impact of the financial structure over natural gas distribution companies investment’s in brazil...
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IMPACT OF THE FINANCIAL STRUCTURE IMPACT OF THE FINANCIAL STRUCTURE OVER NATURAL GAS DISTRIBUTION OVER NATURAL GAS DISTRIBUTION
COMPANIES INVESTMENT’S IN BRAZILCOMPANIES INVESTMENT’S IN BRAZIL
Marcelo Colomer FerraroMarcelo Colomer FerraroEdmar de AlmeidaEdmar de Almeida
Grupo de Economia da Energia da Universidade Federal do Rio de Janeiro
V Congreso Latinoamericano y del Caribe de Gas y Electricidad
ContentContent
1.1. IntroductionIntroduction
2.2. Theoretical Theoretical aspectsaspects about financing about financing
3.3. Financing of natural gas sectorFinancing of natural gas sector
4.4. Brazilian financial systemBrazilian financial system
5.5. Barriers on the investment increase Barriers on the investment increase in the natural gas distribution in the natural gas distribution network.network.
IntroductionIntroduction
Barrier to the development of new Barrier to the development of new markets of natural gas: Low markets of natural gas: Low development of the distribution development of the distribution infrastructure.infrastructure.
Law n° 9.478: Natural gas distribution Law n° 9.478: Natural gas distribution is of exclusive use of states, directly is of exclusive use of states, directly or through concession.or through concession.
Construction of 200,000 quilometers Construction of 200,000 quilometers of network distribution are necessary, of network distribution are necessary, according to estimatives. according to estimatives.
Introduction (cont.)Introduction (cont.)
Characteristics of the natural gas Characteristics of the natural gas distribution sector condition a distribution sector condition a financing pattern dependent on financing pattern dependent on borrowed funds. borrowed funds.
Great difference between the Great difference between the investment levels of private and investment levels of private and state companies.state companies.
Existence of non financial barriers to Existence of non financial barriers to the development of the sector.the development of the sector.
Distribution Network in 2004 (km)Distribution Network in 2004 (km)
0
20.000
40.000
60.000
80.000
100.000
120.000
Argentina ReinoUnido
Colombia Brasil
Fonte: Strat/RG
Extension of the Distribution Network of Extension of the Distribution Network of the Most Important Brazilian Companiesthe Most Important Brazilian Companies
67
75
135
160
170
207
250
311
311
409
425
434
479
2717
3503
PBGAS/PB
MSGAS/MS
ALGAS/AL
CEGAS/CE
POTIGAS/RN
CPERGAS/PE
GASMIG/ MG
BAHIAGA/BA
SULGAS/RS
COMPAGAS/PR
GAS NATURAL/SP*
CEG RIO/RJ*
SCGAS/SC
CEG/RJ*
COMGAS/SP*
Fonte: BNDES
Theoretical ATheoretical Aspectsspects About About FinancingFinancing
Basic sources of Financing:Basic sources of Financing:
a)a) New Share Issues;New Share Issues;
b)b) Debentures and Bank Loans;Debentures and Bank Loans;
c)c) Retained profit Retained profit
Determination of excellent financial Determination of excellent financial pattern. pattern.
Theory of Modigliani and MillerTheory of Modigliani and Miller..
Theoretical ATheoretical Aspectsspects About About Financing (cont.)Financing (cont.)
Increasing financial risk (Kalecki).Increasing financial risk (Kalecki).
a)a) Investment associated to the Investment associated to the capacity of profit generation of the capacity of profit generation of the firm. firm.
Different types of risk(Minsky)Different types of risk(Minsky)
a)a) Risk of the Creditor;Risk of the Creditor;
b)b) Risk of the Entrepreneur.Risk of the Entrepreneur.
Theoretical ATheoretical Aspectsspects About About Financing (cont.)Financing (cont.)
Theoretical conclusion: The Theoretical conclusion: The investment depends on the capacity investment depends on the capacity of the firm in gathering resources of the firm in gathering resources that, however, are limited by the that, however, are limited by the existence of different types of risks existence of different types of risks that raises with the increase of the that raises with the increase of the participation of borrowed funds on participation of borrowed funds on proper capital. proper capital.
Financing of Natural Gas SectorFinancing of Natural Gas Sector
Characteristics of the natural gas Characteristics of the natural gas distribution sector:distribution sector:
a)a) Capital intensity;Capital intensity;
b)b) Existence of scope and scale Existence of scope and scale economies;economies;
c)c) Long period of maturation of the Long period of maturation of the investments;investments;
Financing of Natural Gas Sector Financing of Natural Gas Sector (cont.)(cont.)
d)d) Specific assets;Specific assets;
e)e) Territorial exclusiveness in the Territorial exclusiveness in the supply of the service.supply of the service.
