Russian Companies to Break into Brazilian Market

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Nov. 8 – The Russian gas giant Gazprom opened an office in Rio de Janeiro last week, while another Russian oil producer TNK-BP announced an agreement to buy 45 percent of the Solimoes Basin project for US$1 billion from the Brazilian HRT Participacoes em Petroleo.

TNK-BP and HRT Participacoes em Petroleo will jointly produce oil and gas from fields near the Amazon, with first output expected next year.

“The discovery of major hydrocarbon deposits in Latin America and the high growth rates of natural gas consumption there provide for an effective development of partnership relations,” The Moscow Times reported a Gazprom official as saying.

Brazil and Russia are members of the BRIC group together with India and China. Sergei Vasilyev, chairman of the Russian-Brazil Business Council established in 2002, considers BRIC forums as “a powerful factor to make relations with Brazil more dynamic.”

Leaders of BRICS, the BRIC group plus South Africa, had their latest meeting on the sidelines of the Group of 20 gathering in Cannes, France, last week.

The very first Russian investor in Brazil and in Latin America was billionaire Igor Zyuzin, the principal owner of the fifth ranked Russian steelmaker and largest coal producer OAO Mechel. He agreed to set up a joint venture with Usina Siderurgica do Para, an iron producer, in a US$800 million deal announced in February 2011.

In May, Russia’s steel giant Severstal said it acquired 25 percent in Brazil’s SPG Mineracao iron ore exploration firm for US$49 million.

“Severstal considers the project to be highly promising, with preliminary estimated reserves at 0.5-1.5 billion tons of ore and an approximate content of iron at 40 percent to 45 percent. Potential production is estimated at 10 to 20 million tons of iron ore concentrate,” Severstal said in a statement.

“Strategic partnership” with Brazil was proclaimed for the first in Moscow in 2005, where Brazilian President Lula met with his Russian counterpart at the time, Vladimir Putin. Since then, the two countries have started working together in the areas of space and defense technology. They are also bound to increase collaboration in the fields of reactor development and uranium exploration technology, where Russia could help Brazil develop its uranium industry. Brazil’s uranium deposits are said to be the sixth-largest in the world.

A visa-free travel agreement between Russia and Brazil came into effect in June 2010, which aims to boost tourism and business travel between the two BRIC countries. While experts appropriately expect the number of travelers between the two countries to remain low in the near future, they believe the significance of the agreement cannot be overlooked.

“There are few countries outside of the former Soviet bloc that enjoy this special treatment by Russia, a nation that traditionally loathes making such sweeping concessions. The agreement is meant to reduce the ‘trust deficit’ between the two countries by increasing contact between the two societies, and it shows both governments’ desire to upgrade Brazil-Russia relations,” Oliver Stuenkel, professor with the Getulio Vargas Foundation in São Paulo, writes in his article about Brazil-Russia relations.

Russia (oil, gas) and Brazil (soy, iron ore) are extremely rich in natural resources, a characteristic that makes them important suppliers to China, which experts consider as a meeting point for close Russia-Brazil cooperation.

“While China has helped them weather the recent recession, both Russia and Brazil will need to be extremely careful not to enter in an unequal relationship with China, which buys up natural resources and sells value-added products in return,” Oliver Stuenkel writes.

Russia’s trade with Brazil is expected to reach US$7 billion this year, posting growth of almost 20 percent from last year, the Kremlin said in a statement last week. For comparison, Russia and its biggest trade partner China will likely exchange goods worth at least US$70 billion this year.

The trade between Brazil and China for the last year was US$62 billion, and thus this year the minimum growth is expected to be between 30 and 40 percent, according to Brazil-China Chamber of Economic Development.

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