Energy, infrastructure, and technology the key sectors in Brazil’s financial landscape

Pablo Sorj, a partner at Brazilian law firm Mattos Filho specializing in infrastructure projects, M&As and project finance, speaks to BNamericas about what we can expect in energy, infrastructure and technology in the coming months.

He underscores that, despite persistent low energy prices in Brazil, the energy sector continues to offer significant opportunities for investors, while the oil and gas industry will likely see greater consolidation of small and medium-sized companies in the near future. 

Meanwhile, datacenters are also an interesting segment due to the rapid expansion process it is undergoing, he says.

BNamericas: What do you think will be the main highlights from the perspective of project finance players in Brazil?

Sorj: I would start by mentioning the electricity sector, where we're seeing the continuation of a scenario of low energy prices and that has affected the progress of projects, especially those aimed at serving the free power market.

Despite this scenario, we will likely have the backup capacity auction in the second half of the year and there are lots of players preparing for that auction, which will require significant investments, and we're working for clients interested in that.

Furthermore, this year we already had the bidding process for power transmission lines and we've now entered the phase in which the companies that won the auction are structuring the financing.

In regulatory terms, I would point to the need for the mines and energy ministry to regulate an issue linked to gas thermal projects to enable them to be entitled to the tax breaks provided with infrastructure debentures. In my view, it makes perfect sense for these benefits to cover gas-fired thermal plants too.

BNamericas: Are there any other energy sector initiatives in which you expect to see progress in the second half of the year?

Sorj: One very important project on which we might have some definitions in the second half of the year is Angra 3, which is important for the diversification of the country's energy matrix. 

Editor's note: The government intends to decide whether or not to resume construction of the Angra 3 nuclear power plant in the coming months.

This project is half completed and the cost of abandoning it would be very high, so I hope that we will make progress on that.

BNamericas: What are the prospects for the oil and gas sector?

Sorj: We will continue to see a shift towards market consolidation. We saw the merger between 3R and Enauta and the expectation is that there will be more consolidation operations involving independent companies.

This consolidation process involving smaller companies is taking place in light of Petrobras' decision to halt its divestment plan, which restricts the entrance of new participants into the market.

Projects associated with the energy transition are also increasingly getting off the ground, with the highlights being biomethane and biogas projects, and at some point we will also see the advance of projects involving green hydrogen.

BNamericas: What highlights do you expect in the infrastructure sector?

Sorj: I hope for more progress in operations and projects linked to the highway and sewerage segments. We've already seen a lot of fundraising for projects in these areas.

Regarding railroads and urban mobility, my expectation is that projects will progress more on the side of state governments than the federal government.

BNamericas: Have you noted any significant movement in the technology area?

Sorj: Yes, we see a lot and because of that we launched a group here in the office exclusively dedicated to digital infrastructure. This area encompasses datacenters, towers, fiber optics and satellite projects.

I would say that this group sees the greatest business potential in datacenters, due to the fact that Brazil has a clean and cheap energy matrix. This is a segment we're very excited about.

BNamericas: Are extreme weather events gaining importance in contracts in Brazil?

Sorj: I still don't see a material change in the terms and conditions of force majeure clauses or anything like that in the last six months or a year. The events in Rio Grande do Sul state, for example, generally haven't led to changes in contractual clauses so far.