ANP decides to go to STF against SP decree that favors Cosan group
January 28, 2022 - CE Noticias Financieras
The ANP (National Petroleum, Gas and Biofuels Agency) has decided to go to the STF (Federal Supreme Court) to try to overturn the São Paulo government's decree favoring Compass, a natural gas company owned by the Cosan group, claiming that the terms hurt the gas law approved by Congress in March.
Decree 65,819/2021 gives Comgás the right to build a pipeline connecting a gas import terminal on the coast to the São Paulo metropolitan region. The distributor is controlled by Compass, which would also own the import terminal.
For the ANP, the permission would constitute verticalization of activities prohibited by law. To get around the restriction, the São Paulo state government classified the pipeline as part of the assets of the distributor Comgás and not as a gas transportation pipeline.
ANP headquarters building in Rio de Janeiro - Sergio Moraes - 5.nov.2019/Reuters
The ANP's attorney defends that the decree issued by governor João Dória (PSDB) encroaches on the competence of the Union to establish general rules for the energy sector and that the definition of criteria for classifying pipelines should be treated uniformly throughout the country
The decree, it says, "extrapolated the legislative and regulatory powers of that entity of the federation". At a meeting on Thursday (27), the ANP board authorized the attorney general's office to begin procedures to file an Adin (Direct Action of Unconstitutionality) against the text.
It also approved that similar initiatives that may be adopted by other states should also be questioned in court. "I want to highlight the importance of this initiative to obtain the necessary legal security, which is an essential factor for attracting investments to the sector," said the agency's director-general, Rodolfo Saboia.
The Subida da Serra gas pipeline is part of a proposal baptized "gas island", which would make São Paulo independent from the national fuel transportation network. With the gas import terminal on the São Paulo coast, Compass will be able to supply the fuel to the three state piped gas distributors.
The ANP and large energy consumers complain that the verticalization gives great market power to Compass, which already controls the largest gas distributor in the country and would also have a relevant participation in the sale of fuel.
The company has already announced a contract to sell to Comgás 3.1 million cubic meters per day for ten years. The volume is equivalent to about one fifth of the distributor's sales.
The need to deverticalize operations in the gas market was one of the arguments for Petrobras to sell its gas pipelines and its stake in Gaspetro, a company that controls 19 piped gas distributors in the country. The operations were determined by Cade (Administrative Council for Economic Defense) and respect the principles of the gas law.
Gaspetro, however, was bought by Compass itself, in a R$2 billion operation concluded in July 2021, today under analysis by the competition defense agency. ANP and major consumers are questioning the acquisition, once again alleging that the operation in the sale of gas and in distribution goes against the process of opening the sector.
In a letter to Cade, Compass denies that it operates in different stages of the gas chain, stating that its contracts for the sale of fuel are not yet operational - in fact, the contract with Comgás only comes into force in 2023 - and that, therefore, the purchase of Gaspetro would not hurt the gas law at this time.
The company also says that there are "several corporate and structural barriers and limits that prevent any anticompetitive practice in this sense" and that "regulatory restrictions and the high level of transparency in the sector work as real limitations to any of the concerns raised.
"It is evident the complete absence of competition concerns arising from the operation, especially because it involves only natural regulated monopolies, and there is no horizontal overlap," says the company, which requests unrestricted approval for the acquisition of Gaspetro.
In a manifestation to Cade, ANP says that with Gaspetro and Comgás, Compass has the power to influence the acquisition of up to 64.7% of the total volume of natural gas sold in the country. In October, the Cosan group company also bought the piped gas distributor in Rio Grande do Sul.
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The industry says that the conditions agreed upon between Comgás and Compass show that the verticalization will harm the consumer, since, considering the same petroleum price parameters, this contract would be the second most expensive in the country, behind only Petrobras' new sales contracts.
Abrace (Brazilian Association of Large Energy Consumers) calculates that with an oil barrel at US$85 and the dollar at R$5.60, Compass will sell natural gas to São Paulo's distributor for US$11.36 per million BTU (heating power unit), while Petrobras will charge R$15.73.
Golar Power, another supplier that uses imported gas, has signed four-year contracts in which the BTU would cost US$10.20 under the same oil and exchange rate conditions. Gas producers in the country have much lower values: Shell reached US$ 7.12 and Petrorecôncavo, US$ 5.40 in two-year contracts.
For large consumers, Compass' contract with Comgás harms São Paulo consumers by restricting the search for cheaper offers in the future. In 2021, the São Paulo government decided to extend the concession of the distributor, guaranteeing another 20 years to Compass.
The decision was criticized by the large consumers and also questioned by SEAE (Secretariat for Competition and Competitiveness Advocacy), of the Ministry of Finance, which sees risks to competition in the gas sector and impacts on tariffs paid by consumers from other states.
contacted the government of São Paulo and Compass but has not yet heard back.