La Jolla Energy Conference: Pandemic, Reality and Hubris?

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The 29th La Jolla Energy Conference ended last week.  Given the current COVID19 emergency, the event faced unprecedented challenges.  Up until March, the plan was for the annual 3-day meeting to take place in La Jolla with energy executives, analysts, academics and US/Latin American officials and experts in the hundreds gathering and sharing the beauty of Pacific shores and sunsets.  Obviously, everything changed quickly and the Institute of the Americas, through its Vice President for Energy Programs, Jeremy Martin and staff, made a quick pivot taking the conference not only tieless but totally remote and online.  The Americas, Europe and the Pacific Rim were all connected in an almost flawless virtual setting.  The Conference moved from a full 3-day format to a Monday through Friday with sessions occurring typically from 8:00 am Pacific time to early afternoon.  Handshakes, hugs, cocktails and dining with views will have to wait until 2021 or?

Here is the link to the full program: https://www.iamericas.org/events/la-jolla-energy-conference-2020/#registrationform

Over the years, this conference has been unique in that it is set in one of the most attractive sites in the US and, most importantly, because it focuses on the evolution and potential of the energy sector in Latin America.  Over the years, the spotlight has been on oil and gas but with a notable shift to renewables.  With the worldwide public health crisis and fall in energy consumption, the conference began by addressing two questions: “Will the changes from the pandemic be permanent or temporary?” and “Is oil dead?”.

In reflecting on the conference answers to these questions, I won’t fully review the whole five days but instead focus on specific regions or countries, specific promises and challenges in the sectors and finally the larger political and economic panorama.

In pre pandemic times, political leaders and the markets expected, if not smooth sailing due to the US versus China trade conflict, at least fairly decent growth and a year of recovery especially in Latin America.  COVID19 reversed optimistic forecasts and brought the energy sector and the larger scale economy to a quick full stop with a total reversal in gains in investment, employment and income.

By Country

In Latin America, all the different countries have gone into emergency mode.  However, those countries such as Venezuela, Ecuador and Argentina which were already having substantial problems are in much worse shape.  Argentina has missed it bond payment and is negotiating a new bail out with the IMF.  Without resources, it cannot develop the Vaca Muerta fields and, as the joke goes, make it Vaca Viva.  Ecuador, with dollarization, finds its treasury empty as there is no demand for its oil.  At the same time, indigenous communities and the poor have pressured the government due to oil spills, environmental disasters and the need for wealth redistribution.   Venezuela’s tragic saga continues with the impasse between Maduro and Guaido while neither side shows any capability in restoring or building institutions and business.  As a result, the massive reserves sit and the Venezuelan oil company (PDVSA) may well be forced out of business within a year or two.

Brazil, on the other hand, was looking to a potentially good year for Petrobras and a year of less anemic growth in the national economy.  Like all oil producing companies, Petrobras (PBR) has been forced to idle much of its production but was still able to export a record amount of oil in April.  The immediate future does not look promising, but PBR has resources and lower levels of international debt.  Its expansion programs will be put on hold, but long term the company will survive and could even thrive with its technical competence and past investments in the pre-salt offshore fields.

Mexico, in turn, is a rather unique case in the international oil business.  PEMEX, the national oil champion, continues to produce in spite of low demand and even with the cost of production outstripping the sale price of a barrel of oil.  President Andres Lopez Amador (AMLO) is doubling down on his bets and his attempt to revive national production.  The conference participants and the market seem skeptical, so much so, that an overwhelming number of participants see PEMEX bankruptcy in the short term.  AMLO seems intent on denying reality and putting a nationalist face on things at least until Mexico’s midterm elections in 2021 where he hopes to be able further legitimize his presidential mandate, halfway through his term.  If AMLO can maintain control of the Mexican Congress, it will be interesting to see if the economic realities of production costs will bend ideological commitment.

Guyana, one of South America’s smallest countries with less than 1 million people, now attracts major interest because its offshore oil reserves are now calculated at over 8 billion barrels.  Exxon Mobil is the major player but with great wealth comes great greed and the country is currently in the throes of a political and presidential succession crisis.  Institutional weakness and corruption threaten the country’s attempt to achieve substantial wealth and economic growth.

