The Federative Republic of Brazil (Brazil) is the largest country in South America and has rapidly growing oil, natural gas, and electricity markets. The country also produces large amounts of oil and hydroelectric power, and is a major importer of coal for its steel industry. Recent privatization plans affect most of the energy sector and a bonanza of investment opportunities.

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GENERAL BACKGROUND
Brazil is embarking on an ambitious national privatization plan to be completed by the end of 1998. Many Brazilian states have already begun to privatize their state run industries. In July 1997, the Brazilian Senate approved the full text of the new Brazilian petroleum bill (Petroleum Investment Law) previously approved by the Chamber of Deputies. No Presidential veto is foreseen. The new law defines a new energy policy with the creation of the National Petroleum Council (ANP), the National Council for Energy Policy (CNPE), and a Presidential advisory council on integrated energy policy matters. Privatization includes most of the country's telecommunication network; most of the electrical energy system; biggest ports; roads; and railway system. Because of Brazil's size, these efforts will call for substantial private and foreign investments. There are concerns in the financial sector of the potential inflationary impacts that could result. These proposed privatization investments will represent increments to existing growing needs of Brazil even though many efficiencies should result with privatization. Brazil may require $24 billion per year to finance large scale projects. The electricity sector may require twice as much as current plans estimate, $6.4 billion as opposed to $3.2 billion per year.

With a population of over 160 million, a land area only slightly smaller than the United States, and economic output of nearly $800 billion (in current U.S. dollars), Brazil ranks as one of the largest countries in the world. Its main economic program (the Real Plan, launched in July 1994) aims to control inflation, achieve long-term sustainable growth (in output, investment, employment, and productivity), and reduce social imbalances. As a result, inflation has fallen dramatically (from over 2,500 percent in 1994 to an estimated 16.5 percent in 1996 and a projected 8 percent in 1997) and economic growth has slowed (from 6 percent in 1994 to 2.9 percent in 1996). As indicated on the chart according to the WEFA Group, GDP growth should be moderate through 1999 at 3.5 percent, but increasing to 5.5 percent. The primary risks to the forecast are inflationary pressures and a large current account.

One impact of the Real Plan, however, is raising concern among the country's exporters. Since 1994, when the real's value was pegged to the U.S. dollar, Brazil's trade surplus ($10.5 billion in 1994) has been transformed into a trade deficit ($5.5 billion in 1996). Over the same period, the current account has gone from a deficit of $2 billion to a deficit of $24 billion. This comes despite recent moves to expand trade with neighboring countries -- particularly with fellow members of the Mercosur Free Trade Pact (Argentina, Brazil, Paraguay, and Uruguay with associate members Bolivia and Chile), which Brazil joined in January 1995.

OIL
Petroleo Brasileiro (Petrobras) is currently 51-percent government-owned company with a monopoly in the country's petroleum sector (the government's share is to be reduced). Petrobras is the world's 15th largest oil and natural gas company and a leader in deepwater drilling and the use of floating production systems and subsea completions. Petrobras has set many deepwater drilling records since it began exploring the country's continental shelf in the 1970s.

Over the last 20 years, Petrobras has spent more than $20 billion developing the deepwater Campos Basin alone. This basin, located southeast of Rio de Janeiro, accounts for most of Brazil's oil reserves and current production. In 1995, three of its fields -- Marlim, Marimba and Albacore -- produced more than one-fourth of the country's oil.

Brazil's recent exploration activities have been fairly successful -- adding 3.7 barrels of new crude reserves for every barrel of oil produced in 1995, according to Petrobras. Recent successes include two deepwater discoveries in the Campos Basin during 1996 -- one setting a new record for drilling in over 6,000 feet of water -- which increased reserves by 640 million barrels, raising mid-year proven reserves to 5.44 billion barrels.

