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Interview

with Humberto Barbato President ABINEE Brazilian Electrical and Electronics Industry Association

01.07.2013 / Energyboardroom

You have been the president of ABINEE since 2007, promoting the Brazilian Electric and Electronic sector and representing around 600 members. What has kept you busy in the last three years as President of the association and what have been ABINEE’s main achievements since the association first started in 1963?

Over the last 50 years, ABINEE’s participation has been active in the development of industrial reforms. Historically, Brazil has been developing its industries especially after its industrial revolution in the early 1930’s. When the electronic and electric industry became a reality after the creation of ABINEE, we knew we had to show the government and other stakeholders the fundamental strategic need to push this industry forward and help the country grow. Our industry represents a pillar in the development of others, as well as electronic components and technologies developed by our members and partners are spread to other industries and markets.

Therefore we have been contributing to the government and showing them what are the emerging main challenges and restrictions, to help the industry grow and help our industrial politics improve.

Since the government is planning to invest USD 160 billion in infrastructure projects for the energy industry, what will be the repercussions on Brazil’s energy matrix?

We are currently living the biggest development challenge our country has ever witnessed. However throughout time, the challenges were different and our country has had difficulties to adapt. In a way, we like to believe that Brazil has a “learning by doing” attitude.

Our electric sector first spread its wings in 1966 to reach its first important development phase by 1979. From that point, the energy sector was under severe difficulties, given that all companies were state-owned and inflation rates were not allowing these companies to follow the necessary investments needed to genuinely improve the sector. Between the 1980’s and 1990’s our country suffered from high inflation rates and our industries were weakened. This period created a high level of instability in the market. It was only in 1995, when a large privatization plan started that the energy sector started to witness improvements. Privatization not only improved the energy sector, but other sectors as well.

Moreover, Brazil suffered from a very large poverty rate, and given a high percentage of very low income revenues, it was difficult to raise the country’s consumption rate. When that large share of the population started increasing its buying power and consuming in the market, Brazil’s lack of infrastructure came to light.

Brazil is a large agricultural and mining country, and these two sectors which generate large rates of exports, ultimately increased our currency’s value. This factor in combination to our infrastructural deficit created a gap in the competitive power of our local industries. Consequently, our electric and electronic industries which represented around 25% of the GDP, dropped down to 14% which represents a very large deficit. This phenomenon has even increased from 1998 to today.

Overall, the announced investments are more than sufficient to improve our infrastructure. However, the problem is that they are too slow to be efficient. By accelerating the amounts invested every year, our industries would grow parallel to the infrastructure level. In fact, our industries generate many employments and are source of many investment opportunities. The government only needs to realize that jeopardizing this sector will weaken the country.

Which factors have helped the electric and electronic companies develop over the last 50 years?

In the late 1980’s ABINEE played a major role in establishing the consumer’s protection code, which set the fundamental norms protecting the consumers’ rights, and redefined the responsibilities between the suppliers and final consumers. This measure was necessary for the citizens and helped reshape the electric and electronic sector.

On another note, Brazil’s electric sector was established in the 1970’s when the country’s GDP was increasing at high rates –around eight or nine percent per year. This fast growing period enabled electric companies to develop a good and relatively steady level of technological capabilities. It also permitted equipment and service providers – Siemens, ABB, Alstom – to develop strong technologies in generation, distribution and transmission areas.

To conclude, a strong country economic output benefits everyone and Brazil is not growing as it should.

ABINEE last year published a study on the potential of photovoltaic solar energy for Brazil’s energy matrix. With solar energy representing less than 1% of the country’s energy production, how feasible is it to give solar more representation in the country?

Brazil has such a diversified energy matrix that solar energy did not have the chance to grow as quickly as other renewable sources such as wind or biomass. Wind power is the fastest growing source at the moment, and recent studies show a potential to reach 15 MW by 2017.

Photovoltaic generation is not consolidated yet, as the government and companies are not sending the right message to the end consumer. It would be necessary to show that they could become their own generators of electricity with photovoltaic energy, just like in Spain for instance. Brazilians are not aware of the great advantages of this technology and until they accept it and the government finds the financial support to incentivize this source, photovoltaic energy will not grow.

Furthermore, Brazil’s energy model is based on bidding auctions which focus on getting the lowest price and the best technology possible. Despite its obvious benefits for the sector, it is ultimately creating distortions since one technology may win all bidding auctions consecutively for many years and exclude all other players and industries for that period. In consequence, a particular niche and industry remains highly competitive for a short period of time, but never in a long term, and this is to my perspective a real problem for the energy industry. We need to find better ways to have all renewable and non-renewable sources competing on the same level at the same time. We cannot exclude sources simply because of price or technology.

Photovoltaic generation is yet too expensive to be competitive against other sources. To really promote this energy, energy auctions simply need to be specialized by source or final energy price.

Brazil’s electricity tariffs are among the highest in the world. Until what extent is Brazil’s power model responsible for these tariffs?

Brazil’s energy matrix is so unique and diversified that no foreign power model can adapt to our country. We previously tried implementing the British system into our energy model and soon realized this model was unsustainable for our country.

However, not only our power model is responsible for making our electricity among the priciest in the world. Taxes and fiscal policies are also to blame. In 2002, when thermal power plants were connected to the grid to serve as a backup system to the lack of hydro capacity in dry periods, we managed to ensure electricity throughout the country; but we could not manage to contain the prices.

The government authorities need to focus on our tax system and find ways to reduce these tax barriers. Until then, our electricity tariffs will remain the same.

What are ABINEE’s priorities and ambitions for the next five years?

Our challenge in the next five years will be to contribute to the government so as to bring as much foreign investment to the country as possible. We need to show the government why foreign investors are not coming to invest here and do our very best to fix these issues to maintain our local companies safe. One of the first measures should be to improve our judicial insecurity.

On the foreign investor’s side, they need to realize that coming to Brazil needs to be done on a long term basis if they want to be successful. This long term commitment really is crucial to the success of our industry and development of our energy matrix. For instance, the best foreign international companies present here, arrived a century ago and have experienced all the difficult phases and models. This clearly shows how a long term perspective is beneficial.

Finally, I would like to stress that Brazil has important challenges to face and we should all contribute to embrace them.

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