Friday, 25th May 2012 by Joe Rowley

The third panel at Latin Lawyer′s Third Annual Oil & Gas Conference may have already won the prize for raising the most eyebrows, taking as its subject government efforts in Latin America to decarbonise energy supply and develop the biofuel, wind and hydropower industries.

Chairing the panel was Clifford Chance partner Fabricio Longhin, who began the session by emphasising the "close relationship" between renewables and oil & gas. "There are many ways to look at this relationship," he noted. "One argument is that developing renewable technologies is the right thing to do and should try to replace oil & gas. The other and more practical view would look at how renewable technologies can be better planned and encouraged by governments."

Offering a good example of the strides that can be made through effective government policy and regulation was Machado, Meyer, Sendacz e Opice Advogados partner José Virgílio Lopes Enei, who focused his talk on Brazil′s efforts to develop its biofuels industries. "When you talk about biofuels you have to talk about ethanol," he said, referring to the 27 billion litres of the fuel Brazil produces every year, representing a 95 per cent share of the country′s total biofuels market. "Most of the recent increases in ethanol production have come from the domestic market, but there is huge potential for exports," he explained. "The problem is that Brazil′s main markets - despite a trend in those countries for cleaner fuels and increased regulations - still have a lot of restrictions on importing biofuels. In the US for example the tariff barriers on ethanol may have been overcome, but because local corn ethanol continues to be heavily subsidised it remains hard to enter the markets". He adds that within Brazil′s other markets, such as the EU and Japan, a combination of strict certification requirements as well as concerns of becoming solely dependent on Brazil for biofuels, has also restricted export opportunities to those markets. "It seems counterintuitive, but Brazil would benefit from the creation of other producers of ethanol worldwide as it would spread the risk of the buyer countries," he added.

Offering the view from over the border was prietocarrizosa partner Sandra Manrique, who began her presentation by describing steps taken by Colombia to help the country generate 75 per cent of its energy requirements from large hydroplants (with more currently under construction). While she said that Colombia′s vulnerability to destructive El Niño weather events make it unlikely that they will ever be able to completely remove their reliance on liquid fuels in energy generation, she added that the government should nevertheless seek to change its energy matrix by increasing the use of renewable technologies, as well as by increasing capacity within the system. "Colombia has great potential in geothermal energy because we have lots of volcanoes," she explains. "The problem is we have strict environmental laws, so it is important that we change these environmental regulations." Among these changes, Manrique argues that the government should also develop regulatory and tax incentives to encourage companies to enter markets with high start-up costs. In the short-term, however, she believes it will be events just over the border in Venezuela that will have the most immediate impact. "The discovery of the La Perla gas fields is significant because Colombia needs gas for its thermal plants," she notes. "At the moment Colombia exports to Venezuela, but this new discovery could have a dramatic impact on Colombia′s energy market."

Should Colombia decide to develop its renewable energy industries, Rebaza, Alcázar & De Las Casas Abogados Financieros partner Juan José Cárdenas says the country could look to Peru, which is expecting a raft of wind, solar and hydro projects to come online by 2014. For Cardenas, key to getting the projects off the ground was a new legal regime enacted in 2008 aimed specifically at encouraging wind, geothermal biomass and mini hydro plants. "Among other things, the regime established that the government executes agreements with the winners [of the bidding rounds] and set a premium over the energy tariff to incentivise the projects," he said. When asked what measures Peru was taking to correct the "mishmash" between the tariff set by the government and the falling cost of solar panels determined by the market, Cardenas said that the new price would no doubt be taken into account during the next bidding round, although in the short term he believed that there were "no plans to alter the price" as it is "important to have certainty" when developing a new market.

The session ended on a positive note, with Jose Virgilio Lopes Enei describing the incentives offered in Brazil to develop wind power industry. "The favourable terms offered by the government allowed the industry to get started, but since then manufacturers of wind technologies such as turbines have entered Brazil and helped them become more and more efficient," he explained. "Today wind energy prices are competitive with traditional sources of energy, even with hydro, and are sometimes even cheaper."

(Latin Lawyer 25.05.2012)

(Notícia na Íntegra)