Hydrocarbon investments in Peru to total US$ 2 billion in 2010

Investments in the hydrocarbon sector projects in Peru would amount to 2 billion dollars taking into account the implementation of various ongoing projects and those in the planning stage, reported Peru's National Mining, Petroleum & Energy Society (SNMPE).

According to the president of the SNMPE Hydrocarbon Committee Guillermo Ferreyros, the biggest investment in the hydrocarbon sector this year is the execution of a liquefied natural gas project of Peru LNG in the country.Export operations are scheduled to commence in the second quarter of 2010. In 2009, Peru's hydrocarbon sector received $1.6 billion and if the works are carried out according to schedule, the accumulated investment in 2010 would be higher.

The Peru LNG project is set to be one of the most important resources of the Peruvian government's future energy strategy. The project, which was launched in January 2007, will also be one of the largest industrial projects ever to be undertaken in Peru.

The international project consortium for the project consists of Hunt Oil Company of the United States, SK Corporation of Korea and Repsol YPF of Spain. The operator for the Peru LNG gas export project will be Hunt Oil Company as the subsidiary Hunt Oil Peru.

The hydrocarbon project offers opportunities for supply of inputs for the project.

Reliance from India has entered Peru for exploration of oil and gas.

Falabella expands with 1.74 billion dollar investment

Chile's Falabella Department store chain announced on 14 January that it would invest $1.74 bn 2010 to 2012 to expand its operations. Falabella is one of South America's top retailer. It has 65 department stores, 95 Home Depts and 33 supermarkets located in Chile, Argentina, Colombia and Peru. It has eight stores in Buenos Aires itself.

It plans to invest around $492 million this year, $620 million in 2011 and $632 million in 2012. Falabella invested $280 million in 2009. The company has expanded its businesses in the region over the years.

Falabella sells clothes, hometextiles, electronics, furniture, healthcare products and other such consumer goods. India is an important source of their purchases. Indian companies can expect more business from Falabella in the coming years.

Devaluation of Venezuelan currency Bolivar – 8 January 2010

This was announced by the President of Venezuela on 8 January. Besdies devaluation, the President also introduced a two tier exchange rate system. The bolivar will now have two government-set rates: 2.6 to the dollar for transactions deemed priorities by the government, and 4.3 to the dollar for other transactions.

The priority exchange rate of 2.6 Bolivar for a dollar will apply to imports of priority items such as food, machinery and equipment for economic development, health care items and books and supplies for schools, family and pensioner remittances as well as public sector imports. For all other imports and non essential items the exchange rate of 4.3 will apply.

Before this devaluation, the official exchange rate had been held by the government at 2.15 bolivars to the dollar after the last devaluation in March 2005. President Chavez imposed exchange controls in 2003 after the coup attempt against him. At that time the exchange rate was 1600 Bolivars to a dollar. In February 2004 the rate was changed to 1920 Bs for a dollar and later in 2005 it was further devalued to 2150 Bs to a dollar. In January 2008, the government changed the currency to a a strong Bolivar ( Bolivar Fuerte) and fixed the new rate at 2.15 to a dollar, eliminating three zeros from the old currency.

The black market rate in January 2010 is 6.25 Bs to a dollar. Because of the foreign exchange restrictions and complicated procedures to get foreign exchange, there has been a thriving black market in foreign exchange transactions since 2003.

According to observers, the new exchange regime is a reminder of a similar situation in 1983, when President Luis Herrera Campins devalued the bolivar and established a multi-tiered exchange system, known as Recadi, after oil prices plunged. Inflation soared to 40 percent in 1987 from 7 percent in 1983 as capital flight led Herrera Campins’s successor, Jaime Lusinchi, to devalue the currency further. By the time Carlos Andres Perez replaced Lusinchi in early 1989, the system had collapsed. The country was running out of foreign reserves and food shortages were mounting. Perez eliminated the multi-tiered system, unifying the currency at the free-market rate, and lifted price controls. Consumer prices soared 21 percent in one month alone, leading to the “Caracazo” riots that killed hundreds and spurred a military coup attempt.

