Archive for the ‘Business News’ Category
Belo Monte 2
The Xingu River - Site of the Belo Monte Plant
The various interests involved in the Belo Monte dispute are fighting hard in the Judiciary, on the one hand to stop the next step in the process of building a hydroelectric power plant by suspending the bid, due to be held today, April 20th. On the other hand there are two consortia ready to submit proposals if the bid goes ahead.
On Wednesday, April 14th, last week judicial action was taken, at the behest of the Federal Public Ministry of Para, by the court in the State of Para to stop the bid as the constitutional rights of indigenous residents of the area were not adequately considered prior to the issuance of the request for proposals. On Friday, April 16th, the Regional Tribunal Federal, suspended the judicial action of the Para Court on the basis that there was no “immediate danger” to the indigenous peoples, and that any further delays in the development of the hydroelectric plant would prejudice, gravely, the economy due to the deficiency of electric energy in the country.
On Monday, April 19th a further judicial action was taken by the same court in Para stating that the environmental considerations of the hydroelectric plant had not been adequately considered, and that the public meetings to consider environmental matters were being stage managed, and for this reason the bid should be suspended. Once again, the Federal Public Ministry of Para was the author of this action. Once again the Federal Government has filed an appeal.
The Federal Government will appeal this decision today, and attempt to allow the bid to go forward.
As mentioned in our recent post, “Belo Monte”, the Federal Government has had to sweeten aspects of the financial conditions surrounding the bid to entice participants to stay in the competition. One aspect will be the exemption from 75% of income tax, and another aspect, the financing of the Brazilian Development Bank, BNDES, will be for up to 80% of the project, and for a tenor of 30 years.
In other developments, the newspaper Valor Economico reports that the two major construction companies, Camargo Correa and Odebrecht whose consortium withdrew from the competition last week on the basis that the economic fundamentals were unfavorable, have now joined the Andrade Guiterrez/ Vale/ Neoenergia consortium. Details of the new shareholding have not been published.
The legal battle could go on for quite some time, as a number of interested parties, not least the Indians, and the Federal Public Ministry of Para have more judicial actions up their sleeves.
The public is only now becoming interested in the dispute which involves major issues for the government. One campaign issue that will go to the heart of differences between the PSDB Candidate, Jose Serra and the PT candidate, Dilma Rousseff is the efficiency with which disputes between various interested parties are reconciled in connection with public works. This is a debate that, based upon the Belo Monte experience, Jose Serra may relish!
Belo Monte
James Cameron in Belo Monte
Adding to the elements that make this situation which is already fascinating, even more interesting for observers is the importance of this project to the government, the PT and their pre-candidate, Dilma Rousseff. The project is of fundamental importance so that Dilma can meet the objectives of her PAC- Programa de Aceleracao de Crescimento (Accelerated [Economic] Growth Program. Since the withdrawal of the CCOF consortium, the Government has tried to pressure the government related pension funds, Previ, of Banco do Brasil, Petros of Petrobras, and Funcef to join in the bid. However, these funds are already heavily invested in the electric power sector, and only with difficulty, or investments made indirectly can they participate to any meaningful level. A new possible participant, Bertim, in partnership with construction companies, Galvao, OAS, Mendes Junior and Serveng has indicated its interest, which in addition to Andrade Gutierrez/ Neoenergia/ Vale and Votorantim, will make two probable bidders.
However, it is clear that even the consortia that continue with a desire to participate are lobbying the government for better economic conditions such as fiscal benefits such as those given to other electricity plant projects (Jirau and Santo Antonio) such as forgiveness of 75% of income tax for the first ten years, or favorable financing terms from BNDES.
On April 14th, however, the Government/ PT experienced their worst nightmare when a Judge issued a judicial order suspending the pre-license of the Hydroelectric plant, and cancelled the Bid that was to be held on April 20th. “There is the danger of irreparable damage in the bid”, the Judge agreed with the action of the Federal Public Ministry. In effect, the order was in favor of the Indians who are threatened, without the Government having taken all of the necessary measures to protect their rights. The Judge also noted irregularities in the issuance of environmental approvals that need to be reviewed.
The Government is in the process of appealing this ruling.
The issues of commercial viability still exist, however, and the Government appears to have taken the position that the CCOF was bluffing, as has happened in other bids in the electricity sector in the past. However, the sum of the low production rate, 40% of capacity, and a tariff rate of R$ 83 per MWh is still considered as marginal. While the Government has projected a value of R$ 19 billion for the costs of construction, the consortia believe that the total costs will be more like R$ 30 billion.
With so many risks affecting the project, it is not surprising that even bidders expected to submit proposals appear unenthusiastic. Also, pressuring the “government” pension funds to invest in a project where interest is low, and risks and exposure to the sector is already high, may not be a prudent move for anyone.
However, with the judicial order in place prohibiting the bid, the Government has more pressing issues to deal with.
Pao de Acucar/ Casas Bahia Renegotiation
Michael Klein and Abilio Diniz
The merger between Pao de Acucar, owner of supermarkets of the same name; Hypermarkets Extra; and the electronics and white goods company Ponto Frio, and Casas Bahia is being renegotiated. The owners, Abilio Diniz of Pao de Acucar/ Ponto Frio and Michael Klein of Casas Bahia are strong businessmen accustomed to running their own businesses, and with a large and complex deal, it is not surprising that some issues remain to be re-negotiated. Apparently the parties provided a four month window from the date of signature of the initial agreement in early December so that issues could be raised and renegotiated.
It is interesting to note that the Brazilian anti-trust agency, CADE, approved, in February the deal so long as Ponto Frio and Casas Bahia continue to operate as separate sales operations.
The main issues are apparently the following:
• The owners of Casas Bahia, The Klein Family were to be given 49% of the joint entity (after having also received R$ 4 billion in cash), as well as other consideration to be mentioned later. However, the agreement provided time limits relating to the speed with which the Klein’s could sell their participation.
Up to 29% 12 to 48 months
Up to 49% 49 to 72 months
Up to 100% After 73 months
In fact, nothing in the agreement obliges the Klein family to sell at all, but if the deal is perceived as an acquisition rather than a merger, then the disposition of the Klein’s to stay in a business where they have little control is not surprisingly low. Thus, issue No. 1 in the renegotiation is the desire of the Klein Family to sell earlier than initially agreed.
• As part of the deal, the Casa Bahia shareholders were also given the shops where Casas Bahia currently operates. These shops will continue with long term leases to the new business. However, the gross rental revenues from the shops will not reach the levels that were foreseen in the initial agreement of R$ 130 million per year. This, according to the Casa Bahia shareholders, is because the shops are undervalued and need to be revalued.
Strangely, the original agreement was negotiated with only one law firm representing both sides. Now, the Klein family will be represented by Pinheiro Neto in the renegotiations.
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