Brazil gas industry demands voice with states

The Brazilian natural gas industry is asking for a say in how state legislators make regional laws, introducing another chapter in the country's market liberalization.

Brazil's constitution leaves gas distribution rules to individual states, which means local laws are needed to establish a framework. Paraíba, Maranhão, Pernambuco, Piauí and Ceará states recently approved such laws, and Rio Grande do Norte is about to approve a bill. But gas producers, transporters and consumers want to play a larger role in the other states that have yet to create specific laws and have a say in further improvement in legislation in all 27 states.

The creation of state laws has been a longtime concern in the gas industry as they will dictate key relationships between producers and consumers — such as the minimum gas consumption volumes one must reach to procure gas in the bilateral contract market, away from the local gas distribution company.

Brazil's large territory and stark economic and institutional differences among the states could result in some making more progress than others to pass laws and fine-tune regulations, creating regional discrepancies. But the differences among states may necessitate different approaches by the regional governments.

Because the government is the senior partner with most gas distributors, with distribution company presidents and some board members appointed by governors, there is a concern state laws could favor those companies, even if it hinders integration into a national market.

Producers and consumer groups also worry that local companies are also closer to state governments than other stakeholders and could exert greater influence on legislation.

Last week, 10 advocacy associations for gas producers, transporters and consumers released a letter saying that the laws approved so far did not allow enough time for debate, and that in many instances industry suggestions and contributions were overlooked and did not make the final bill.

But the local distributors disagree and say proper time was given. The gas distributors association Abegás said the independence in law making is a constitutional role of the states and that each must consider its individual circumstance when considering the multiple diverse interests.

The associations also complain that in some states new fees were created that will raise gas prices for consumers, that legislators are giving too much power to local regulatory agencies, and that they are impeding the ability of consumers to opt out of the local distributor in favor of the open market.

Producers and consumers are further concerned by states allowing distributors to take liberties with local pipelines that they believe rival larger transportation lines that should be regulated by national regulator ANP.

Abegas disagrees, and said its a legitimate move for states to define the kind of use they see fit for the pipelines, since their purpose is to meet the customers' needs.

Gas industry opinions also diverge. Some believe all will profit if state laws are aligned and that states should follow guidelines provided by the federal government. Others fear state laws may reduce the appetite for investment — and consequently jobs for their states — by not removing hindrances or even creating new ones.

"We must remember the waltz dance," one market participant said in a discussion group. "The first step is ahead, the second is sideways or behind. The third step might make the market confront its challenges, and then we will need clarity so that the whole society profits from the market opening."

By Flávia Pierry