Venezuela has the highest inflation in Latin America and one of the the highest in the world. The inflation was 29.5 % in 2009 and is expected to worsen and reach 30% in 2010. It may be noted that the average inflation of Latin America was 6.1% in 2009 and is projected to decline to 5.2% in 2010

The government of President Chavez sets retail prices on hundreds of products and threatens strong action against violations. The President announced this week that the military would monitor prices of essential items in shops.

There is an energy and water crisis in the country. President Chavez has advised the Venezuelans to shorten the shower time and not sing in the bathroom. The crime rate has reached unprecedented proportions.

Poor Venezuela... so rich in oil, minerals and natural resources...and yet so poor...

Scores of 2009 and Promises of 2010 for Business in Latin America

2009 Scores
Messi won the best football player award of the year
Del Potro won US Open tennis
Luciana Aymar was selected as world´s best woman hockey player for the fifth time this year
Loreena Ochoa retained number one ranking in women´s golf
Cambiasso, the world´s best polo player won the Polo Open
Cabrera won the Masters Golf
And… Brazil won the Olympics venue, beating the heavyweights. ¨Sim Podemos¨ overtook ¨Yes we Can ¨.

The Latin American market could not score that well in 2009, since it got hit by the global crisis. GDP of the region fell by 1.8% in 2009, after having had an annual average growth of 4.8% in the previous six years. In 2009, ten countries managed to grow between 0.2% and 3.5%( Bolivia) while ten countries suffered GDP contraction ranging from -0.4% to -6.7%( Mexico). Exports and imports decreased by about thiry percent.

The good news is that the region did not go under due to the external shock as badly as it would have done in the past. Here is what Pamela Cox, vice president of the World Bank Vice President Latin America & The Caribbean wrote on 28 December 2009 under the title ¨Latin America enters new decade with more clout ¨,
“What a difference a decade can make. Ten years ago, Latin America and the Caribbean received the new century in the midst of tremendous uncertainty. …Today, the picture looks very different. News of default jolts other regions - not Latin America. Thanks to sound fundamentals, such as improved financial regulation and supervision, budget surpluses, and high international reserves, the region has weathered the current crisis without massive currency devaluations, bank collapses, debt defaults, inflationary spikes or capital flights. In other words, the region has learned from its past and is on track toward a better future¨

The OECD Latin American Economic Outlook 2010 says,
“ Latin America has not escaped the global economic crisis, but it has stood up to it with a new resilience. However, it is already apparent that Latin America is rebounding from the shock more rapidly than the majority of developed economies. Most importantly, it is doing so without compromising its significant progress towards its long-term development goals.”

Growth in domestic demand helped many countries to tide over the global crisis. For example, auto sales in Brazil increased to an impressive record of 3.01 million units in 2009 from 2.66 million in 2008. The sales are expected to increase by 10% in 2010. What is more… General Motors Volkswagen and Ford plan to invest a combined 14.2 billion reais ($8.3 billion) in the coming years to increase production capacity. More .. in my article ¨ "Brazil: Short skirts and Big B arouse Global Interest" published in Miami- based Latin Business Chronicle - 17 December.

Average inflation of the region is estimated to have declined to 4.5% in 2009 from 8.3% in 2008. The currencies and exchange rates remained stable. Some currencies such as Brazilian Real strengthened while Mexican peso maintained its rate and Argentine peso depreciated.
External debt was within manageable limits. The Brazilians rewrote the history of Latin America by becoming Creditors from Debtors. They lent US$ 10 billion to IMF in 2009 !

Politics
The region continued its consolidation and strengthening of democracies with regular elections and peaceful transfer of power with the exception of Honduras. In the 2009 elections held in Ecuador, Bolivia Uruguay, and El Salvador Leftist presidents were reelected / elected. In Panamá a centre right candidate became the President and in Chile´s first round a centre right candidate got more votes.
In 2010 Brazil, Costa Rica, Chile (second round) and Colombia will go for elections.
It does not matter whether the presidents are left or right. The general trend and consensus in the region is towards pragmatism with agenda for the poor and pro business policies. There are of course a few exceptions…
2010 is the year of bicentennary of independence from Spain for Venezuela (16 April), Argentina (25 May),Colombia (20 July),Chile (18 September) and Mexico (16 September)

The coup in Honduras in June 2009 was an unpleasant reminder of the past. President Zelaya was put in a plane at gun point and sent out of the country. But the Golpistas did not go all the way to install a classical dictatorship by military or by a Caudillo. They held elections in which a new President has been elected.

