V Congreso Latinoamericano y del
Caribe de Gas y Electricidad
IMPACT OF THE FINANCIAL STRUCTURE
OVER NATURAL GAS DISTRIBUTION
COMPANIES INVESTMENT’S IN BRAZIL
Marcelo Colomer Ferraro
Edmar de Almeida
Grupo de Economia da Energia da
Universidade Federal do Rio de Janeiro
Content
1. Introduction
2. Theoretical aspects about financing
3. Financing of natural gas sector
4. Brazilian financial system
5. Barriers on the investment increase
in the natural gas distribution
network.
Introduction



Barrier to the development of new
markets
of natural gas: Low
development
of
the
distribution
infrastructure.
Law n° 9.478: Natural gas distribution
is of exclusive use of states, directly
or through concession.
Construction of 200,000 quilometers
of network distribution are necessary,
according to estimatives.
Introduction (cont.)



Characteristics of the natural gas
distribution
sector
condition
a
financing
pattern
dependent
on
borrowed funds.
Great
difference
between
the
investment levels of private and state
companies.
Existence of non financial barriers to
the development of the sector.
Distribution Network in 2004 (km)
120.000
100.000
80.000
60.000
40.000
20.000
0
Argentina
Fonte: Strat/RG
Reino
Unido
Colombia
Brasil
Extension of the Distribution Network of
the Most Important Brazilian Companies
COMGAS/SP*
3503
CEG/RJ*
2717
SCGAS/SC
479
CEG RIO/RJ*
434
GAS NATURAL/SP*
425
COMPAGAS/PR
409
SULGAS/RS
311
BAHIAGA/BA
311
GASMIG/ MG
250
CPERGAS/PE
207
POTIGAS/RN
170
CEGAS/CE
160
ALGAS/AL
135
MSGAS/MS
75
PBGAS/PB
67
Theoretical Aspects About Financing

Basic sources of Financing:
a)
New Share Issues;
b)
Debentures and Bank Loans;
c)
Retained profit


Determination of excellent financial
pattern.
Theory of Modigliani and Miller.
Theoretical Aspects About Financing
(cont.)

a)
Increasing financial risk (Kalecki).
Investment
associated
to
the
capacity of profit generation of the
firm.

Different types of risk(Minsky)
a)
Risk of the Creditor;
b)
Risk of the Entrepreneur.
Theoretical Aspects About Financing
(cont.)

Theoretical
conclusion:
The
investment depends on the capacity
of the firm in gathering resources
that, however, are limited by the
existence of different types of risks
that raises with the increase of the
participation of borrowed funds on
proper capital.
Financing of Natural Gas Sector

a)
b)
c)
Characteristics of the natural gas
distribution sector:
Capital intensity;
Existence
of
economies;
scope
and
scale
Long period of maturation of the
investments;
Financing of Natural Gas Sector
(cont.)
d)
e)

Specific assets;
Territorial
exclusiveness
supply of the service.
in
Dependence of borrowed funds
the
Nº de clientes
Extensão da
rede de
distribuição
(km)
Vendas em
2005
(1000/m³ dia)
5
155
106
399
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
Principais
Empresas
Estatais
Nº de cidades
na área de
concessão
Nº de cidades
atendidas
Algas
22
Bahiagás
Nº de clientes
Extensão da
rede de
distribuição
(km)
Vendas em
2005
(1000/m³
dia)
16
606.766
2.560
4.101
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
Nº de cidades
na área de
concessão
Nº de
cidades
atendidas
Ceg
16
Ceg Rio
Empresas
Privadas
Financing of natural gas sector
(cont.)



Great difference between the levels of
investment of private and stateowned companies.
The financing structure does not
explain the low level of investment of
the companies.
Existence of non financial barriers to
the development of the sector.
Level of Indebtedness



The level of financial indebtedness of
public companies of gas distribution
is extremely below the level of
indebtedness
of
the
private
companies.
Up to 2004, only 3 state-owned
companies had any banking debt.
General indebtedness following level
of financial indebtedness.
Level of Indebtedness (cont.)

a)
b)

Participation of borrowed funds on
the total capital of the company:
Private companies: 19.11% in 1999
to 59,23% in 2004;
State-owned companies: 31.69% in
1999 to 6,16% in 2003.
High levels of liquidity.
Level of Financial Indebtedness of
the Distribution Companies
40%
35%
30%
25%
20%
15%
10%
5%
0%
1998
1999
2000
2001
Nível de end. Empresas Priv
2002
2003
2004
Nível de end. Empresas Esta.
2005
Level of Financial Indebtedness of the
Distribution Companies without Sulgas
40%
35%
30%
25%
20%
15%
10%
5%
0%
1998
1999
2000
2001
Nível de end. Empresas Priv
2002
2003
2004
Nível de end. Empresas Est
2005
Level of Financial Indebtedness X Level
of General Indebtedness
70%
60%
50%
40%
30%
20%
10%
0%
1998
1999
2000
2001
Endiv. Financeiro
2002
2003
Endiv. Geral
2004
2005
Liquidity Ratio of the Most Important
State-owned Companies
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
1998
Algas
1999
2000
Bahiagas
2001
Copergas
2002
2003
Compagas
2004
Sulgas
2005
Scgas
Indebtedness Capacity

Used methodology: methodology of
credit
risk
analysis
of
BNDES
(ALMEIDA, 2004).
Financing of 80% of the Projects that
totalize [(3 x EBITDA) - banking
debts].