Petrobras plans to spend $2 billion per year to double its production over the next 5 years (with crude oil production targets of 1.0 million b/d in 1997 and 1.2 million b/d in 1998). The hope is to reduce imports significantly by 2001. In addition to the Campos Basin, other promising areas for development include the offshore Ceara Basin (in northeastern Brazil) and the onshore Urucu field (in the Amazon).

The petroleum bill requires that the Treasury not hold more than 23 percent of Petrobras' stocks and sales of Petrobras stocks are being offered. Several joint ventures in the petroleum sector have been announced. Venezuela's PDVSA and Brazil's Petrobras are studying the acquisition of a refinery in the Caribbean area that would process Venezuelan crude for import to Brazil through a terminal to be constructed in northern Brazil. They have looked at the possibility of acquiring Hess's St. Croix 500,000 barrels per day refinery and have also looked at Trinidad's refinery. Brazil's Bahia state may be the first private enterprise refinery in Brazil through a joint venture between Companhia Petroquimica do Nordeste (Copene) and Petrobras at a cost of $600 million.

Despite its significant domestic production, Brazil still needs to import more than 40 percent of the petroleum it consumes, at an estimated cost of $6 billion in 1997. Argentina, Saudi Arabia and Venezuela are the main suppliers of petroleum to the Brazilian market. As production rises (to about 1.5 million b/d by 2000), the country hopes to reduce its import dependence significantly.

To meet growing demand for gasoline and gasoil, Petrobras is upgrading its Mataripe refinery in Bahia to produce 268,000 b/d. Petrobras estimates an additional $800 million/year is needed for refinery infrastructure, but these investments are on hold pending approval of the country's post-monopoly regulatory framework. In August 1996, Petrobras announced it no longer planned to take the lead -- and might not even participate -- in a project to build a 180,000 b/d refinery in the northeastern part of the country.

Petrobras recently introduced a premium grade of gasoline and began producing 20,000 b/d of MTBE for export to the United States. All but one of Brazil's states prohibit use of MTBE in gasoline, which -- under the country's National Alcohol Program -- must contain at least 22 percent ethanol derived from sugar cane. However, the nearly 20 year old ethanol program may be adversely affected during the privatization of Petrobras.

NATURAL GAS
Natural gas currently accounts for only about 3 percent of Brazil's total primary energy consumption, but this share is slated to increase as a result of a recent agreement to build a major natural gas pipeline from Bolivia. Brazil also plans to boost domestic production (which currently provides all of the country's natural gas). Brazil is negotiating with Peru for natural gas exploration and production in Camisea, Peru. Brazil and Chile are target markets for proposed pipelines from Argentina, Bolivia, and Peru. Much of the additional supply is expected to be used for electric power generation. Petrobras expects natural gas to account for 10 percent of Brazil's total energy consumption by 2010.

On September 4, 1996, President Cardoso and his Bolivian counterpart, President Sanchez de Lozada, signed the final accord for the Bolivia­Brazil natural gas pipeline project (which had been in negotiations for more than 20 years). The $2 billion pipeline will serve 29 Brazilian cities along its 2,000-mile route from the Santa Cruz region of Bolivia to Sao Paulo and on to Porto Alegre in southern Brazil. For Brazil, the pipeline is an important achievement in providing energy to its fast­growing southern regions. The pipeline is to be built by a consortium headed by Petrobras (51%) with partners BTB consortium (British Gas, Tenneco, and Australia's BHP Petroleum - 25%), Bolivia's state oil company YPFB (in conjunction with U.S. partner Enron and Royal Dutch Shell - 20%), and private Brazilian groups (4%). Most of the financing for the Brazilian portion of the line is expected to come from multilateral agencies such as the World Bank and the Inter-American Development Bank. Construction is scheduled to begin in June 1997. Initial flows of about 285 million cubic feet per day beginning in 1999 are slated to double by the eighth year of operation and could ultimately reach 1.1 billion cubic feet per day by the end of the 20-year contract.