India´s score in Latin America in 2009
India´s exports to the region went down by about 30 percent in 2009 in comparison to 2008. This was expected, after the global crisis and local import restrictions by the governments which wanted to protect domestic industries and minimise outflow of foreign exchange.
Chemicals, engineering products and textiles were the major exports from India. Crude oil, edible oil and minerals were the main imports.
The India- Mercosur PTA, became effective from June 2009. This should give a boost to our trade with the four Mercosur countries.

Indian IT companies expanded operations in Latin America including in Brazil, Mexico, Argentina and Chile
These companies which set up operations in the region initially to service their North American and European clients, have now started focussing on local cients and have been getting local contracts

Renuka sugar mill made an investment of 240 million in the acquisition of two sugar factories and sugar cane estates in Brazil. This is the first agribusiness investment by an Indian company in the region.

Panama liberalised its business visa system for Indians. Indian business visitors holding US or Schengen visas do not need visa to visit Panama under a Presidential decree issued in July 2009. The decree is for all foreigners including Indians. The visitors can stay for 30 days during each visit. Earlier Panama embassy in Delhi had to send every visa application to their immigration authorities which would take months for clearance. Ecuador, Costa Rica and Honduras are the other countries which have waived visa requirement for Indian business visitors.

During the visit of Argentine President to India in October 2009, we signed a visa agreement under which Argentina has agreed to give five year multientry visas free of cost with validity of 90 days during each visit.
Visa is no longer an obstacle for Indian business visitors to Latin America……

Promises of 2010
Market
Latin America will grow by 4.3 % in 2010, according to ECLAC estimate in their report of 10 December. The growth of Latin America in 2010 is higher than the growth projected for developing countries ( 4%) except China and India.
Brazil will be the 2010 champion of the region with the highest growth of 6%. Ooops... I do not recall Brazil topping the growth chart of the region in recent times. Uruguay and Peru will be runners-up with 5% each. Mexico will grow by 3.5%. Argentina, the third largest market will grow by 4%.It is no surprise that the least growth in 2010 in the region will be in Honduras, which is in a political crisis.While South America is expected to grow by 4.7% in 2010, the Caribbean and Central America are projected to grow by around 2%.

Opportunities for Indian companies
Projects
Petrobras, the state oil company of Brazil is investing 174 billion dollars in the period 2009-13 in exploration and production of the recently discovered offshore oil fields. This is the world’s largest corporate investment plan at this moment.
The ongoing Panama Canal expansion project is over 5 billion dollars.
Venezuela , Argentina, Mexico, Colombia, Ecuador and Bolivia also have investment plans in their oil and gas sectors.
Projects related to Olympics and World Cup in Brazil
Exports
The manufacturing sector in the big and medium countries of the region are modernising to survive in this time of globalisation and against the competition from Chinese goods.This opens up opportunities for supply of equipments, machinery and spare parts.
Agricultural production in South America is steadily increasing thanks to the growing world demand and high prices. This means more scope for exports of inputs for agribusiness such as agrochemicals.
The new area opening up for Indian exports is Defence equipments and items. India has sold helicopters to Ecuador air force. Other countries have shown interest.
Imports
India will be importing more edible oil, crude oil and minerals from the region in 2010 and in the coming years.
Investment
Indian companies should consider buying/ leasing farmland in south america to grow oilseeds, grains, sugarcane and pulses, which are needed in India. Thousands of hectares of productive land are available in the private sector at prices less than in Punjab. There is no local government restriction.
Indian companies can also consider investment in commercial forestry in order to have direct access to wood and paper pulp whose imports are also growing in India
Mining sector is another area for Indian entry.
Investment in petroleum sector can be increased
Operations of Indian IT companies can be expanded
Entertainment Industry
Indian films were shot in Rio and Machu Pichu. There are other attractive shooting locations in the region. Latin Americans are keen to collaborate with Indians for coproduction of films and exchanges of soap operas and TV productions.

brazil pioneers technology using ethanol to generate power

Petrobras, the public sector petroleum company of Brazil has developed this technology. It is starting in December 2009, commercialisation of this technology in a plant at Juiz de Fora in Minas Gerais state. Capacity of the plant is 45 MW. The turbines are made by GE.