Challenges

Before COVID19 and over the past decade, the talk has been about energy transition, wind, solar and other alternative source in accord with the Paris agreement to reduce carbon emissions.  The dilemma is that the world infrastructure and energy costs all favor fossil fuel.  With the pandemic, the oil sector has become increasingly cost competitive not only because of diminished demand but also due to increase in supply with fracking and new discoveries. With renewables, there is a dearth of distribution infrastructure and the high cost of financing.  Petrobras for example continues to flare off gas from its offshore wells.  PEMEX has doubled its flaring to over 500 million cubic feet per day and this waste was described as an “atrocity”.  In the case of Mexico, panelists agreed that a pragmatic approach (meaning market rational) cannot be an option due to the President’s ideological commitment to making PEMEX great again by using it in promotion of AMLO’s Morena philosophy.  Given the prospective worsening of the fiscal crisis, the question arises:  Can the mayor of CDMX (Mexico City), opposition governors, politicians, and businesspeople unite in the promotion of a different energy policy?

Political instability and shifting rules of the game add to the technical uncertainties inherent in oil exploration and production to make investing in Latin America fraught with risks.   High risk, in turn, makes financing more costly even in a low interest environment.

The Political Economy of Energy in Latin America

The La Jolla Energy Conference completed its 29th annual meeting and there is something of value in longevity.  Through good times and bad, there is still reason to meet and attempt to understand and interact with the different players in an ever-changing market.  It is amazing to remember that in the 90’s, the discussions often centered around “peak oil”, OPEC control and loss of oil from the Middle East, especially Iraq and Iran.  Today, in Latin America there are recent discoveries, the possible success of fracking, and a concern about being able to extract a resource while it is still valuable.  Everyone hopes that the COVID19 pandemic will run its course over the next year and that there will be a “new normal”.  For the Western Hemisphere, this means trying to use hydrocarbon resources in a world that is addressing climate change and environmental issues through renewables.  At the conference, there was serious pessimism about the future of national oil companies (NOCs), especially PEMEX, PDVSA, and YPF.  In addition, there was uncertainty about Ecuador, Guyana and PBR in Brazil.  The world public health crisis certainly put a spotlight on the political economy of the sector.  The hydrocarbon reserves are physically available in known and abundant quantities.  The demand crisis threatens values and makes extraction unprofitable in many cases and certainly places question marks around the viability of the state-owned models.  The political realities of the day and the market pressures the NOCs as they cannot operate profitably due to the political intervention of the national governments.  YFP, PEMEX, and PDVSA will continue to fail as long as the politicians attempt to use these entities as cash cows and nationalist political support mechanisms.  Even Brazil’s Petrobras is being forced to change its model for pre-salt exploration and production as last year’s auctions failed to attract international interest.  If this pressure was obvious before the pandemic, it is even more present now.  If production costs are higher than the market will accept and if profit is not readily apparent, the international oil companies will prefer to leave the oil and gas in the ground until they are able to develop a new model and negotiate the terms of presence and “partnership” in Latin American countries.

Back in the last century in the late seventies, there were long lines for gas, high interest rates and something called “dependency theory” as the vogue for explaining authoritarian governments and the role of the US and multinational corporations.  Of course, the shift has been to democracy, regular elections, the opening of markets and the globalization of trade.  However, a populist president in the USA and imitators such as Jair Bolsonaro in Brazil or AMLO, on the left, in Mexico once again show the limits.  With the prospect of world depression and the looming bankruptcies of many companies including NOCs, the Latin American countries and their business elites are once again dependent, and perhaps more than ever on Washington, but not only DC, but also China.  The world’s second largest and fastest growing economy has replaced or is replacing the USA and other western countries as the leading destiny for oil and is the main new source for foreign direct investment (FDI).  China is looking long term at investments in energy distribution, alternative energy, and lithium for the electric car industry and for energy storage.

Going back to the opening questions: Oil is not dead.  Hydrocarbon have a long future especially at low and moderate prices say in the 35 to 40 dollars per barrel range.  The world needs the “lights on” and because fossil fuels they are cheap and available, they will slow alternatives for a period.  However, it remains to be seen how much Latin America can take advantage of this window.  Brazil, for example, lost time in the past two decades due to its back and forth policies on the development of its offshore oil.  Now it lacks funding to move ahead and it is questionable as to what accommodations have to be made to entice China or the western international oil companies to actually enter and produce.  Other Latin American countries are behind Brazil both in diversity of resources for the energy matrix as well as in resources for investment.  So, the future appears disheartening.