Brazil has begun to privatize its natural gas distribution system -- currently the only oil-sector area open to the private sector. The first distribution company (Promigas) was privatized in 1996. In January 1997, Shell purchased a 19.5 percent stake in Brazil's largest piped gas distribution company, Companhia de Gas de Sao Paulo (Comgas), which is slated to be fully privatized. Also in January 1997, the Rio de Janeiro state government announced plans to privatize its state gas distribution companies, Companhia Estadual de Gas (CEG) and Riogas on May 15, 1997. In July, 1997, it was announced that a group including U.S. Enron (45%), Spain's Gas Natural SDG (33.5%), and Spain's Iberdrola (17.5%) had won with their bid of $575.8 million for CEG and Riogas.

ELECTRICITY
Most of Brazil's electric power is generated by hydroelectric plants, including the world's largest (Itaipu, with 12,000 megawatts of capacity) which it jointly owns with Paraguay. Hydropower is expected to remain the dominant source of electric power as the country adds capacity to meet growing demand. However, the country is also investing in the completion of a long-stalled second nuclear power unit and planning construction of gas- and coal-fired plants.

Brazil's electric power sector is in a state of transition. The government began privatizing power distribution companies in July 1995, and is in the process of establishing an oversight agency for the industry -- Agencia Nacional de Energia Eletrica (ANEEL). Electrobras' two regional distributors (Espirito Santo Centrais Eletricas and Light Servicos de Eletricidade, which was purchased for $2 billion by Houston Industries Inc., U.S. AES, Electricite de France, Brazil's CSN-Vicunha, and Brazil's Banco Nacional de Desenvolviments Economico e Social) were the first to be privatized. Both have become profit makers. The next phase involves the sell-off of distribution companies owned by Brazil's states (the first, Eletricidade do Estado de Rio de Janeiro, or CERJ, was sold in November 1996 and several other states are expected to follow suit in 1997). CERJ was purchsed by Chile's Enersis and Chilectra for $588 million (60 percent) and Chile's Endesa and Portugal's (EDP). Of particular interest is Sao Paulo state, which plans to privatize its three electric utilities -- Companhia Energetica de Sao Paulo (CESP), Companhia Paulista de Forca e Luz (CPFL) and Eletricidade de Sao Paulo SA (Eletropaulo) -- during 1997.

A consortium of U.S. AES and Southern Electric purchased one-third of Cemig, the Minas Gerais state electricity generator and distributor for $1.1 billion. A consortium led by Iberdrola (Spain) paid $1.6 billion for the Bahia state electricity distribution company, Companhia de Electricidade do Estado de Bahia (Coelba), which represented the first privatization of electricity assets outside southeast Brazil.

The state of Ceara, Brazil will attempt to privatize its electricity distributor, Companhia Energetica do Ceara (Coelce), by March, 1998.

Individual hydroelectric and thermal power plants are also being privatized. In addition, the country plans to privatize Furnas Centrais Eletricas SA, Brazil's largest electricity producer, and three other subsidiaries of Eletrobras by the end of 1998. (See Table for List and Schedule).

According to some estimates, Brazil will need 30,000 megawatts of new generating capacity over the next 10 years, requiring investments of $20 billion. Private-state partnerships are being employed for new projects as well as completion of unfinished plants. In addition, Brazil issued regulations governing Independent Power Projects (IPPs) in September 1996 and authorized (by the National Department of Water and Electric Energy, DNAEE) its first IPP project 2 months later to Copene in Bahia.

By June 1999, Brazil plans to boost its nuclear generating capacity (currently 626 megawatts at the Angra 1 unit) by 1,246 megawatts with the completion of a second nuclear unit (Angra 2). Construction had been halted in the late 1980s. There are no current plans for completion of a third suspended project (Angra 3).

Interconnections between Brazil's national distribution system and those of neighboring countries (Venezuela, Argentina, Uruguay and eventually Peru) provide other potential sources of power for Brazil in the future. In August 1997, Brazil and Argentina announced an accord to begin integrating the two countries' electricity markets. The two countries promise to guarantee free competition among electricity generators, ban state subsidies, and require pricing be based on costs.

