Regulation Challenges in the Brazilian Market: A focus on biofuels and the downstream activities. Magda Chambriard Director General

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1 Regulation Challenges in the Brazilian Market: A focus on biofuels and the downstream activities Magda Chambriard Director General

2 Agenda 1 Country Overview 2 ANP Role 3 Supply Guarantee 4 Products Quality 5 Final Remarks

3 1 Country Overview 2 ANP Role 3 Supply Guarantee 4 Products Quality 5 Final Remarks

4 The challenge of Energy Security in a continental country Great distances, areas of difficult access and sparsely populated. Monte Caburaí (RR) 4319 km 2683 miles Moscow Nascente do Rio Moa (AC) Ponta do Seixas (PB) Lisbon Arroio Chuí (RS) Energy security requires the availability of different energy sources in all parts of the country.

5 Domestic Energy Supply Despite the developments of fossil resources in the E&P, Brazil has one of the greener energy mixes in the world, with renewable energy meeting 41% of internal energy demand. When producing and consuming power a Brazilian citizen emits, on average, 4 times less CO 2 than an European citizen, 9 times less than an American citizen, and 3 times less than a Chinese citizen. Domestic Energy Supply by source (%) Final Energy Consumption by source (%) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 43, ,7 45,2 46,1 46,1 47,3 45, ,3 41 Sugar Cane Products: 16.1% Hydraulic: 12.5% Firewood and charcoal: 8.3% Others: 4.2% 56, ,3 54,8 53,9 53,9 52,7 54, , % 90% Others % Total Consumption 2013: 70% 260, toe Oil Products % 50% 40% 30% Electricity % Sugar Cane Bagasse % Firewood and Charcoal 7.8 0% Natural Gas Non-renewable Renewable Source: EPE and ANP

6 Transportation Main Products Consumption Annual Sales (10 3 m 3 ) Fuel Sales 14/13 (%) Diesel B 52,264 55,900 58,571 60, % Biodiesel (B100) 2,580 2,762 2,929 3, % Gasoline C 35,491 39,698 41,428 44, % Gasoline A 27,100 31,758 31,679 33, % Anhydrous Ethanol 8,391 7,940 9,686 11, % Hydrous Ethanol 10,899 9,850 11,755 12, % Total Ethanol 19,290 17,790 21,441 24, % Otto Cycle 46,390 49,548 53,183 57, % LGP 12,868 12,926 13,276 13, % Fuel Oil 3,672 3,934 4,990 6, % Jet Fuel 6,955 7,292 7,225 7, % Aviation Gasoline % TOTAL 122, , , , % National Fleet Light-duty Vehicles > 45 million Motorcycles > 18 million The market is not only large; it is also growing at a fast pace. The biofuels growth shows their importance in the Brazilian energy mix. Source: ANP

7 1 Country Overview 2 ANP Role 3 Supply Guarantee 4 Products Quality 5 Final Remarks

8 From the well to the fuel station Exploration and Production of Oil and Natural Gas Geological Studies and Bidding Rounds Government Take Fostering domestic industry: The Local Content Policy Refining, Transportation and Storage HSSE Surveillance Research, Development and Innovation Fuel quality Distribution and Retail of Fuels and Lubricants Intelligent Supply Surveillance Biofuels

9 The Role of ANP in Distribution and sales of fuels The ANP mission is to ensure the domestic supply and to protect the interests of fuel consumers. The Agency prepares and publishes technical resolutions and authorizations that regulate the activities of thousands of companies in different segments. Market pricing survey In order to guide the consumer, the ANP follows the pricing behavior of the main fuels, charged by distributors and service stations. The results of the survey are published in the Agency website. In case the ANP finds evidence of violation against the economic order, it informs the entities of the Administrative Council for Economic Defense (CADE). Almost 40,000 service stations Almost 60 biodiesel producers Around 130 lubricant producers About 300 distributors ANP regulates more than 114,000 economic agents About 380 ethanol plants Almost 60,000 LPG resellers Over 13,000 supply points

10 Biofuels The country is a global pioneer in the use of biofuels. Brazil establishes the Proálcool (the National Ethanol Program) Addition of 15% anhydrous ethanol to gasoline Ratio of anhydrous ethanol to gasoline reaches 22% First cars powered by flex-fuel technology (ethanol and gasoline) Mandatory addition of biodiesel (B2) to fossil diesel Law ANP undertakes regulation of ethanol s Addition of 4.5% anhydrous ethanol to gasoline Hydrous ethanol-powered cars amount to more than 90% of total sales Ratio of anhydrous Ethanol in gasoline between 20% and 25% Beginning of the Brazilian National Biodiesel Program - Expansion of the ANP s duties Mandatory ratio of biodiesel rises: B5 Mandatory ratio of biodiesel rises: B6 as of July; B7 as of November. The ratio of anhydrous ethanol added to gasoline rises to 27.5%