State-owned companies: Capacity of
indebtedness above the leverage
level: Existence of idle capacity of
financing.
Capacity of Indebtedness X Level
of Indebtedness
Private companies
State-owned companies
40%
35%
35%
30%
30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
1999
2000
2001
Cap End/Ativo
2002
2003
2004
Nível de Endividamento
2005
1999
2000
2001
Cap End/Ativo
2002
2003
Nível de Endividamento
2004
Economies of Scale and Scope


Asset turn ratio: Revenue divided by
average assets.
The increasing of the asset turn ratio:
Revenue has grown more than
investments in asset. Existence of
scale economies .

Return on fixed asset:
divided by fixed asset.
Revenue

Increasing ROFA indicates existences
of scale economies.
Asset Turn Ratio
1,00
0,90
0,80
0,70
0,60
0,50
0,40
0,30
0,20
0,10
0,00
1998
1999
2000
2001
2002
2003
2004
Return on Fixed Asset (ROFA)
60%
50%
40%
30%
20%
10%
0%
1999
2000
2001
2002
Empresas Privadas
2003
2004
Empresas Estatais
2005
Conclusions of the Analysis of the
Financial and Economic Pointers of
Distribution Companies.

The low level of indebtedness and the
raised liquidity ratios indicates that in
the
case of the state-owned
companies, is not the financial
obstacles that limit the captation of
resources, what it is perceived if we
analyze the capacity of indebtedness
of these companies.
Conclusions of the Analysis of the
Financial and Economic Pointers of
Distribution Companies.


The analysis of the asset turn ratio
and the ROFA suggests that the stateowned companies operate in an subexcellent level of indebtedness.
There are non financial barriers to the
expansion of the investments of the
public companies of gas distribution.
Financing of Long Run in Brazil

Main sources of resources of long
run:
a)
Public resources (BNDES);
b)
Self-financing;
c)
External resources.
Financing of Long period in Brazil

Recent financial innovations:
a)
Asset securitization;
b)
Derivatives Market;
c)
Institucional investors.
Obstacles to the Increase of the
Investment in the Distribution Network



Credit contingency to public sector:
Resolution 2827 of the Central Bank.
In 2005, R$ 6 billion in projects are
stopped in the state-owned companies
waiting for money release.
Potential debt: R$ 345 million - increase of
43% of the current debt of 2003.
Milhões
Level of Potential Indebtedness of
the State-owned companies
400
350
300
250
200
150
100
50
0
1999
2000
2001
Díivida Bancária
2002
2003
Dívida Bancária Potencial
2004
Obstacles to the Increase of the
Investment in the Distribution Network


a)
b)
Lack of an integrated energy
planning.
Risk of Supply:
Uncertainties regarding the reserves
of Santos;
Political crisis in Bolivia.
Brazilian Natural Gas Importation
Importação de gás natural (milhões m3)
Países
1999
400
Total
0
Argentina
400
Bolívia
2000
2.211
106
2001
4.608
753
2002
5.269
492
2003
5.947
350
2004
8086
451
2.105
3.855
4.777
5.597
7.635
Importation Needs
Milhões de m³/dia
120
100
80
60
40
20
0
1999
2000
2001
2002
2003
Gás Produzido Internamente
2004
Importação
2005
*2006
*2007
Capacidade de Importação
*2008
Conclusions


The development of the gas industry
in Brazil depends on the overcoming
of the bottleneck created by the low
level of investment of the
stateowned distribution company.
Development of solutions for the
resources
limitation to the public
distribution companies: Process of
securitization, stock market, changes
in the patrimonial structure.
Conclusions (cont.)

Definition of an integrated energy
politics,
that
diminishes
the
uncertainties regarding the external
natural gas suppliment and that
determines the role of the gas in the
energy sector, mainly through the
definition of the role of the thermals
in the Brazilian electric sector.
Thank You !
Marcelo Colomer Ferraro
Universidade Federal do Rio de Janeiro
Av. Pasteur, 250 Urca
Rio de Janeiro, RJ – Brasil
Tel.: + 55 (21) 3873-5269
+ 55 (21) 8638-0044