COAL
Brazil is a major importer of metallurgical coal for its steel industry. Domestically produced coal is not suitable for use in steelmaking because it has high ash content and low caloric quality. Since the industry was deregulated in 1990, steelmakers have been under no obligation to use domestic coal. About 80 percent of the import volumes are covered by long-term contracts. Major suppliers are the United States and Australia (which provided about three-quarters of all coal imports in 1995), plus Poland and Canada. Brazil is the second largest overseas market for U.S. metallurgical coal (after Japan).

Brazil plans to increase its use of steam coal (both domestic and imported) for electric power generation -- for example, the Jacui I coal-fired power plant being developed in Rio Grande do Sol.

A 1996 study by the International Energy Agency concludes that Brazil will remain one of the world's major coal importers during the next 10-15 years, with current levels possibly doubling by 2010. Coal for steelmaking is expected to dominate Brazilian coal demand for the foreseeable future. In 1995, coal provided about 7 percent of the country's total primary energy requirements.

As a result of privatization, the Brazilian Port Authority of Rio de Janeiro is to be put under private management. The first of the five facilities, Sepetiba Coal Terminal now is operated by Companhia Siderurgica Nacional (CSN) steel company.

ENVIRONMENT
Brazil's national environmental policy encourages renewable power sources. The United States is assisting Brazil in this effort through the Brazil-U.S. Rural Electrification Program, which involves the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) and CEPEL, the research arm of Eletrobras. The U.S.-Brazilian effort focusing on promoting small-scale renewable systems (especially photovoltaics and wind) for remote, rural households and businesses. In December 1996, the state of Ceara electric energy company, Coelce, inaugurated Brazil's largest wind farm at Fortateza with a capacity of 3.8 million kilowatthours.

Brazil Privatization Schedule

Third Quarter 1997
CONERJ
CREDIREAL
CELG - Cachoeira Dourada

Fourth Quarter 1997
CEEE
ENERSUL
ENERGIPE
FEPASA
AGEF
ELETRONORTE - Sistema eletrico de Manaus e Boa Vista

1998
FURNAS
ELETRONORTE
LIGHTPAR, CHESF
CEMAT
CESAN
FLUMITRENS
METRO - RJ
CEDAE
COELCE
COMGAS
CELPA
COSERN
CPFL, CESP, ELETROPAULO
EMBRATEL, TELESP

Source: BNDES (http://www.bndes.gov.br/pndnew/cronus.htm)

COUNTRY OVERVIEW
President: Fernando Henrique Cardoso (since 1/1/95; next election 10/98)
Independence: September 7, 1822 (from Portugal)
Population (1996): 157.9 million, 1.4 % growth rate
Location/Size: Eastern South America/3.3 million square miles, slightly smaller than the United States
Major Cities: Sao Paulo, Rio de Janeiro, Belo Horizonte, Brasilia (capital)
Languages: Portuguese (official), Spanish, English, French
Ethnic Groups: White (55%), mixed (38%), African (6%), other (1%)
Religions: Roman Catholic (70%)
Defense (6/95): Army (195,000), Navy (50,000), Air Force (50,000), Public Security Forces (385,000)

ECONOMIC OVERVIEW
Currency: 1 Real (R$) = 100 centavos
Exchange Rate (8/22/97): US$1 = R$1.09
Gross Domestic Product (GDP) (1990 U.S. at market exchange rates, 1996E): $521.2 billion
Real GDP Growth Rate (1996E): 3%
Inflation Rate (consumer prices, 1996E): 16.5%
Current Account Deficit (1996E): $24.3 billion
Major Trading Partners: United States, Argentina, Germany, Japan, the Netherlands
Trade Deficit (1996E): $5.5 billion
Merchandise Exports fob (1996E): $47.7 billion
Merchandise Imports fob (1995E): $53.3 billion
Major Exports (1996): Manufactured products (55%), coffee (4%), iron ore (6%)
Major Imports: Raw materials/industrial (30%), capital goods (38%), petroleum and other fuels (12%)
Unemployment Rate (1996E): 5.5%
Total Foreign Debt (1996E): $174.7 billion
International Reserves (non-gold, 1996E): $56.8 billion

