Due to the partial privatization of the energy industry, the Government still holds the reins in key areas such as pipelines and generation ownership, as well as ownership of local distribution companies. Although this partial reform has created uncertainty in the industry, it has gone a long way in removing market barriers to distribution.
While previously consumers were forced to buy electricity from within their own state, privatization has enabled industrial and commercial consumers to source electricity anywhere from the country. This flexibility was extended to residential consumers in 2005, driving up competition, as this system allows consumers to buy electricity directly from generators.
“For instance, Petrobras’ (a state-controlled oil company) decentralized procurement activities allow its various business units to procure directly or through its Materials Procurement Department (MPD),” says Srinivasa Reddy N.S., Research Analyst for the Frost & Sullivan ERA group. “This will help the supplier establish business cooperation directly with the materials procurement department for the supply of machinery and equipment.”
Brazil strengthened its energy policies after implementing privatization programs and energy reforms to meet its growing energy needs. It introduced the renewable energy policy in 2001, which is encouraging the purchase of more than 3,000 Mega Watt (MW) of renewable energy by 2016.
The Government has also innovatively leveraged the country’s position as the world’s largest producer and exporter of ethanol by implementing its national alcohol program, Proalcool. This program mandates the use of biofuel in transportation and is likely to help phase out all automobile fuels generated from fossil fuels such as gasoline.
The Brazilian biofuel segment is expected to become a leading participant in the international market, as an increasing number of signatories of the Kyoto Protocol are turning to biofuels in order to reduce emissions. Investors in the biofuel sector will enjoy ample government support in the form of tax incentives.
The Petroleum Regulation Act of 1997, another effort at energy reform by the Government, encouraged private sector participation in the oil and gas industry in exploration, production refining, and distribution.
Brazil is the leading producer of renewable energy and is anticipating newer technologies for energy generation, efficiency, and flexibility. The Government launched the $2.50 billion 'Electricity for All' program in November 2003, to provide electricity from renewable energy sources to over 12.0 million people by 2008.
Brazil also has the sixth largest uranium reserve in the world, with a store of nearly 301,800 tons, and this provides great scope for nuclear power generation.
Brazil’s political stability, favorable policy environment, enforcement of contracts, large internal markets, easy access to neighboring countries, and energy integration program with Argentina, Bolivia, and Venezuela make it a favored destination for investment.
“The Government has laid the foundation for strong economic growth by improving the external solvency and liquidity indicators as well as fiscal and public debt position,” notes Reddy. “The increasing macroeconomic stability can help sustain economic growth and may have a positive impact on energy demand.”
In line with the expected economic growth rate of 4.0 percent from 2008 to 2013 in Brazil, the energy supply is likely to continue increasing at a fast pace till 2020. This growth is likely to be spearheaded by electricity and renewable energy resources.
Another factor driving the growth of the Brazilian energy industry is the country’s favorable demographics. Brazil is the most populous country in Latin America, and the majority of its population is located in urban areas. The penetration of power consuming devices and growing automotive fleet in urban markets are having positive impacts on energy demand.
