Brazil election run-off extends uncertainty

Brazil's incumbent president Jair Bolsonaro and left-wing former president Luiz Inacio "Lula" da Silva advanced to a second-round election after neither won more than half of the vote on Sunday.

Their positions about more private-sector control of Petrobras and attitudes toward renewable power and environmental policy are among the key differences in their energy platforms.

Lula received 48.4pc of all valid votes, against Bolsonaro's 43.2pc, with 99.9pc of votes counted through this morning, according to Brazil's election authority (TSE).

The 4.26-percentage point gap was tighter than expected, as Lula had a 14-percentage point lead in an Ipec poll conducted from 25-26 September.

The run-off will be held on 30 October and the next president will take office on 10 January. Bolsonaro has threatened to not accept election results if he does not win, sowing more uncertainty.

A Lula victory in October would likely mean that Petrobras will continue to be state-controlled, while Bolsonaro supports the privatization of the firm. The strategy has attracted billions in foreign investment since 2016, but Lula opposes it.

Lula wants to recast the firm's role in Brazil's energy transition to focus on investment in renewable energy.

Lula's government plan also envisages expanding domestic refining capacity, which has raised questions about Petrobras' emissions reduction plans .

Still on the environmental agenda, Lula pledged in June to meet Brazil's targets as set out in the Paris agreement, to work towards net zero deforestation and to combat environmental crimes, such as illegal logging. Lula also embraced other green pledges like the creation of a national climate change authority and other carbon emissions reduction targets.

Fueling the election Rising fuel prices have been a hot topic during the election cycle. Lula proposes to tackle the crisis by disconnecting the prices from currency fluctuations , while raising domestic refining capacity.

Yet Bolsonaro has leaned on Petrobras to reduce its market-tied prices, firing a series of company presidents.

Another sharp distinction between the two administrations would be the approach to Brazil expanding investment opportunities in its pre-salt crude deposits offshore.

Lula would maintain this upstream investment as one priority, but also advocates for a sharp increase in investment in other sectors such as refining and renewable energy.

New power The next administration will have to deal with recent changes in the power market , including constant legal challenges to market rules and its recent liberalization.

As for the gas market, any change in approach would be key as the market is still in the infancy of its liberalization and dependent on regulatory reinforcement to thrive.

Although Lula promises to keep creating policies to support financing to the agriculture section , most of the country's agribusiness leaders have aligned with Bolsonaro in the past.

Lula has made efforts to increase his connections with the sector, but his recent statements about possibly regulating agribusiness and the need to "discuss the price of meat in the country" — whether to continue export levels or leave more for the domestic market — caused controversy among rural leaders.

Furthermore, market participants expect Lula to focus on strengthening domestic fertilizer production by encouraging state-owned companies in the sector.

The national fertilizer plan — which sets to reduce the share of fertilizers Brazil sources from imports to around 40pc by 2050, down from nearly 85pc — was launched by Bolsonaro's government in the first quarter of 2022.

Related News