ENERGY OVERVIEW
Energy Minister: Raimundo Mendes de Brito
Proven Oil Reserves (7/1/97): 5.44 billion barrels
Oil Production (1996): 1 million barrels per day (b/d), of which 0.8 million b/d is crude oil
Oil Consumption (1996E): 1.5 million b/d
Net Oil Imports (1996E): 0.5 million b/d
Crude Oil Refining Capacity (1/1/97): 1.26 million b/d
Natural Gas Reserves (1/1/97): 5.4 trillion cubic feet (tcf)
Natural Gas Production (1995): 159 billion cubic feet (bcf)
Natural Gas Consumption (1995): 159 bcf
Coal Reserves (1995E): 3.1 billion short tons
Coal Production (1995): 5.2 million short tons (MMST)
Coal Consumption (1995): 19.7 MMST
Net Coal Imports (1995): 14.5 MMST
Electric Generation Capacity (1/1/95): 58 gigawatts (86% hydroelectric)
Net Electricity Generation (1995): 265 billion kilowatthours
Net Electricity Consumption (1995): 283 billion kilowatthours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995): 6.76 quadrillion Btu
Energy Consumption per Capita (1995): 42.3 million Btu
(vs. 344 million Btu in the United States)
Energy-Related Carbon Emissions (1995): 66.4 million metric tons (1.1% of world carbon emissions)
Carbon Emissions per Capita (1995): 0.43 metric tons (vs.
5.4 metric tons in the United States)
Major Environmental Issues: Deforestation in Amazon Basin; air and water pollution of Rio de Janeiro, Sao Paulo, and other large cities; land degradation and water pollution caused by mining activities.

ENERGY INDUSTRY OVERVIEW
Organization: Petroleo Brasileiro (Petrobras) - 51% government-owned oil and natural gas company; Centrais Eletricas Brasileira (Eletrobras) - federal holding company for planning and coordination of generation, transmission and distribution of electrical power
Major Petroleum Terminals: Sao Sebastiao, Madre de Deus, Angra dos Reis
Major Ports: Santos, Rio de Janeiro, Praia Mole, Vitoria, Rio Grande
Major Oil and Gas Fields: Campos Basin (includes Marlim,
Albacora, and Barracuda fields), Santos Basin
Pipelines: Crude oil - 1,242 miles; Petroleum products - 2,362 miles; Natural gas - 680 miles
Major Refineries (1/1/97 capacity): Paulinia - Sao Paulo (272,930 b/d), Duque de Caxias - Rio de Janeiro (225,730 b/d), Sao Jose dos Campos - Sao Paulo (204,700 b/d), Araucaria - Parana (159,210 b/d), Betim - Minas Gerais (136,470 b/d), Mataripe - Bahia (117,960 b/d)

Links to other sites:
1997 CIA World Factbook - Brazil
U.S. International Trade Administration, Country Commercial Guide - Brazil
U.S. Department of Energy's Office of Fossil Energy's International section - Brazil
Joint U.S./Brazilian Renewable Energy Rural Electrification Pilot Project from the U.S. Department of Energy's National Renewable Energy Laboratory

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Brazil's Embassy in the United States
Petrobras Brazil's state-owned oil company
Electrobras Brazil's state-owned electricity company
LatinWorld's section on Brazil
Brazil's National Privatization Program as analyzed by Canada's Department of Foreign Affairs and International Trade

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File last modified: September 18, 1997

Contact:

Lowell Feld
lfeld@eia.doe.gov
Phone: (202)586-9502
Fax: (202)586-9753