Brazil is the first country to produce power from sugarcane ethanol. Brazil already leads the world in the use of ethanol as fuel for cars. Brazil is well prepared to straddle successfully both the worlds of fossil fuels ( having discovered enormous petroleum reserves) and the renewable sources of energy.

Latin America will grow by 4.3 % in 2010

This good news comes from ECLAC ( Economic Commission for Latin America and Caribbean- which is part of the United Nations) in their 10 December 2009 report.

The GDP of the region which fell by 1.8% in 2009 due to the global crisis will resume growth in 2010 with 4.3 %. The region had an annual average growth of 4.8% in the period 2003-2008. In this period, the region enjoyed a current account surplus as well as primary surplus, accumulated foreign exchange reserves, reduced external debts, booming exports and strong macroeconomic fundamentals. This is the strength which helped the region to withstand the global crisis in 2008-9 with only moderate adverse impact and bounce back in 2010.

The 4.3% growth of Latin America in 2010 is higher than the growth projected for developing countries ( 4%) except China and India.

Brazil will be the 2010 champion of the region with the highest growth of 6%. Ooops... I do not recall Brazil topping the growth chart of the region in recent times. Uruguay and Peru will be runners-up with 5% each.
Mexico, the second largest economy which suffered the worst GDP contraction of the region in 2009 with 6.7% will grow by 3.5%. Argentina, the third largest market will grow by 4%.
It is no surprise that the least growth in 2010 in the region will be in Honduras, which is in a political crisis.
While South America is expected to grow by 4.7% in 2010, the Caribbean and Central America are projected to grow by around 2%.
Inflation in the region in 2009 is estimated to have declined to 4.5% from 8.3% in 2008.

Peru gets third investment grade rating in December 2009

Peru clinched its third investment grade rating from Moodys, a major credit evaluation agency which has praised the country's ability to withstand the global downturn better than some of its peers. The new rating is Baa3 from the earlier Ba1
Moody´s said " the decision to raise Peru's foreign currency ratings was driven by indications of increased shock-absorption capacity relative to similar or higher-rated sovereigns.¨ This will help Peru to lower its borrowing costs and attract foreign investment flows, which will contribute to higher growth.

Fitch and Standard & Poor's had given investment grading to peru last year. Peru´s economy has been a shining star in the last few years.

Peru and Brazil are the other Latin American economies with investment grade ratings.

Chile is becoming a OECD member in January 2010

The Organisation for Cooperation and Development (OECD) has announced that Chile has been invited to become the 31st member of the Organization. Chile will formally accept this invitation when an Accession Agreement is signed in the presence of Secretary-General Angel Gurría and President Bachelet on January 11, 2010. The country has been in negotiations to join the organization for two years. This eans that Chile´s investment and tax policies will have to be in conformity with OECD standards.
Currently, Mexico is the only Latin American member of the organization.

short skirts and Big B arouse global interest in Brazil

A quick clarification before the reader lets his imagination fly….
B....stands for Business.
Last month, Geisy Arruda (seen below), a 20-year old student of Bandeirantes University in Rio de Janeiro aroused global media attention with her short skirt.

The Brazilians say that a ¨speech should be like a miniskirt…short enough to arouse interest and just long enough to cover the area of interest.¨

Brazil has always aroused the interest of the outsiders with tiny bikinis and mammoth carnival, sexy Samba and lusty Lambada, balmy Bossanova and fantastic football, amazing Amazon and bewitching beaches of Copacabana and Ipanema.

But now the country has started attracting a new kind of attention from global business leaders who find it as irresistible. Here is an example. Petrobras, the state oil company of Brazil plans to invest 174 billion dollars in the period 2009-13 in exploration and production of the recently discovered offshore oil fields. This is the world´s largest corporate investment plan at this moment. Obviously this news is sheer excitement for companies from around the world.

Which city in the world has the world´s largest fleet of private jets and helicopters? Not Newyork nor Tokyo. It is Sao Paulo. Tiffany and Bulgari have more stores in Sao Paulo than in any other city in the world. Sao Paulo has the largest Ferrari sales and the second largest sales of Lombarghini and Porsche in the world.