Amazingly though, the conference speakers were all relatively upbeat given the gravity of the situation.  There was no firm consensus on if changes would be temporary or permanent, but there was the sense that the changes and challenges could be met.  I would not call it hubris but then again the industry does not have a reputation for humility.

The Conference will hopefully be back live and in person next year in La Jolla and there will another opportunity to evaluate the changes post pandemic and see what the new normal might look like.

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La Jolla Conference speaker and lithium expert, Emily Hersh, illustrates how to go “tieless”.

 

 

 

 

 

 

 

 

Cup and Culture

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Source:Altivo Neto,  http://www.180graus.com

The World Cup is underway and Brazilians have painted their neighborhoods in the national colors.  However, as the Folha de Sao Paulo reports, residents have used Argentina’s sky blue and white instead of Brazil’s green and yellow.  Although perhaps partially in jest, the paint job reflects Brazil’s perplexing and difficult moment. Indeed, Brazil played a disappointing 1 x1 tie in its opener against Switzerland and President Temer is officially Brazil’s least popular President with a rejection rating above 80%.  So not much room for optimism.   The electoral campaign for the general elections in October will not officially start until after the end of the Cup but the field of candidates, if one can believe the polls, comes down to right wing former military captain Jair Bolsonaro, leftist former governor Ciro Gomes, environmentalist and former candidate in 2014, Marina Silva and Sao Paulo’s former governor and perennial presidential candidate Geraldo Alckmin of the PSDB.

Former President Lula has watched from jail in Curitiba over the last 2 months but continues to insist he is candidate although his corruption conviction excludes his running.  If he is included in the polling, he leads all candidates by a good margin.  Lula also has an appeal pending and it is being judged on June 26 in Brazil’s Supreme Court.  A favorable ruling could lead to his release but he would still be forbidden from running according to election rules.

While the Cup and Carnaval usually bring out Brazil’s well known creativity and light hearted improvisation, things seem to be different this time around as the blue and white paint job in Teresina seems to show.  The economy has barely pulled out of the two-year recession which started in earnest in 2015 and the current estimates for growth will perhaps, at best, keep up with Brazil’s demographics at 1.7 percent per year.  The Temer administration adopted a slogan that Brazil had come back 20 years in 2”.  The population, of course, understood this to mean that Brazil had gone back 20 years in the 2 years since Temer replaced impeached President Dilma Rousseff.

Brazilians are upset.  They have rejected the entrenched politicians and their support of populists to the right (Bolsonaro) or to the left (Ciro) indicate not so much their love of the candidates but mainly the despair of the old political system and the corruption.  Faith and favor in democracy is at an all-time low as Brazilians perceive that politicians have manipulated the system to their exclusive benefit.  While the vote is mandatory, close to 40% of the electorate are likely to null their ballots showing their revolt and consternation.

The foul mood correlates closely with the economic stagnation.  Those with resources are seeking opportunities in Portugal, other European countries and the US even in the face of Trump’s anti-immigration policy.  Brazilians love traveling abroad but only leave definitively when they feel the doors of opportunity have closed and they need to find hope (a defining characteristic of the Brazilian personality) outside the country.  Veja, one of Brazil’s leading news weeklies, reports that some 62% of Brazil’s young people would abandon the country if they could.

Brazilian essayist and play write Nelson Rodrigues during the World Cup of 1958 identified Brazil’s “stray dog” complex as a result of the monumental Maracanazo loss to Uruguay in the World Cup Final of 1950.  He also noted Brazil’s countervailing extreme in the feeling that with Brazil’s first Cup win in 1958, no other country can match skill and innate creativity of the Selecao as evidenced by its unmatched 5 Cup trophies.  Still, moods swing to extremes.   When the national team performs well, everyone takes part with exuberance and solidarity.  When things go poorly, people lament, complain and cry collectively.

Fernando Lanzer and Jussara P. Souza, in their recent book Para Entender a Cultura Brasileira, use Gerd Hofstede’s cultural dimension methodology to interpret.  Indeed, Brazilians score high on Hofstede’s collectivism measure where individuals define themselves as members of a collective group.  They also score high the “power distance” or acceptance of authority and authoritarian aspects of society which affect the individual.  A third dimension deals with “uncertainty avoidance” and here Brazilians also score relatively high demonstrating a desire for predictable and stable situations.  The combination of these measures might help explain the popularity of Bolsonaro or Ciro Gomes or even Lula’s popularity as a benevolent, yet strong, paternalistic figure.

