Paulo Guimaraes, Superintendent for Economic Development, Secretary of Industry, Commerce and Mining (SICM), Bahia, Brazil
Paulo Guimaraes, Superintendent for Economic Development at the Secretary of Industry, Commerce and Mining (SICM) Bahia, paints a precise picture of the region’s incredible resources and leading industries, and sends a strong message to the renewable energy community as the new 2013 wind map is released this November.
What are some of SICM Bahia’s main economic and industrial characteristics?
Bahia is one of the largest states in Brazil and the sixth largest economy. In the northeast of Brazil, it is responsible for one third of the area’s GDP and has been growing faster than the rest of Brazil in the last three years.
Brazil had its economic peak in 2010 with 7.5 percent growth, but this has slowly shifted to settle under three percent. Bahia is one of the few states that has been capable of growing at a rate higher than three percent since 2010, reaching 3.5 percent today. In fact, our local industry is growing at a much faster rate, with a six percent average rate. We expect this trend to endure as we have witnessed important investments in various sectors in the last years. These investments, which used to primarily target the capital (Salvador) or urban areas, are now mainly focusing on rural areas at 60 percent. Two of the sectors, which benefit from these investments, are energy and mining. Looking closer at these investments, USD 38 billion is being planned to be invested in Bahia, running up to 2015. So far, USD 10 billion has been made and the remaining USD 28 billion will follow steadily. Overall, 40 percent of these investments will target energy and mining.
Other industries as well will receive a share of these investments. Bahia holds the largest petrochemical complex in the southern hemisphere and is currently receiving investments of USD five billion. Furthermore, the automotive industry already has a strong participation in the state with Ford Motors producing 250,000 cars a year and is expanding to achieve 300,000 cars a year. They are also building a new engines factory and are starting new model designs, not only for Brazil, but for the world market as well. Two large Chinese automotive players, GAC and Foton, are also settling their car factories locally. GAC has already achieved a 1.5 percent market share and with its new factory will build 180,000 cars a year as well as 30,000 trucks. With these international players investing in Brazil, we may be able to reach the target of 500,000 local produced cars soon and attract spare part manufacturers to the region.
Focusing on energy, Bahia’s wind and solar potential is unique. Therefore it is our responsibility to bring as many manufacturers as we can. Important international players such as Alstom, Acciona and Gamesa have already invested in the region for the development of renewable projects. Torrebras, a local manufacturer of wind towers, is also present in the region and Tecsis wind, Brazil’s largest blade manufacturer, is establishing a factory in Bahia, as they are involved in many projects locally. Settling locally and investing in wind plants and factories will only make them more competitive during energy auctions. Since these energy auctions decide which companies carry out new energy projects, it is only logical for these companies to reinforce their assets locally.
Bahia is also traditionally an oil-producing region. What have been the latest developments in the oil and gas sector?
Historically, Brazil’s oil production first started in Bahia, and although its oil production remains limited, gas can be found in large quantities. Petrobras is building Brazil’s third regasification terminal, located in Bahia de todos os Santos, and this will allow our nation to have an additional input of 14 million cubic meters of gas per day. This is strategic as gas supply is tight in Brazil and with the use of gas-fuelled thermal power plants, access to gas has never been such a challenge. Bahia is also the home of one important shale gas basin, located in an area that used to have a large concentration of oil. With ANP’s (Brazil’s national petroleum agency) energy auction at the end of the year, some blocks from this area will be auctioned and this could lead to shale gas extraction by 2016. A new shipbuilding area also appeared in the region from the consortium of Braskem, UTC, Oderbrecht and Kawasaki. Petrobras has already ordered six new drilling ships and the adjacent industrial park will provide additional modules and equipment for the oil and gas industry.
In agribusiness, the west of Bahia holds the second largest production of cotton, the sixth of corn and the fifth of soybeans. This area is of utmost value, since it managed to achieve the world’s best productivity for soybeans, corn and cotton. Also South of that area is located a large concentration of cattle where milk production has attracted investors from New Zealand. When in New Zealand they could produce 11,000 liters of milk per hectare every year, they managed to produce almost 40,000 liters in Brazil.
The last important industry for our region is paper and pulp, second biggest production in the country. This industry which depends on wood is using eucalyptus trees which grow much faster here than in other areas of the world.