Dependence of borrowed fundsDependence of borrowed funds
Principais Empresas Estatais
Nº de cidades na área de concessão
Nº de cidades atendidas
Nº de clientes
Extensão da rede de
distribuição
(km)
Vendas em 2005
(1000/m³ dia)
Algas 22 5 155 106 399
Bahiagás 417 7 144 300 3.976
Cegas 184 7 110 180 714
Copergás 185 13 89 211 813
Sergás 75 5 35 63 201
PB Gás 223 6 56 70 253
Potigás 166 8 53 140 291
Gasmig 853 13 169 185 1.804
BR Distribuidora 77 nd 33 150 1.790
Compagás 399 7 106 402 586
Sulgás 467 16 83 370 2.301
Scgás 293 17 74 409 884
Msgás 78 2 10 58 605
Total 3.439 106 1.117 2.644 14.617
Empresas Privadas
Nº de cidades na área de concessão
Nº de cidades
atendidasNº de clientes
Extensão da rede de
distribuição
(km)
Vendas em 2005
(1000/m³ dia)
Ceg 16 16 606.766 2.560 4.101
Ceg Rio 75 65 1.500 383 3.265
Comgás 177 44 404.256 3.400 9.873
Gás Natural SPS 93 6 7.230 150 334
Gás Brasiliano 375 4 nd 124 128
Total 736 135 1.019.752 6.617 17.701
Financing of natural gas sector Financing of natural gas sector (cont.)(cont.)
Great difference between the levels Great difference between the levels of investment of private and state-of investment of private and state-owned companies.owned companies.
The financing structure does not The financing structure does not explain the low level of investment of explain the low level of investment of the companies.the companies.
Existence of non financial barriers to Existence of non financial barriers to the development of the sectorthe development of the sector..
Level of IndebtednessLevel of Indebtedness
The level of financial indebtedness of The level of financial indebtedness of public companies of gas distribution public companies of gas distribution is extremely below the level of is extremely below the level of indebtedness of the private indebtedness of the private companies.companies.
Up to 2004, only 3 state-owned Up to 2004, only 3 state-owned companies had any banking debt.companies had any banking debt.
General indebtedness following level General indebtedness following level of financial indebtednessof financial indebtedness..
Level of Indebtedness (cont.)Level of Indebtedness (cont.)
Participation of borrowed funds on Participation of borrowed funds on the total capital of the company:the total capital of the company:
a)a) Private companies: 19.11% in 1999 Private companies: 19.11% in 1999 to 59,23% in 2004;to 59,23% in 2004;
b)b) State-owned companies: 31.69% in State-owned companies: 31.69% in 1999 to 6,16% in 2003.1999 to 6,16% in 2003.
High levels of liquidity.High levels of liquidity.
Level of Financial Indebtedness of Level of Financial Indebtedness of the Distribution Companiesthe Distribution Companies
0%
5%
10%
15%
20%
25%
30%
35%
40%
1998 1999 2000 2001 2002 2003 2004 2005
Nível de end. Empresas Priv Nível de end. Empresas Esta.
Level of Financial Indebtedness of the Level of Financial Indebtedness of the Distribution Companies without SulgasDistribution Companies without Sulgas
0%
5%
10%
15%
20%
25%
30%
35%
40%
1998 1999 2000 2001 2002 2003 2004 2005
Nível de end. Empresas Priv Nível de end. Empresas Est
Level of Financial Indebtedness X Level Level of Financial Indebtedness X Level of General Indebtednessof General Indebtedness
0%
10%
20%
30%
40%
50%
60%
70%
1998 1999 2000 2001 2002 2003 2004 2005
Endiv. Financeiro Endiv. Geral
Liquidity Ratio of the Most Important Liquidity Ratio of the Most Important State-owned CompaniesState-owned Companies
0,00
0,50
1,00
1,50
2,00
2,50
3,00
3,50
4,00
1998 1999 2000 2001 2002 2003 2004 2005
Algas Bahiagas Copergas Compagas Sulgas Scgas
Indebtedness CapacityIndebtedness Capacity Used methodology: methodology of Used methodology: methodology of
credit risk analysis of BNDES credit risk analysis of BNDES (ALMEIDA, 2004).(ALMEIDA, 2004).
Financing of 80% of the Projects that Financing of 80% of the Projects that totalize [(3 x EBITDA) - banking totalize [(3 x EBITDA) - banking
debts].debts].
State-owned companies: Capacity of State-owned companies: Capacity of indebtedness above the leverage indebtedness above the leverage level: Existence of idle capacity of level: Existence of idle capacity of financing.financing.
0%
5%
10%
15%
20%
25%
30%
35%
40%
1999 2000 2001 2002 2003 2004 2005
Cap End/Ativo Nível de Endividamento
0%
5%
10%
15%
20%
25%
30%
35%
1999 2000 2001 2002 2003 2004
Cap End/Ativo Nível de Endividamento
Private companies State-owned companies
Capacity of Indebtedness X Level Capacity of Indebtedness X Level of Indebtedness of Indebtedness
Economies of Scale and ScopeEconomies of Scale and Scope Asset turn ratio: Revenue divided by Asset turn ratio: Revenue divided by
average assets.average assets.
The increasing of the asset turn ratio: The increasing of the asset turn ratio: Revenue has grown more than Revenue has grown more than investments in asset. Existence of investments in asset. Existence of scale economies scale economies ..
