December 2018 Handle with care | Page 21

Sector focus development of new wind and solar projects by expanding the production chain in Brazil. He adds that the new government’s liberal stance will also usher in legal and regulatory changes that will enable the creation of a wholesale power market enabling more customers to choose their power supplier. “The new government is committed to the development of renewable energy, and frequent renewable energy power auctions are key for the development of wind and solar power, which also depends on an increase in power demand,” De Lima Ramos explains. The new government will need to accelerate energy contracting through auctions to meet growing demand, though demand in the short term can be met by existing thermoelectric plants, says José Roberto Oliva Junior, associate at Pinheiro Neto. “We are conducting studies and having discussions with several players in the sector, both developers and financiers, and Brazil has some challenges to overcome so that the lack of energy is not a limiting factor for the country’s growth,” he adds. Oliva Junior argues the incoming government needs to ensure regulations are more predictable and stable, draw up clearer rules for distributed generation, tie power-purchase agreements to the US dollar, and make better use of capital markets for funding. He also calls on private banks and Brazil’s development bank BNDES to have greater participation in project financing, as well as advocating changes to legislation related to the acquisition of land by foreigners so that rural property acquired for the generation and distribution/transmission of energy are not covered by the current restrictions. Communities are likely to protest against some projects if the environmental permit process is streamlined, says Oliva Junior. “There could be a few protests at the beginning, but if acceleration is carried out in a responsible and sustainable manner, which we believe is likely to happen, it www.thelatinamericanlawyer.com will be beneficial to the energy sector in general, especially to the renewable energy sector,” he adds. “Accelerating licensing processes does not necessarily mean that the required studies will not be carried out, and it is currently the delay in the issuance of environmental licenses that is greatly delaying the implementation of projects.” Oliva Junior rejects suggestions that uncertainty among investors could increase as a result of Bolsonaro’s victory. “The market has great expectations regarding the possible beneficial changes in the regulation of the energy sector,” he says. “From what we have seen to date, the new government has been forming a good technical team in several sectors, now we must wait to see the privatisation policies of López Obrador,” Oliva Junior adds. He says the appetite among foreign companies and funds for investments in the Brazilian energy sector has increased substantially since the beginning of 2018, while the coming year is expected to feature notable privatisations, mergers and acquisitions, energy auctions and new domestic and foreign investors.” ‘A little vague’ Law firms are receiving a significant amount of instructions related to the financing of wind projects as work related to acquisition financing for new projects, specifically debt offerings in the capital markets, according to Paulo Vieira, a partner at Vieira Rezende Advogados. However, she adds Bolsonaro’s proposals are still a “little bit vague”. Vieira continues: “Although during his campaign he mentioned changes to the environmental licensing process, this can create problems with the local population and result in delays in the development of projects. By creating a safe legal environment, investors will feel confident in funding renewable energy projects and the structuring of project finance will be less a challenge than it has been in recent months.” Debora Yanass, Tauil & Chequer Advogados Tiago Kummel Figueiro, partner at Veirano Advogados, is confident that renewables projects will not face conflicts in Brazil, but adds that hydroelectric projects earmarked for the Amazon rain forest might. “Bolsonaro’s intentions have more to do with big hydroelectric projects in forest areas, which currently face lots of criticism and difficulties related to permits and the settlement of disputes with indigenous communities,” he explains. “If new, big hydroelectric projects are to become more abundant in Brazil as a result, we might see a slow-down in renewable deployment.” Generally speaking, investors are optimistic about the future of the renewable energy sector under Bolsonaro. “There is some uncertainty regarding the timing for implementing the changes that were discussed in the Ministry of Mines and Energy’s public consultation on the restructuring of the energy sector,” says Kummel Figueiro. “The changes include a discount on the tariff for the use of the transmission and distribution grid by renewable energy generation projects – but, in principle, there would be no impact for the projects already implemented.” Lawyers are also confident that the electric power auction programme will continue as the government will strive to increase capacity to meet growing demand. Kummel Figueiro says: “One of Bolsonaro’s main objectives is to increase the renewable energy share in the Brazilian matrix.” December 2018 • THE LATIN AMERICAN LAWYER • 19