It is clear that Bahia alone holds unique leading industries and we believe in the attractiveness of this region for both local and international investors.
Although the region has leading industries, discrepancies appear between the urban and rural areas, especially in terms of infrastructure. How do you think both sides can grow conjointly?
Investments in infrastructure are a priority; otherwise economic development will be uneven throughout the region. Therefore the region is going through a new infrastructure plan consisting of building better connections throughout the state to link the urban and rural areas. For example, the road industry has been privatized and should see quick improvements. Also, a new railroad project is under construction to connect the Western agricultural region (ilheus) to the Eastern side. Salvador will also have a railroad connecting the city to the North and South of the state. Finally, related to maritime facilities and transportation, when the new offshore port finishes, 80 million tons per year will be processed. Many private ports have already flourished on the coast, receiving raw materials and equipment from all over the world.
Although these projects are promising and many investments will strengthen the region’s infrastructure and help companies prosper, Bahia still remains economically smaller than leading regions like Sao Paulo or Rio de Janeiro.
When investors think of Brazil today, they picture a large energy market consisting of 200 million people and have a completely different image of Sao Paulo and Salvador in Bahia. What differences appear between these two cities?
Sao Paulo in the 1970s represented 50 percent of the country’s GDP, whereas today it barely accounts for 30 percent. Of course, Sao Paulo remains the country’s industrial focus and still attracts many investors, but opportunities are scarce. As a foreign investor it is better to invest where the market is growing and the answer is clearly not in Sao Paulo. In Bahia, the perspectives for investors are much more appealing as we provide companies with assistance and full support from the government. Companies here will be able to grasp important market shares and benefit from generous tax incentives. In a way, Bahia could be compared to California, as 150 years ago this state was an empty shell and today it could represent the fifth largest economic area in the world if it were independent.
Specifically related to energy, Brazil will depend on energy imports for the next five to ten years. This situation is challenging and represents a cost burden for our country. Our region has the best grid system in the northeast and our consumption areas are located close to the grid. We hold unique resources in wind and solar power and if companies manage to sustainably invest here, our region will grow at an incredible rate.
In the end, we want to believe Bahia can achieve a similar path like California and this is why it is important to show what Bahia has to offer—a land of opportunities.
There is no doubt that beyond infrastructure, affordable and reliable power is one of the key elements to attract investment to a region and nurture true industrial development. Since the government of Bahia offers investment incentives to exploit the wind resource across the supply chain sector, could you share with us what these incentives are?
Incentives are numerous in Bahia and we believe fiscal, proprietary, licensing and legal measures will generate attractiveness for both local and international investors. For instance in Bahia, land prices sold by the state are five to ten dollars per square meter, an average of at least six to ten times cheaper than the prices offered by the market. This means a great opportunity for companies to buy land and carry out their projects. Once the land is acquired and industrial production is needed, not only will we give an incentive on the ICMS (Brazil’s state tax on merchandises and services) purchase of equipment, but a reduction on the ICMS sale of equipment as well.
Furthermore, SUDENE, (Brazil’s federal government institution for the development of the northeast of Brazil) gives companies a 10-year reduction on income tax for industrial productions in the northeast. This means that only a quarter of the income tax is paid.
Finally, financial institutions specifically related to renewable energy funding will give full coverage of the investments needed at decent interest rates, and specifically for minor energy projects, institutions like Desenbahia will finance up to USD 50 million, assisting companies seeking less bureaucracy and more direct control over the project.
Besides these incentives, what do renewable investors see in Bahia that makes it more attractive than other areas of Brazil for investment?
Bahia has been growing fast in terms of availability of students, universities and research centers for the qualification and formation of our local leading talents. Salvador holds an advanced center for innovation and technology (CIMATEC). It is one of the three most important centers for technology in the country. Today it develops electronics, polymers, as well as wind and solar technology.
With such dynamism happening in this region, you must hold large expectations for the near future. What would you like Bahia to represent for the country in terms of renewable energy in the next five years?
In 2018, Bahia should have contracted around 3.5 GW of wind energy, as 2.4 GW have already been auctioned. For solar projects we expect around 500 MW. We are living a great moment for renewable energies and mid-November 2013 a new wind map for Bahia’s region will be released, which will completely revolutionize our knowledge about wind potential in this area. We are certain that this new map will attract many investors to our state.