Of course, culture challenges sociological measures and even using all 5 of Hofstede’s dimension in combination, it is still impossible to accurately predict what factors will lead to mass protests or even lasting celebrations.  Everyone knows that carnival lasts less than a week but Brazil’s skepticism regarding the national team will only be alleviated if Marcelo and his companions can kiss the trophy again and even such a victory is pyrrhic  Certainly more is needed to cure and mature the national psyche.

Brazil’s needs are clear and they go beyond the Cup, futbol and partying.  These are diversions and the real demands are for economic growth with less inequality, better basic education, more individual responsibility and respect for others.  While simple, their achievement requires consistent investments in the basics (education, health, water and sewage).  However as long as there is no consensus and polarization continues, Brazil relegates itself to stray dog status, a country with potential but without success.  On the other hand, as Brazilians leave the country, and get increased exposure to the rest of the world, there is also the possibility of broadening participation, greater access to mobility through individual initiative and a recognition of the good readily available in the Brazilian mind, heart and soul.  Mexico’s great educator, Jose Vasconcellos, called Brazil’s mixture the great universal race and It is still possible that this great mestizo country may yet find a way out its quandary.

 

Lula in Jail: Hope, Despair and Elections

LulaPresoELPaisPhoto from El Pais: Lula Arriving at Federal Police Prison in Curitiba

Former President Lula, Brazil’s best loved and most hated personality is sitting in jail, hoping for and probably expecting an early release. But it is too soon to tell when this might happen.  While the PT insists that he is their candidate, it is also obvious that he will not be allowed to run for another term as president.  The polls place Jair Bolsonaro in first place in a race without Lula. But Bolsonaro has no party and his support will likely shrink.  Marina Silva has entered the race again and will attract the green vote and some on the left.  She has to compete against the Cearense Ciro Gomes.  So in the center or center right, we have the Governor of Sao Paulo, Geraldo Alckmin.  Former Supreme Court President, Joaquim Barbosa, has also joined the race and currently ranks higher than Alckmin with 8 percent in voter intent.  Obviously, it is still early and much has yet to happen before the first round of voting on October 7.  Barbosa’s entry is fascinating as it will test Brazil’s mythical racial equality and pits him neatly against the racist/sexist epitaph spewing Bolsonaro.

Because the PT has won the last four presidential elections, there is an illusion on the left about support for the ideology of the worker’s party.  The problem is that the left did not win; Lula WON, as a populist willing to offer something for all.  While Lula’s popularity is his major strength, it has also turned into a millstone.  He is no longer acceptable to the elite and the media. This has hastened his conviction although the malfeasance of his governments is unquestionable.  His “expedited” removal from the election reflects establishment fear of his return and the rejection of PT’s statist economic policy (New Economic Matrix) as dysfunctional for Brazil.  Of course, the PT’s burden of corruption also played a role even while “morality” is only relative in contemporary politics. Trump, for example, refuses to show his tax returns and comingles business and government.  While Macron, in France, is seeking to reduce the role of the state, his administration has also been questioned for its honesty in negotiating the rail strike and his handling of his cabinet.

While the upcoming presidential election is the marquee event, it also is only a part of the puzzle.  The make up of Congress after the vote will have equal or perhaps greater weight.  Brazil’s political parties have never been about ideologies but instead personalities.  Such is the case even of the supposedly ideal driven PT, which has little support without Lula. The same applies to all other parties.  The many parties represent regional and local alignments of those wielding economic power.  Because these competing forces control Congress, funds from the central government have been essential for assuring governability.  President Temer, for example, comes from the “Centrao” or a coalition of specific economic and local interests.  He has lost his political capital trading benefits for support in escaping trial by Congress on inevitable and obvious cases of corruption.  These same politicians – in order to preserve their office and benefits – have protectively ensconced themselves.  They may voice support for reform but fail to act or promote change in party structure, the electoral process and campaign finance.  As things currently stand, the status quo will prevail in the next Congress and the new president will again be faced with having to “buy off” a venal and fractious set of legislators.