11 The role of ANP regarding Biofuels To specify the physical and chemical characteristics of the hydrous ethanol, the anhydrous ethanol and the biodiesel; To inspect its quality in the distributors premises and in service stations; To ensure continuous supply of biofuels in service stations nationwide; To authorize the operation and to inspect the activities related to production, storage, import and export of biofuels; To promote the biodiesel auctions, in which diesel oil producers and importers acquire biodiesel to compose the diesel/biodiesel blend in the current legal rate.

12 The Challenge of energy supply Homes, factories, transportation, heating, cooling... USA Europe Brazil

13 Logistical Challenges Nasa Earth Observatory Aug In such a big country, how to guarantee fuel availability to all consumers, in accordance to quality specifications? References Ethanol Plants Biodiesel Plants Refineries States boundaries

14 1 Country Overview 2 ANP Role 3 Supply Guarantee 4 Product Quality 5 Final Remarks

15 Nov Jun Set Jun Logistics Flows Study Group (GFL) Actions GFL creation Gasoline and Diesel studies completed Biofuels studies completed Jet Fuel and LPG studies completed Outcomes: Next Steps: Outcomes and Next Steps Publication of resolutions establishing minimum inventories for gasoline, diesel, Jet Fuel and LPG. Distribution activity: requisition of a logistic flow analysis at the moment of authorization request. Conduct studies on medium-term scenarios (5 to 10 years) for fuels and biofuels demand, in order to feed back the analysis of logistics flows and the formulation for its improvement. Improve control mechanisms and monitor the market in order to guarantee fuels supply.

16 1 Country Overview 2 ANP Role 3 Supply Guarantee 4 Products Quality 5 Final Remarks

17 Fuel Quality ANP leads a program that allows monitoring changes in fuel quality indices and providesintelligence to inspection activities. The program covers the entire national territory. Almost 20,000 samples collected in a monthly basis. Excellent compliance levels. Noncompliance Index, (%) 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0,0 Gasoline Diesel Ethanol 2.6% 1.6% 1.2% Source: ANP

18 Consumer Relations Centre CRC Besides the results of monitoring program, consumers complaints are also a guide for inspections. Informação Information Reclamação Complaint / Denúncia Report Agendamento Acknowledgment/ CDI / Elogios suggestions / Agradecimentos / Sugestões 2014 Total Contacts 76, % (59,088) 21.58% (16,375) Adulteration 6,567 Low Pump 2,913 9, %

19 Task Forces Inspection activities carried out with public bodies in addition to the Agency's routine activities. Task forces began in mid-2013 and since then 90 task forces have been performed, reaching 24 states and the Federal District (pending only two states). Together, the task forces conducted in 2013 and 2014 resulted in the inspection of about 3,600 establishments. Regular participants ANP State Treasury Office Civil Police Fire Departments Metrology institutes State prosecutors Consumer protection agencies Highway Patrol Public Ministry Others

20 Further interaction with consumers From April 21st on, all fuel pumps should have an sticker containing information about the fuel station and ANP contact phone. Diesel and ethanol pumps already have stickers containing warnings to consumers.

21 1 Country Overview 2 ANP Role 3 Supply Guarantee 4 Products Quality 5 Final Remarks

22 Final Remarks In Brazil, the fuel market grows fast. Biofuels are blended to gasoline (27.5% ethanol) and to diesel (7% biodiesel). The hydrous ethanol can also be used as light fleet fuel. Biofuels contribute to fossil fuels substitution and to the trade balance improvement. Biofuels also contribute to the air quality improvement.

23 Final Remarks ANP targets more (and better) interaction with all the stakeholders. As for regulated agents, the desirable future is more guidance and information than penalties. We believe that our performance will always be limited, unless we are able to bring the consumer to the center of the process. Visibility, agility and efficiency of the institutional channels of communication becomes priority. Actives citizens (in the regulatory process) contribute to the efficiency and improvement of our activity.

24 National Agengy of Petroleum, Natural Gas and Biofuels ANP Rio Branco Avenue, nd to 22 nd floor - Center - Rio de Janeiro Brazil Phone: +55 (21)