The Brazil agenda: lithium investments add to gas pipeline funding

Economy Ministry officials will travel to Brazil on Wednesday to advance on the fine print of the announcement Lula da Silva made in Argentina. The main topics include a gas pipeline from Vaca Muerta to Brazil and a joint effort to build a lithium industry.

A delegation from the Economy Ministry will travel to Brasilia to move forward with the fine print of the bilateral agenda with Brazil, following President Luiz Inácio Lula da Silva’s visit to Argentina. A key issue will be added to the agenda of purchasing electricity and financing the Néstor Kirchner gas pipeline to export gas to Brazil: the joint exploration of lithium and the interest of Brazilian investors in contributing to the industrialization of the mineral.

The delegation will be comprised mainly of energy officials: Energy Secretary, Flavia Royón; Hydrocarbons Undersecretary, Federico Bernal; Energy Planning Undersecretary, Cecilia Garibotti; Institutional Coordination Undersecretary María Florencia Álvarez Travieso; and the general manager of wholesale power market administration company Cammesa, Sebastián Bonetto. Sources don’t rule out the possibility that Economy Minister Sergio Massa and the president of Banco Nación, Silvina Batakis, could also attend, due to the financing agenda for foreign trade.

While officials leave for Brasilia on Wednesday, the meetings will take place on Thursday, together with Brazil’s Minister of Mines and Energy, Alexandre Silveira. The main topics at the meeting will include the purchase of electricity from Brazil and the shipment of Bolivian gas to Argentina, so that the government can guarantee energy supply in 2023.

These negotiations take place because, while the government trusts that it will be able to deliver the first section of the Néstor Kirchner gas pipeline on schedule, this will not result in energy self–sufficiency. The Economy Minister is betting that they will complete the work by June, given the need for energy, but also for foreign currency: they believe that having the gas pipeline will reduce energy imports –which reached record levels last year– and this will “compensate” for reduced dollar income from the agricultural sector as a result of the drought.

From Vaca Muerta to Brazil

One of the major issues yet to be resolved is how the BNDES (Brazil’s Development Bank) will finance the Brazilian industry for the provision of inputs for the construction of the next sections of the gas pipeline. “Brazil is in need of natural gas, as we saw last year with all their LNG (liquified natural gas) imports, and Bolivia is also in decline,” said a source from the Energy team.

Sources explained there are two ways to flow gas from Vaca Muerta to Brazil. One involves going via Bolivia, by flowing it through the second stage of the gas pipeline (from Salliqueló in Buenos Aires province to San Jerónimo, in Santa Fe) and then using the current network in the north of the country and in Bolivia to reach Brazil. “You don’t need much more infrastructure there, but you depend on the Bolivian crossing, on them not turning the key off or asking you for an excessive transportation fee,” they explained. The other option would be for Brazil to build a gas pipeline of about 600 km –that is, about US$1.8 billion– to connect with San Jerónimo and flow it directly from there.

Economy Minister Sergio Massa received confirmation that the Development Bank of Latin America (CAF) will provide US$540 million in financing for the construction of the La Carlota–Tío Pujio gas pipeline, the northern reversal and the compression plants. It is not yet clear how much gas Argentina will export to Brazil: how much will be consumed in the domestic market is also undefined so far, since they will be able to supply the northern part of the country.

At the moment, the engineering part has been carried out, but the bidding for the civil works hasn’t, as it has not yet been launched. In a conversation with journalists, businessman Marcelo Mindlin, owner of the Sacde construction company (of the Pampa Energía group) revealed that they are investing in order to participate in the process.

Lithium and SMEs

A relevant topic in the meeting will be how to achieve integration with Brazil in relation to lithium. On the one hand, because there are Brazilian investors interested in contributing to the value chain of the electric vehicle industry: Argentina has the mineral and, like Brazil, several automotive terminals, so there could be integration in this area. The electromobility bill that is now in Congress will soon expire, so the Government is working on a new one.

For this reason, the Undersecretary of Mining, Pamela Morales, will also participate in the delegation. In addition, another issue will be how to move forwards in the joint exploration of not just lithium but also copper, iron ore, potassium and other raw materials. A few months ago, Mendoza governor Rodolfo Suárez traveled to Brazil looking for investors. Brazil produces iron that Argentina imports. But Brazil also imports a lot of potassium that Argentina could provide in future from the Colorado River project, which could help equalize the trade balance between the two countries.

It remains unclear how much progress will be made with the announced financing to expand foreign trade. The president of Banco Nación, Silvina Batakis, may join the delegation, invited by Massa. During Brazilian Finance Minister Fernando Haddad’s visit to Argentina, they announced a commitment to implement a 366-day import financing line between Banco Nación and Banco do Brasil. According to official sources, the amount is not defined yet, but officials at Banco Nación aim to make US$500 million available to finance imports, with rates between 6 and 12%.

As explained by sources from Banco Nación, this is only possible because the bank has reciprocity in lines of credit with its branches abroad. Their explanation was: “The bank cannot ask the Central Bank for dollars to lend, but it can lend the profitability it obtains from its branches abroad. Banco Nación is profitable and will be available to the production sector.” Last year, the financing in dollars was below US$200 million, so they aspire to more than double the financing in 2023.

Originally published in / Translated by Agustín Mango


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