Given the popularity of the anti-corruption movement, the Lava Jato, and the demands for reform, one could speculate that there might be an opening for a new set of less tainted political actors.  However, this is not exactly the case.  Rio de Janeiro is probably the most obvious example of the systemic shortcomings, which inhibit reform.  A little over a month ago, the popular Councilwoman Marielle Franco was brutally executed by professional hit men.  Police, under army supervision, have made little headway in solving the case. In the meantime, another community leader with whom councilwoman had contact was also shot down.  These deaths come about because powerful economic forces tied to organized crime dominate significant areas of Rio. They have their hands in many activities both legal and illegal.  The weakness of public authority has allowed organized criminal gangs and interests to effectively replace it and control large swaths of voters.  In addition, lack of literacy and the inability to see through false promises makes the electorate prey for opportunists of all types including criminals.  Marielle was perceived as a threat to these interests and paid dearly.  Her example makes others fearful to enter the fray.  Overall, the homicide rate continues unabated.

Brazil needs and deserves change. It is important to note that politics as reported in the news fails to show the whole picture.  Brazil’s economy is improving after the long recession.  Civil society is alive and active in spite of the backward obtuseness of the educational system and the quasi-monopoly Globo TV holds on the mass media.  But, Brazil is bigger than its government and officialdom. The productive possibilities in the country contradict and outstrip the fiscal and employment limitations of the state.  Clearly politics and the economy interlink but anyone on the ground also knows there are degrees of freedom and multiple opportunities.  Progress is slow and halting, but it still happens.  The mood is not good but there is still life on the beach and hope for the Selecao.

 

Life and Death in Rio: Marielle Franco

IMG_0887Source: author’s photo of Veja magazine cover

I arrived in Rio on Mar. 14, 2018 the same day that Marielle Franco was assassinated. Unless you reside in Rio, Marielle was not well known. Certainly she was not the national figure that she has become since her execution. Elected to the Rio City Council with 40 thousand plus votes, she was the 5th leading vote getter and seen as a woman of great political potential. She was different from traditional politicians. Ms. Franco was born in the slums, was mixed race, and open and comfortable in her homosexuality. She received her BA from Rio Catholic University had master’s degree and had published on race, gender and human rights. On the left of the political spectrum, she courageously spoke against political and economic inequality, crimes perpetuated against the poor and black and to a significant extent against police brutality in the slums. On the night of her execution, she was returning from a meeting of black women about discrimination, struggles and the means to empowerment. In sum, she was a rising voice seeking to be heard in the cacophony of Rio’s decadent and corrupt political environment.

Political assassinations have gradually become more common in Brazil but most are related to local disputes often among feuding and traditionally powerful dominant families. Marielle’s assassination reminds us more of the killings of Chico Mendes or Dorothy Stang in the more remote regions of Brazil with the almost total lack of institutionalized systems of law and order. While Rio is certainly a crime center and notoriously dangerous, almost all of the weekly double-digit death toll is that of young black men somehow caught up in territorial disputes over drugs, arms and the control of other criminal activities. The situation in Rio reached what many considered its limits in February of this year after an even greater crime surge during “Carnaval”. President Temer, looking to gain some political advantage, declared a military intervention and the Army assumed control of public security in Rio. Given the timing, Marielle’s shooting must be viewed as a serious challenge to the Army and, indeed, the President declared that the attack was aimed at Brazil’s democracy.

Brazil is formally a political democracy with regular elections and an active and fairly open press.  Brazilians regularly reject control although many long for an imagined but totally unreal security of the authoritarian rule by the Generals (1964-1985). On the other hand, all types of inequalities undermine Brazil’s formal political system and almost all institutions are tainted and function as might be expected in a poor underdeveloped country. The elite corporations depend upon extractive industries and a highly protected internal market that barely requires increased productivity or an informed and competent workforce.

As in the United States where mass killings fail to mobilize the electorate or create a critical mass for change, it is unfortunate that this most recent stain on Brazil will have much effect. True, there have been some important public manifestations and protests here and even abroad, but still Brazil is typically more passive than aggressive. Public rage can set a tone and the streets can grab the attention of the political class but thus far the beaches are more crowded than the squares. People are upset but outside of the social media channels, there are few suggestions that this tragic death will change anything. Thus those who planned and hired this hit have sent their message. They have intimidated, they have stated their case for the status quo of uncontrolled crime, violence and malfeasance which strain, stain and sustain Brazil’s political status quo.

