Licks Attorneys' Government Affairs & International Relations Blog

Doing Business in Brazil: Political and economic landscape

Licks Attorneys' COMPLIANCE Blog

BRAZILIAN POWER SUPPLY CRISIS AND COMPANY STANCES

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Brazil is currently going through the most severe water shortage in the last 91 years, according to CNN. This impacts the power supply crisis, leading to notice after notice  on increases in the consumer's electricity bill, determined by the Brazilian Electricity Regulatory Agency (Aneel), as more expensive energy sources such as thermoelectric plants need to be activated or have their production increased to compensate for the limitations imposed on hydroelectric power plants, as they have no input material.

Along with the excessive increase in monthly electricity bills burdening a population already mostly financially impaired, due to the pernicious side effects resulting from the social isolation forced by the Covid-19 pandemic, two disastrous situations add to the country's hardships:

1. Considerable increase in dirty energy, that is, generated from a source that releases pollutants to the atmosphere, degrades the environment and is not renewable, also contributing to global warming, whose effects are seen in dramatic climate changes witnessed in recent years and that generate cataclysmic weather phenomena, leading to the death of thousands of people and making millions of people homeless every year.

2. Significant impact on inflation, which according to the website Poder 360 , may reach up to a 1.3 percentage point of the Extended National Consumer Price Index (IPCA) value. To put this impact in perspective: the inflation target in 2021, estimated by the National Monetary Council, was 3.75% for the entire year.

While electricity bills are only getting higher, most large financial institutions are failing in meeting their commitment to the environment, social responsibility and even their own governance, that is, we are talking about environmental, social and corporate governance (ESG).

At a time like this, every financial institution whose operations include granting funds should establish a line of credit with a differentiated interest rate, in order to encourage the use of other types of clean energy, such as solar energy. Most people are unaware that current solar energy production systems are capable of not only producing the power that a home needs, but even transferring the power surplus for the system, by replacing the power consumption meter, thus generating credit.

While some smaller lenders are opening lines of credit to finance the acquisition of solar energy production systems, with interest rates between 0.5% and 1% per month, there are large banks charging interest rates above 4% per month, which is absolutely unbelievable, and a practice that goes against stances publicly assumed. Concern for the environment and commitment to social responsibility end up becoming just a politically correct speech.

A large part of financial institutions is missing out on an enormous opportunity to play a decisive role in raising Brazil to the next level in individual power production. If power generation is multiplied, we can definitely contribute to reducing inflation and increasing consumption, consequently bringing about better quality of life for the population and reduction of global warming, translating into a better economic scenario which in turn would guarantee sustainability for these institutions.

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