Brazil´s riches go beyond the salons of Sao Paulo. Brazil is becoming a global player and provider of energy and food to the world which is getting increasingly concerned with energy and food security and climate change.

Brazil is well positioned in both the sectors of fossil fuels and renewable energy. It has recently discovered very large offshore oilfields which will make it as a significant oil exporter. Brazil is the global leader and pioneer in the use of fuel ethanol for automobiles. Today more than ninety percent of the cars produced in Brazil have flexifuel engines running in petrol or ethanol or any combination of the two. Embraer has even produced some aircrafts running in ethanol. Eighty percent of the electricity generated in Brazil comes from hydroelectric source. The 12,000 MW Itaipu hydroelectric station is one of the largest in the world. Brazil has the highest share of renewable energy in power generation, among the large economies.

The Amazon forest of Brazil contributes twenty percent of earth´s oxygen and has become the Lungs of our planet. Brazil is also blessed with twenty percent of the fresh water supply of the world.

Brazil has the largest surplus land availble for agriculture. It is using currently 52 million hectares for crops. It can increase agricultural land by another 100 million hectares, without touching Amazon or the sensitivity of environmentalists. Besides the land under crops, Brazil has 172 million hectares under pasture for cattle. Brazilian agriculture is big business with its huge farm sizes which lend themselves to large scale commercial farming using heavy machineries, investment and innovation. Most cultivation is rainfed and don’t need irrigation canals or borewells as is the case in India. Brazilian productivity is one of the highest in the in the world thanks to the fertile soil, scientific and commercial farming practices and constant innovation and research and development. Brazil is the world´s largest exporter of beef, chicken, sugar, soya, orange juice and coffee.

Brazil is also rich in mineral resources. Vale, the Brazilian company is among the top global mineral players.

With such rich natural resources, Brazil was considered as a country of the future. But the joke in the past was that it would always remain as a country of the future. Now, the Brazilians have woken up. They are convinced that their time has come. They are determined to unlock their potential. There is a paradigm shift in the mindset of Brazilians. There is a new confidence, optimism and vision among the political and business leaders.

The Brazilians have liberated the country decisively and irreversibly from the past curses of hyper inflation, excessive external debt and unstable currency and exchange rates. They have made macroeconomic fundamentals as strong, healthy and predictable. They have even started lending money to IMF !. The government policies are based on a broad consensus. The government has found an equilibrium between pro-poor and pro-business policies. There is no ideological polarisation nor extremist political parties. Whoever wins the next presidential elections in October 2010 after Lula, the country is not going to change its pragmatic direction. Brazil is now the role model for Latin America where there is a resurgence of Left in recent years.

It is therefore, not surprising that Brazil is part of the BRIC which is increasing its weight in the global balance. But Brazil has some distinct advantages in comparison to the other three BRIC countries. It has one language and one faith and does not face any ethnic, religious, linguistic conflicts , terrorism or troublesome neighbours. Although Brazil has got more people of African origin (70 milion) than USA, there are no hyphenated Brazilians as the Afro Americans in the US. Brazil is a true melting pot, a perfect blend of café com leite… coffee with milk ( black and blonde), as the Brazilians describe skin colour. Brazil has borders with ten countries but it does not have any border disputes. On the other hand Brazil has been enthusiastically taking initiatives for integration of the region through Mercosur and Unasur (south american union, with all the 12 countries of the region) and makes use of this collective strength for its regional leadership.

Sure… Brazil faces other kind of problems such as poverty, crime, drugs and arms. But these can be controlled internally since there are no external trouble makers.

It is this new profile of Brazil which has aroused the interest of the global political and business leaders who have started courting Brazil seriously. The thirty percent increase in FDI in Brazil in 2009 is a reflection of the new confidence of global business in Brazil. The award of the World Cup 2014 and Olympics in 2016 are stamps of recognition of the New Brazil.

Realising the growing importance of Brazil, the Government of India has established a bilateral strategic partnership and a trilateral alliance in the form of IBSA. India has been working closely with Brazil in the Doha Round and in the issue of expansion of the permanent membership of the UN Security Council. India´s bilateral trade with Brazil reached 5 billion dollars in 2008 and is set to increase rapidly in the coming years. Indian companies have invested in Brazil in sectors such as IT, pharmaceuticals, energy, agribusiness and engineering. Even Bollywood has been attracted by the carnival land. The film Dhoom II was shot in Rio.