Some suggest that Brazil’s violence has metastasized and will eventually lead to the death and collapse of the system. The problem with this view is that fails to account for the resilience of accommodation. People continue to accept criminality, inequality, stupidity and corruption as the norm. Live with it or leave.

Qualcomm and Brazil: Semiconductors in Sao Paulo

Screen Shot 2018-02-12 at 16.59.24Qualcomm is San Diego’s claim to fame in high tech.  The company was founded by Irwin Jacobs and held naming rights to our major stadium until the Chargers decamped to Los Angeles last year.  Currently, the company faces a hostile take over bid from its competitor Broadcomm.  It is not clear, at this point, if the Broadcomm will have success but Qualcomm has also faced litigation with Apple over patents and royalty payments

In the larger scope of Qualcomm”s endeavors, Brazil has not been that significant although the company has had a presence there at least since the 1990’s with its Omnitrac system, which the corporation sold several years ago.

Qualcomm now has just announced plans for an important joint venture to build a major semi-conductor module  factory in Sao Paulo.  Investe Sao Paulo, which has also worked with All Abroad Consulting has provided significant support to Qualcomm and their Chinese joint venture partner ASE.  My friend, Sergio Rodrigues Costa, the Managing Director at Investe Sao Paulo stated: “The implementation of this project has the support from Investe São Paulo, the investment promotion agency of the state government, which is advising Qualcomm and USI on site location, environmental, infrastructure and tax matters. We are proud of serving this investment, offering strategic information key to the success of the project,”  More information can be found at http://www.investesp.org.br

Here is the press release from Qualcomm and ASE:

Qualcomm and USI Enter Agreement to Form Joint Venture for Semiconductor Module Factory in Brazil FEB 5, 2018SAO PAULO Qualcomm products mentioned within this press release are offered by Qualcomm Technologies, Inc. and/or its subsidiaries. In São Paulo today Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated, and Universal Scientific Industrial (Shanghai) Co., Ltd. (USI), a subsidiary of Advanced Semiconductor Engineering, Inc. (ASE), signed an agreement to form a joint venture. This joint venture, which remains subject to various closing conditions, would focus on an installation of a semiconductor module facility in São Paulo dedicated to the design, development and fabrication of modules and components for smartphones and IoT devices in Brazil. The agreement formalizes the non-binding memorandum of understanding signed by the two parties in March 2017 with the Ministry of Science, Technology, Innovation and Communications (MCTIC), the Ministry of Industry, Foreign Trade and Services (MIDC) and Investe Sao Paulo, representing the Sao Paulo State government. The agreement to form the joint venture is a result of ongoing collaboration among Qualcomm Technologies, USI and the government entities who have been working together to lay the foundation and foster the growth of the semiconductor industry in Brazil, as well as set the conditions for the possible creation of this joint venture. Building on the heritage and industry leading Qualcomm® technologies, the flagship products of the joint venture will be a line of system in package modules powered by Qualcomm® chipsets and the modules include, in a single component, the radio frequency and digital components for smartphones and IoT devices. These products are designed to help dramatically simplify the device engineering and manufacturing processes, and should also provide cost and development time savings to OEMs and IoT device manufacturers. Manufacturing these components in Brazil may also assist in the reduction of the import deficit of integrated circuits, by expanding and diversifying the Brazilian production of semiconductors. “The platforms and solutions of Qualcomm Technologies continue to support and accelerate the mobile industry and beyond,” said Cristiano Amon, president, Qualcomm Incorporated. “The collaboration between Qualcomm Technologies and USI aims to develop best-in-class solutions for smartphones and IoT system platforms by offering connectivity, security and accessibility that customers need to create innovative products and better user experiences.” “This project should help foster the adoption of IoT in Brazil, as some of the technology platforms being supported by this joint venture will be designed with an eye towards helping to facilitate the development and manufacturing of connected devices beyond smartphones across the country,” said Rafael Steinhauser, senior vice president and president, Qualcomm Latin America. “USI has been at the forefront of miniaturization technology for more than 15 years. Our track record and experience make us an ideal collaborator for the manufacturing of highly integrated multi-component modules used in smartphones and IoT devices,” said Mr. C. Y. Wei, president of USI. “Brazil is the largest economy in Latin America with a significant growth potential for integrated modules. USI will be utilizing the technological competence of its parent company, ASE, to help build up the semiconductor cluster in Brazil and Latin America. We are excited to be a part of this joint venture that could help boost local employment in the next five years,” he added. “The creation of this joint venture by world class companies is a major step towards the insertion of Brazil into the global semiconductor chain, accelerating the development of high technology products and creating important competencies in our country by bringing highly specialized jobs to Brazil in the areas of design and manufacturing of semiconductor modules”, says the Minister of Science, Technology, Innovations and Communications, Gilberto Kassab. The joint venture is likely to be set up in the state of Sao Paulo as a result of the effort and collaboration between the State of Sao Paulo, USI and Qualcomm Technologies. Assuming successful formation, the joint venture is expected to start manufacturing in 2020. About Qualcomm Qualcomm’s technologies powered the smartphone revolution and connected billions of people. We pioneered 3G and 4G – and now we are leading the way to 5G and a new era of intelligent, connected devices. Our products are revolutionizing industries, including automotive, computing, IoT, healthcare and data center, and are allowing millions of devices to connect with each other in ways never before imagined. Qualcomm Incorporated includes our licensing business, QTL, and the vast majority of our patent portfolio. Qualcomm Technologies, Inc., a subsidiary of Qualcomm Incorporated, operates, along with its subsidiaries, all of our engineering, research and development functions, and all of our products and services businesses, including, our QCT semiconductor business. For more information, visit Qualcomm’s website, OnQ blog, Twitter and Facebook pages. About the ASE Group The ASE Group is among the main independent suppliers of semiconductor manufacturing services in mounting, testing and conception of materials and design fabrication. As a global leader, it meets the growing demands and necessities of the industry for more performance in faster and smaller chipsets by developing and offering an ample portfolio of solutions and technologies that include design of integrated circuit test programing, front-end engineering tests, wafer probes, flip chips, systems in package, final test services and manufacturing of electronics through Universal Scientific Industrial Co., Ltd. and its subsidiaries, members of the ASE Group. For more information, visit the website www.aseglobal.com. About USI USI is a global ODM/EMS leading company providing design, miniaturization, material sourcing, manufacturing, logistics, and after services of electronic devices/modules for brand owners. USI is a member of ASE Group and has been listed in Shanghai Stock Exchange in 2012. It has many years of experience in the electronics manufacturing services industry and leverages the industry-leading technology of ASE Group, which enables USI to offer customer diversify product in the sectors of wireless communication, computer and storage, consumer, industrial, and automotive electronics worldwide. Through the sales service network in North America, Europe, Japan, China, Taiwan, and manufacturing sites in China, Taiwan and Mexico. USI has about 15,000 people worldwide. For more information, please visit the website www.usish.com.

