TOGY talks to
Development bank on Brazil’s oil and gas initiativesNovember 9, 2018
Marcos Ferrari, director of governments and infrastructure at the Brazilian Development Bank (BNDES), talks to TOGY about the institution’s participation in the domestic oil and gas industry, the outlook for energy-related growth and how the bank supports local companies. Established in 1952, BNDES is the main financier for development projects in Brazil.
• On expertise: “Over its 66 years of existence, BNDES has financed almost all of the most important infrastructure projects in Brazil, in all areas. As a consequence, the BNDES team has gathered experience and knowledge in infrastructure financing at a level that is unique in our country. That enables the bank to act beyond financial structuring, helping even to structure the projects themselves, contributing to the stimulation of investments.”
• On the BNDES mission: “The bank takes into consideration that which is possible, and encourages more investments, given our commitment in generating employment and income for the country.”
• On new investors: “Investors are starting to come to the bank to finance their operations, but it is not yet enough when we look at the amount that is available for financing. The bank has a great amount of liquidity and we are waiting for new investors.”
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How well has BNDES performed in recent years?
Brazil has gone through a severe crisis in the past two years. The country’s GDP was reduced by 8%, and when that happened, there was a drop in bank operations, but now we are growing again. In 2017, we grew 1%. In 2018, we must grow around 1.6%.
Investors are starting to come to the bank to finance their operations, but it is not yet enough when we look at the amount that is available for financing. The bank has a great amount of liquidity and we are waiting for new investors.
How does BNDES contribute to investments in Brazil’s infrastructure?
We are the main financier and supporter of the infrastructure sector. The bank has two main assets. The first is the capacity to provide long-term financing, because only a few banks can provide that to all areas. We can support railroads, roads, ports, airports, energy, oil and gas, etc. All this can be financed in the long term, keeping in mind the nature of our funding.
Another important asset is the team we have at the bank. Over its 66 years of existence, BNDES has financed almost all of the most important infrastructure projects in Brazil, in all areas. As a consequence, the BNDES team has gathered experience and knowledge in infrastructure financing at a level that is unique in our country. That enables the bank to act beyond financial structuring, helping even to structure the projects themselves, contributing to the stimulation of investments.
Infrastructure is a more resilient sector in relation to the crisis. Industry, services and agriculture investments dropped significantly, but infrastructure has its own dynamics. It is a regulated sector, and everyone needs water and energy. Infrastructure accounts for about 40% of the bank’s portfolio.
What are BNDES’ activities in the oil and gas industry?
BNDES has a big portfolio in this area, worth around BRL 60 billion [USD 15.6 billion], which is roughly 10% of the bank’s total portfolio. The oil and gas portfolio is distributed as follows: 43% to the marine sector, 21% to natural gas, 21% to exploration and production, and 15% to refining. The energy area is the largest operational area in the bank.
This makes BNDES a very important player in the sector. Yearly, the sector receives investments of around BRL 70 billion [USD 18.2 billion]. In the past few years, the bank has participated with around BRL 3 billion-6 billion [USD 800 million-1.6 billion] each year, which is a relevant participation that we intend to increase. We are ready and willing to assist all players interested in coming to Brazil.
How is BNDES involved in Petrobras’ new projects?
As the largest company in the domestic hydrocarbons industry, Petrobras is responsible for 76% of Brazil’s oil and gas production. There are also other big companies such as Total, Shell and Repsol here.
We are open to financing any company in the sector. We treat all companies the same, but due to its volume, the company we finance most is Petrobras. This is a relevant matter because we have a limit regulated by our supervisor, which is the central bank. It supervises us and defines limits as to how much we can be financially exposed to a single client. We can advance, but we must respect this limit.
What is the vision of the bank towards Brazil’s refining capacity?
BNDES has always supported the expansion of refining capacity in Brazil. We are actively involved in this segment and will continue supporting it. Today we understand that it is important to expand refining capacity. We are prepared, but as a consequence of being a development bank, we can only support the national part of the investments and we don’t support imported goods.
We are open to new investors that want to increase their capacities or build new refineries or micro-refineries. We will support them in accomplishing their projects.
How can BNDES help Brazilian companies increase their competitiveness?
The demand for local content has always been strong. From the 7th Bidding Round in October 2005 onwards, there were guidelines on local content requirements and specifications for each item. This naturally resulted in many fines because companies found it hard to meet all the requirements. In 2016, Brazil changed the rules to increase flexibility. To receive financing from BNDES, there must be local content.
BNDES P&G was an incentive programme for Brazil’s supply chain. Although it is no longer available today, its conditions were incorporated into our bank’s operational policies. We provided around BRL 2.5 billion [USD 649 million] in investments for the supply chain, supporting the construction of state-of-the-art factories and especially subsea equipment. The bank also supported the modernisation of the industry, its competitiveness and its ability to attract foreign investment and technology.
The bank takes into consideration that which is possible, and encourages more investments, given our commitment in generating employment and income for the country. In some segments, we create projection plans with goals and deadlines, eyeing ways to manufacture equipment locally, for example.
Is BNDES involved in renewable energy projects?
An important benchmark for the bank is wind-generated energy. Up until 2005, hydroelectric resources made up most of our energy matrix. The first wind energy plant was established in the south of the country, and today we have reached record peaks of wind energy generation in the northeast.
Moreover, we built a credit portfolio in the bank of 13 GW of wind energy, and with that, we established a development programme for the supply chain and the installation of foreign players and suppliers in Brazil. It is an interesting case study for the bank that can be applied to other segments.
We have a policy of developing renewable energy, and we include hydroelectricity as a renewable resource. However, we do not intend to reduce our share in oil and gas. The apparent reduction is a snapshot of the retraction of investments in the economy.
We understand that our role in the electrical sector is important and we do not need to make choices in terms of allocating resources. We are ready and we have the capacity to support all segments. In the case of solar energy in Brazil, there is easier access to financing because we have interest in attracting investments to the sector. It is a technology still in development in Brazil, and we expect to do with solar energy what we did with wind energy.
For the energy expansion that took place in the country between 2015 and 2016, the bank participated with 85% of the financing, out of which 90% was directed to clean energy. In the past few years, wind energy has surpassed hydroelectric energy in terms of support from the bank.
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