These were the subjects dealt with by the two invited speakers who opened this year’s program of presentations and workshops of Project 21 at the RCGI

Two events marked the beginning of this year’s program of presentations and workshops organized by the researchers of Project 212 of the FAPESP Shell Research Centre for Gas Innovation (RCGI), held in March at the RCGI’s headquarters in the city of São Paulo. The presentations of these events provided a better understanding of the impact of Law no. 13.303/2016 (State Responsibility Law) regarding the natural gas concessionaires, as well as the legislative proposals (bills) focusing on the financing of natural gas pipelines.

Geologist and legislative consultant of the Federal Senate Israel Lacerda de Araújo, who spoke on March 27, reported that there are now three bills before the Senate attempting to establish funding for natural gas pipelines: Bill (MP) no. 814/2018, Bill (PL) no. 6407/2013, and Bill (PL) no. 10.985/2018. “All three seek to set aside 20% of the revenue from the sale of the Federal Government’s excess oil (with reference to Pre-salt contracts) for a fund to finance Brazil’s network of natural gas pipelines,” he said. That would change the Pre-salt Law and would reduce the Fundo Social, where all of the revenue from the sale of the Government’s portion of petroleum and natural gas in the production sharing contracts, is sent.

According to Araújo, the Social Fund is still budget-controlled, because it has not been officially established by decree. The redirection of some of this money would basically be used for the construction of pipelines for transporting natural gas and for Natural Gas Processing Plants (UPGN), and for delivering pre-salt production.

He explained that in the Bill for the new Natural Gas Law (PL 6407/2013), reported by then-Congressman Marcelo Squassoni (PRB-SP), the financing fund was called Dutobras. The PL was archived in January of this year and removed from the archives in February, and its text was similar to MP no. 814/2018, which also established the Dutobras fund, which, did not progress because the time period lapsed for putting it into action.

The other proposed Bill for financing natural gas pipelines, which is going through Congress (PL 10.985/2018), sets up Brasduto, which has the same purpose and the same prerogatives of Dutobras. “The text is almost the same – very little was changed. The proposed Bill for financing natural gas pipelines was incorporated under the acronym Brasduto, instead of Dutobras.”

Risk-free business – According to the consultant, the three legislative proposals (Bills) give priority to natural gas pipelines whose processes for environmental licensing and authorization by the National Petroleum, Natural Gas, and Biofuels Agency (ANP) have already been finalized.

Furthermore, they provide for the financing to be repayable. “The Brasduto covers the cost of the natural gas pipeline until it develops a surplus, and only then will the financing be reimbursed. The natural gas pipeline would not be a harmful expense to the operator, which would be reimbursed at a guaranteed rate, up to the surplus. For the entrepreneurs, there is zero risk.”

A significant part of the earnings, according to Araújo, would go to the distributors. “The benefit of the financing goes to the transporters, which will build the natural gas pipelines, but the greater share of the profits would go to the distributors. At the present time, since it is not uncommon that the transport companies also hold shares in the distributing companies, what will happen is that they will suffer no losses with transport, and will gain excellent profits with distribution,” he emphasized.

Araújo stresses that when the transporters do not keep the greater part of the profits, the gain the developing markets. “The goal of the proposal is to benefit the Nation’s capital cities that are not yet served by the network of pipelines. It doesn’t make much economic sense to decide that the capitals or the natural gas pipelines that already have environmental licenses be the priority. This, in fact, generates income capture: the legislative process makes an asset that has not gone through any type of change have a value that is ten times higher. A tiny market can become a millionaire market. And a millionaire business becomes a billionaire.”

The speaker opened a parenthesis to talk about the Brazilian Gas Company (CEBGás), The Amazonas Gas Company (CIGÁS), and Gasmar itself. “All of them have something in common: they are half state-run and half private, and most of the private shares are in the hands of consortia that have CS Participações as a partner. They are already millionaire businesses, just as they are. If the natural gas pipeline arrives, they will become billionaire businesses.”

Law regarding State-run companies – Law 13.303/16, which has been in effect since June 30, 2016 and deals with the legal by-laws of a public company, of a mixed-capital company and its subsidiaries, brought significant changes to the administrative and legal areas of state-run companies and in the level of transparency and control. According to Gasmar coordinator Rodrigo Botão, who spoke on March 20, in the mixed capital distribution companies, the challenge of implementing the programs for risk management, governance, and compliance, as provided for by Law, begins with the fact that the State is more concerned about political issues and the private sector with the financial risk of the business. “That’s not a criticism, but just an observation.”

In the case of natural gas distributing companies, Botão says that the State and private capital are two players who, no matter how aligned they must be with each other, have varied interests and operate at a high level of asymmetric information (information failure). According to him, shareholders and administrators do not have access to the same type of information and that can cause negative impacts. “Nevertheless, that can be mitigated by monitoring the activity of the administrators and limiting their decision making powers, although this strategy can stifle operations a bit,” he said.

Gasmar’s executive, Rodrigo Botão, states that the Law applies to any publicly held company and mixed capital companies that explore the economic activity of producing or commercializing goods or services, even if subject to the monopoly of the Federal Government, that is, the provision of public services.

“The Law directly affects the country’s natural gas distribution companies: how they do contracting, how they view a contract – from the point of view of public administrators – in addition to bringing a more commercial vision to the operations of companies that are, in part, state-owned,” he emphasized.

The RCGI’s Project 21 is coordinated by Professor Hirdan Katarina de Medeiros Costa, of the Energy and the Environment Institute of the University of São Paulo (IEE/USP). The group created and manages the RCGILex platform that gathers and analyzes Brazilian and São Paulo legislation on natural gas. Throughout the year, other events of this type will be held. All are open to the public and free of charge.