The proposed investment is reported at approximately 200 million US dollars with funding coming from the BNDES, Qualcomm and ASE Group.  It is also important to note that this announcement was first made in March of 2017 and hopefully with Investe SP and the new announcements, the project is ready to move forward.  On the positive side, it definitely shows that Qualcomm has a long term commitment to Brazil, while the downside could be a change if the Broadcomm acquisition goes through and leads to a change of plans.  Semiconductor plants and their functioning depend on the rapid evolution of technology and production processes.  Such plants can quickly become obsolete if the technology is not continually upgraded.  It is unlikely, in my opinion, that Qualcomm will be making the latest versions of its Snapdragon chips.  Nevertheless, the project represents technology transfer and the creation of high tech opportunities which Brazil needs and welcomes.

 

 

 

 

 

Institute of the Americas: XXVI La Jolla Energy Conference

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Since the early nineties, the Institute of the Americas at the University of California, San Diego campus has promoted an energy dialog bringing together top level executives, academics, consultants, hands on practitioners and journalists.  The exchange of information is always enlightening and the President and the staff of the Institute, especially Jeremy Martin, deserve kudos for promoting and organizing this important two-day meeting.

Here is the link to the event with the list of topics and of the distinguished speakers and panelists: https://www.iamericas.org/lajolla/

This year’s meeting could hardly have taken place at a better time.  The political economic crisis in Venezuela is ongoing, Brazil is in the midst of its second impeachment or presidential change in less than a year, Argentina’s new administration is seeking a more open and market oriented path for the use of its extensive oil/gas resources and suddenly, the small and often neglected Guyana is facing a surfeit of riches with the recent discovery of major offshore reserves.