Return on fixed asset: Revenue Return on fixed asset: Revenue divided by fixed asset. divided by fixed asset.
Increasing ROFA indicates existences Increasing ROFA indicates existences of scale economies.of scale economies.
Asset Turn RatioAsset Turn Ratio
0,00
0,10
0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
1,00
1998 1999 2000 2001 2002 2003 2004
Return on Fixed Asset (ROFA)Return on Fixed Asset (ROFA)
0%
10%
20%
30%
40%
50%
60%
1999 2000 2001 2002 2003 2004 2005
Empresas Privadas Empresas Estatais
Conclusions of the Analysis of the Conclusions of the Analysis of the Financial and Economic Pointers of Financial and Economic Pointers of
Distribution Companies.Distribution Companies.
The low level of indebtedness and the The low level of indebtedness and the raised liquidity ratios indicates that in raised liquidity ratios indicates that in the case of the state-owned the case of the state-owned companies, is not the financial companies, is not the financial obstacles that limit the captation of obstacles that limit the captation of resources, what it is perceived if we resources, what it is perceived if we analyze the capacity of indebtedness analyze the capacity of indebtedness of these companies. of these companies.
Conclusions of the Analysis of the Conclusions of the Analysis of the Financial and Economic Pointers of Financial and Economic Pointers of
Distribution Companies.Distribution Companies.
The analysis of the asset turn ratio The analysis of the asset turn ratio and the ROFA suggests that the and the ROFA suggests that the state-owned companies operate in an state-owned companies operate in an sub-excellent level of indebtedness. sub-excellent level of indebtedness.
There are non financial barriers to the There are non financial barriers to the expansion of the investments of the expansion of the investments of the public companies of gas distribution.public companies of gas distribution.
Financing of Long Run in BrazilFinancing of Long Run in Brazil
Main sources of resources of long Main sources of resources of long run:run:
a)a) Public resources (BNDES); Public resources (BNDES);
b)b) Self-financing;Self-financing;
c)c) External resources.External resources.
Financing of Long period in BrazilFinancing of Long period in Brazil
Recent financial innovations:Recent financial innovations:
a)a) Asset securitization;Asset securitization;
b)b) Derivatives Market;Derivatives Market;
c)c) Institucional investorsInstitucional investors..
Obstacles to the Increase of the Obstacles to the Increase of the
Investment in the Distribution NetworkInvestment in the Distribution Network Credit contingency to public sector: Credit contingency to public sector:
Resolution 2827 of the Central Bank.Resolution 2827 of the Central Bank.
In 2005, R$ 6 billion in projects are In 2005, R$ 6 billion in projects are stopped in the state-owned companies stopped in the state-owned companies waiting for money release. waiting for money release.
Potential debt: R$ 345 million - increase of Potential debt: R$ 345 million - increase of 43% of the current debt of 2003.43% of the current debt of 2003.
Level of Potential Indebtedness of Level of Potential Indebtedness of
the State-owned companiesthe State-owned companies
0
50
100
150
200
250
300
350
400
1999 2000 2001 2002 2003 2004
Milh
ões
Díivida Bancária Dívida Bancária Potencial
Obstacles to the Increase of the Obstacles to the Increase of the
Investment in the Distribution NetworkInvestment in the Distribution Network Lack of an integrated energy Lack of an integrated energy
planning.planning.
Risk of Supply: Risk of Supply:
a)a) Uncertainties regarding the reserves Uncertainties regarding the reserves of Santos; of Santos;
b)b) Political crisis in BoliviaPolitical crisis in Bolivia..
Brazilian Natural Gas ImportationBrazilian Natural Gas Importation
Importação de gás natural (milhões m3)
Países1999 2000 2001 2002 2003 2004
Total 400 2.211 4.608 5.269 5.947 8086
Argentina 0 106 753 492 350 451
Bolívia 400 2.105 3.855 4.777 5.597 7.635
Importation NeedsImportation Needs
0
20
40
60
80
100
120
1999 2000 2001 2002 2003 2004 2005 *2006 *2007 *2008
Milh
ões
de m
³/dia
Gás Produzido Internamente Importação Capacidade de Importação
ConclusionsConclusions
The development of the gas industry The development of the gas industry in Brazil depends on the overcoming in Brazil depends on the overcoming of the bottleneck created by the low of the bottleneck created by the low level of investment of the state-level of investment of the state-owned distribution company. owned distribution company.
Development of solutions for the Development of solutions for the resources limitation to the public resources limitation to the public distribution companies: Process of distribution companies: Process of securitization, stock market, changes securitization, stock market, changes in the patrimonial structure. in the patrimonial structure.
Conclusions (cont.)Conclusions (cont.)
Definition of an integrated energy Definition of an integrated energy politics, that diminishes the politics, that diminishes the uncertainties regarding the external uncertainties regarding the external natural gas suppliment and that natural gas suppliment and that determines the role of the gas in the determines the role of the gas in the energy sector, mainly through the energy sector, mainly through the definition of the role of the thermals definition of the role of the thermals in the Brazilian electric sector. in the Brazilian electric sector.