on the supposedly «extraordinary» nature of the meeting.

As Bloomberg reported recently, this state of affairs is not exactly a zero-sum game.

A dry spell that’s emptying Brazilian hydropower dams is poised to turn Cia. Energetica de Sao Paulo, the second-worst generator stock last year, into one of the industry’s biggest winners.

Cesp, as the utility is known, and other producers that can sell extra electricity in the spot market may be able to profit after prices surged to a record, said JPMorgan Chase & Co. and Banco BTG Pactual SA. Net buyers of energy in the spot market — from billionaire Eike Batista’s MPX Energia SA (MPXE3) to steelmaker Usinas Siderurgicas de Minas Gerais SA — stand to lose the most, analysts said.

Nassif concludes:

Even so, the inaccurate report was used to support the argument that  problems with energy supply were the result of the plan to cut energy bills — a plan that has not even gone into effect yet.

The Corretores


Writing in O Globo today — «A Dividend Blackout», how clever —  João Sorima Neto &  Eliaria Andrade round up reactions from major brokerages to the impending implementation of price controls partially subsidized by tax breaks.

Analysts predict shortfall in energy sector dividends in the face of government actions and the risks of rationing.

Oliveira, of the Magliano brokerage house: The brokerage has sold off electricity companies in its portfolio.

After taking a beating in the stock market since September, when the government announced measures to reduce the cost of energy to the consumer, share prices continue to suffer well into the New Year.  In the first seven Bovespa sessions of 2013, shares in energy sector companies lost R$ 2.5 billion in market value. In 4Q2012, the same companies lost $34.8 billion in market capitalization.

In this case, the specter of energy rationing was behind the stampede.  Paradoxical is the situation of a sector that has always proven attractive to investors because of the dividends it pays.  In the current scenario, however, dividends will likely suffer, say experts in the field.  The energy investor, these experts say, will have to carefully select companies whose revenues are less affected by the policy.

—  Before 2011, the electric companies paid dividends of 10% to 12%, on average. That number now stands at 6% to 7%. And some companies may forgo paying dividends altogether  — according to William Alves, an analyst at XP Investimentos.

Dividends are the percentage of company profits distributed to shareholders.  They represent extra income not dependent on the market price of shares.

The electric companies have always paid healthy dividends because  they generated large amounts of cash and required few investments.

Required few investments of themselves, perhaps. Many have taken a beating from a newly activist crew of regulators in recent years over quality of service.

Even now, as I type this paragraph, we are under fire from torrential rains likely to have a dual effect: It will help swell reservoirs and it might well produce those marvelous serial explosion of electrical transformers to which we have become accustomed over the years.

Energy-sector companies were also considered a low-risk, defensive investment, with stable share prices even during moments of market volatility. This has changed, as we have seen in recent months.  [The sector’s] stock exchange losses are approaching 50%.

The tumble occurred [in September.] when government action threatened the profitability of these companies, explains Júlio Oliveira, a partner at the Magliano Corretora brokerage house.

In order to reduce electrical bills by 20% starting in February, the federal government rescheduled the renovation of concessions expiring in 2017 or earlier, and ordered generators and transmitters to accept 70% of their current income.  With that, companies that adhere to the new plan will see profits decline.  Energy rationing could also reduce sales and impact profits, although the government denies there is any risk of rationing.

—  Bringing thermoelectric plants online [as a back-up measure]  also concerns the shareholders of the distribution companies.  The cost of production of these plants is much higher, and the sector will have higher costs until rates are readjusted, according to Pedro Galdi, a market strategist at SLW.

The entire sector has suffered in the stock market, but even so, market analysts are not recommending a massive sell-off.  They are closely studying the impact of the regulatory changes on each and every company in the sector and have reached certain conclusions. There is consensus that Eletrobras shares are not a good buy option at the moment.  Some expect that the state-owned company will pay no dividends at all.  The recommendation is for investors in Eletrobras to trade their shares in for other stocks.

— Eletrobras was the first company to adhere to the government reform.  This new reality reduces cash generation, which affects the payment of dividends, says William Alves of XP.

Julio Oliveira, of the Magliano brokerage, believe that if Eletrobras does pay dividends, these will be the minimum demanded by law: 25% of net profits.

CTEEP — the São Paulo energy transmission company —  has already paid out 100% of profits in the form of dividends, but it is highly unlikely to do so again, says Beatriz Nantes, an energy specialist at Empiricus Reserach/Investmania.

According to Nantes, CTEEP’s acceptance of the government plan will affect its earnings. Nantes also does not believe that Eletropaulo will offer satisfying dividends.  CTEEP, though not so heavily affected by the government plan, recently concluded its third cycle of rate readjustments, in which the company’s prices are reevaluated.  The price was cut by 9%, on average.

—  Eletropaulo is no longer a reliable payer of dividends, — Nantes says.

Among those energy-sector stock that may still pay attractive dividends are Tractebel, TAESA and AES Tietê, the analyst says. Nantes believes that these companies were not heavily affected by the government-mandated changes.

The XP brokerage house is recommending Taesa and Tractebel.

Tractebel carries very little debt, which enables it to generate more cash.  The concessions held by Taesa, meanwhile, expire in 2030, which reduces the company’s regulatory risk exposure, says Alves.

Magliano Corretora has removed all energy-sector stocks from its portfolio of recommended investments.

— You should not sit on these stocks for four or five years, especially in view of these changes in the industry.  We have a portfolio of dividend-paying shares that, while not as generous as electricity dividends once were, still present a favorable opportunity cost.

Among these are Ambev, Souza Cruz, Sabesp and Vale. Souza Cruz, for example, will pay 100% of its profits as dividends. This is one option to consider while the profitability of the electric sector remains unclear,  Oliveira says.

Beer, cigarettes, sanitation and nickels. Who can live without them?