The picture at the beginning of this text is of the panel: Brazil’s Energy Reset. On the left is Paulo Sotero, a journalist by trade and the Director of the Brazil Institute at the Woodrow Wilson International Center in Washington, D.C.  Seated with him are Rafael Ferreira of the state sponsored Energy Research Office and Andre Regra of Brazil’s regulatory ANP (Agencia Nacional do Petroleo).  Jay Thorseth, a Latin American Director for British Petroleum is between Andre and Rafael.

The perspectives from Brazil panel were quite representative of the other discussion at the Conference.  While each country has its particularities, representatives of the public sector, the private sector and academia or journalists showed unique perspectives.  Both Andre and Ricardo, for example, emphasized the reset of Brazil’s energy sector and hued pretty much to the government narrative.  Implicit in their presentations was the shift from a nationalistic PT (Brazilian Labor Party) perspective to greater market openness.  Both noted Brazil’s resumption of oil field auctions and the reduction of local content requirement that had previously put off many international investors and oil companies.  Jay Thorseth of BP, while polite and diplomatic, presented the private sector’s perspective, emphasizing the need for market realism.  Thorseth said governments need to favor foreign companies to be competitive and to access to capital, technology, knowledge and skills.  Auction and participation terms need to take into account Brazil’s need to be an attractive destination world-wide in terms of cost, profit and royalty payments.  If there are better deals elsewhere, then it is likely that the big oil companies or the so-called majors will favor these over a restricted Brazilian market.

Paulo Sotero started by remembering his previous writing on the major crisis and downfall of Brazil’s economic and political system.  This reminder, while obvious, became something of the elephant in the room.  Presenters with government ties were loath to recognize that their initiatives toward opening the energy sector depend not only on technocratic criteria but also on politics.  Thus, when Brazil’s President Temer departs, his replacement will reorder the chairs in the oil sector and in public companies like Petrobras and others in energy production and distribution.  Likewise in Mexico, President Pena Neto is in the last year of his term and essentially a lame duck.  If AMLO (Andres Manuel Lopez Obrador), a popular figure on Mexico’s left, is elected, Mexico’s energy reset will also certainly have a different orientation.   Representatives from Mexico’s public companies emphasized change in legislation in the hope of ongoing modernization and expansion of both oil and gas exploration and distribution in partnership with the private sector.  Optimistically speaking, resource nationalism is seemingly buried, but in Latin America it often rises phoenix like.  Private sector players must always be worried about institutional weakness as regulations and norms or the lack thereof thwart intentions.  Governments and businesses want to mobilize Latin America’s ample energy resources but this depends on the modernization, increased transparency, and durability of the rules of the game.  And these rules, in spite of promised advances, are still being negotiated.

The Conference provided a lot of detail on resources, processes, government action and private company plans.  The major discovery of oil in Guyana certainly will impact markets and already directly affects Venezuela and Brazil.

Finally, the presenters noted that even for traditional oil and gas players, alternative energy is now mainstream and has great significance and unlimited potential for development.  Nevertheless, petroleum and its derivatives will be the major source of energy for their economies for at least another generation.

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Foreign Direct Investment in Brazil

Below is a short article published today (Jan 25, 2017)in the international edition of Valor. Some of the questions that come to mind are:

What sectors are receiving the largest inflows?  I would think most likely petroleum exploration with the loosening of restrictions.  The primary sector also is important with the growth of soybeans and large investments in eucaliptus for the pulp industry.

Where are these flows coming from?  China promised 10 billion but the Chinese are notoriously slow in fulfilling their promises.  What companies and countries are the source?  The US has the largest stock of accumulated FDI

Finally, as noted in the article, FDI in Brazil, in spite of uncertainty, recession, political crisis, disease, accidents, death and decline, keeps growing.  Someone must be thinking long term.

FDI reaches record 4.4% of GDP despite recession and political crisis

Recession, impeachment, political crisis, and corruption scandals have not affected the flow of foreign direct investment into the country, which ended 2016 at $78.9 billion, or the record level of 4.37% of GDP. The investment inflow, spread across various sectors of the economy, financed easily the current account deficit, which stood at $23.5 billion, or 1.3 percent of GDP. “This shows that direct investments have specific characteristics, linked to long-term decision and could be maintained even in years of weak economic activity,” said Fernando Rocha, head of Central Bank’s Economic Department. For 2017, the forecast is of $75 billion in FDI, or 3.82% of GDP. 

Article from Valor International Edition, Jan. 25, 2017