India has become a household experience in the last one year because of the prime time soap opera Camino das Indias ( route to India), telecast Monday to Saturday in the popular Brazilian TV channel Globo. This Indian story with Indian costumes and customs with Brazilian actors has generated tremendous interest in India. Camino in Portuguese means route or way. Brazil was discovered accidentally by Pedro Alvares Cabral who wanted to find the route to India. Now the Indians and Brazilians have found their own and common routes to a new promising future.

Bharat Petroleum and Videocon consortium strike offshore oil in Brazil - November 2009

The consortium has discovered additional oil in an exploration acreage in the Campos basin, off the Brazilian coast. The discovery is more than 90 feet of high-quality oil in their Wahoo-2 well block, also identified as BM-C-30, The well is five miles to the north from the original Wahoo discovery well. In October 2008, the consortium had made its first discovery in the block during drilling of Wahoo well.

The original cost of acquisition of the ten offshore blocks was 280 million dollars.

ONGC Videsh Limited ( OVL) of India has invested almost a billion dollars in the acquisition of offshore blocks in Brazil

Renuka Sugars of India acquires Brazilian firm for US$ 240 million in November 2009

Shree Renuka Sugars Ltd (SRSL), one of the largest Indian producers , has acquired Brazil’s Vale Do Ivaí SA Açúcar e Álcool (VDI) at an enterprise value of $240 million.

SRSL will pay $82 million now and the balance over eight years. It plans to finance the acquisition by leveraging the $105 million it raised through a qualified institutional placement (QIP) of shares in July.
The company operates eight sugar mills, five owned and three leased, with a cumulative daily crushing capacity of 35,000 tonnes.
The acquisition of VDI includes two sugar and ethanol production facilities in the southern Brazilian state of Parana, with a combined cane crushing capacity of 3.1 million tonnes a year. VDI holds strategic stakes in several logistics assets, including terminals for storage and loading of sugar and ethanol at the port of Paranagua.
The acquisition also includes 18,000 hectares of cultivable land under VDI, through which the company meets the larger part of its sugarcane requirements. The land is on long-term lease and used to cultivate cane with an average yield of 95 tonnes a hectare, with recovery of 13 per cent. In India, the yield (around 60-65 tonnes per hectare) and the recovery (a maximum of 11.5 per cent) are lower.

More Indian companies are planning to enter the Brazilian sugar sector

Argentine President´s Visit to India 14-15 october- outcome for Indian business

Liberalisation of Argentine Visa
Under the visa Agreement signed on 14 october during the visit of President of Argentina to Delhi, the Argentine government has agreed to grant five year multientry business visas to Indian visitors....and that too free of cost. Stay during each visit is 90 days extendable by another ninety days. Fantastic... Let us thank the President and the Foreign Ministry of Argentina. The embassy of India in Buenos Aires will do the same thing for Argentine business visitors ...plus give free coffee under their Cafe con Visa system



Trade target of 3 billion dolars for 2012
The two governments have set 3 billion dollars as the target. The exports of India should double to one billion dollars from 492 million in 2008 and Argentine exports to reach 2 billion by 2012 from 836 million in 2008.

Invitation to invest in Argentina
The Argentine President in her adddress at the busines seminars and meetings in Delhi and Mumbai invited Indian cos to invest in Argentina. She spoke of the new paradigm of stability and growth of the economy, availability of natural resources and creative human resources of Argentina.

She had a meeting with Rattan Tata in Mumbai and in this meeting also the discussion focussed on investment in Argentina.

Joint Ventures
During the business seminar in Delhi, Ashok Leyland signed a JV with TBA of Argentina for making buses and trucks.

Sonali Tractors of India signed agreement with Apache of Argentina for collaboration in assembling agro machinery in India.

Pharma issue
This was taken up strongly by the Prime Minister of India himself with the Argentine President that India should be included in the list of 26 countries from which Argentina allows imports of pharmaceuticals. This is mentioned in the joint statement too.