Photo: Petrobras

Good morning! We’re covering how Brazil’s massive oil auction flopped. The rise of extreme poverty in Brazil. And the trial of the year finally set for an end. (This newsletter is for platinum subscribers only. Become one now!)


Historic oil auction is a flop

The much-awaited “mega” oil auction

held by the Brazilian government yesterday turned out to be a complete flop. Of the four pre-salt oil and gas fields on offer, only two received bids. Meanwhile, the biggest winner was state-owned company Petrobras, despite the government&#8217;s hope to attract massive foreign interest.</p> <p><strong>Why it matters. </strong>The Brazilian government had been banking on raising up to BRL 106 billion with the sale of these oil fields, which are rumored to be home to some 15 billion barrels of oil and gas. In the end, the sales only generated BRL 69.96 billion, of which over 90 percent came from Petrobras.</p> <div class="flourish-embed" data-src="visualisation/882319"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>States and municipalities. </strong>While the federal government was hoping for a large influx of resources, state and municipal administrations were even more desperate for these funds. Negotiations in Congress established that 30 percent of auction proceeds would go to states and municipalities, who are desperate for money to pay for their overdue pensions bills. A vastly reduced amount of funds could sour the political atmosphere between federal, state, and municipal governments.</p> <p><strong>Foreigners shy. </strong>Warning signs came earlier in the week when oil giants BP and Total pulled out of the auction. On the day, only seven bidders actually showed up to the event. Only two foreign companies, Chinese firms CNODC and CNOOC, made bids—and they restricted themselves to minimum investments of a 5 percent share each in the Búzios oil field. Analysts say that high prices and uncertainty about the compensation due to Petrobras for prior investments ended up scaring away foreign players.</p> <p><strong>Petrobras.</strong> Petrobras stocks fell sharply at the moment of the auction, dropping 3.4 percent at one stage in the afternoon, before stabilizing by the end of trading. The state-owned company is attempting to reduce its debt and was expected to take a subdued role in Wednesday&#8217;s tender. Under these conditions, traders were concerned to see Petrobras as essentially the auction&#8217;s sole bidder.</p> <p><strong>Dollar rises. </strong>The disappointing auction results also saw the Brazilian Real weaken against the U.S. Dollar yesterday. After a promising week for the Brazilian currency, the greenback rose 2.13 percent against the BRL, closing the day at BRL 4.0787—the steepest spike since August. Analysts saw this as investors reacting to the lack of foreign companies joining in on the auction, diminishing the expectation for an influx of investments in the country and tax collections by the government.&nbsp;</p> <hr class="wp-block-separator"/> <h2>Brazil&#8217;s crisis pushed 4.5 million into poverty</h2> <p>New data from Brazil&#8217;s geography and statistics institute (IBGE) has shed light on the reality of the country&#8217;s 2014–2017 crisis—from which Brazil is still trying to recover. Between 2014 and 2018, 4.5 million people fell into extreme poverty, which is defined by the World Bank as living with less than USD 1.90 per day.</p> <p><strong>Why it matters. </strong>In 2018, some 13.5 million Brazilians were living in extreme poverty, a population larger than that of entire countries such as Bolivia, Belgium, or Tunisia.</p> <div class="flourish-embed" data-src="visualisation/885409"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Regional differences. </strong>The IBGE study shows severe regional inequality when it comes to the distribution of people in extreme poverty. Over half (7.7 million) live in Brazil&#8217;s Northeast region, while only 20 percent come from the far more populous Southeast.</p> <p><strong>Race.</strong> The color of one&#8217;s skin continues to be a determining factor for poverty—with 10.1 million of the 13.5 million in extreme poverty being non-white.</p> <p><strong>Path to eradicate extreme poverty. </strong>The study reveals that spending BRL 1 billion per month (0.01 percent of the country&#8217;s GDP in 2018) would be enough to eradicate extreme poverty in Brazil. It would mean that each person below the extreme poverty line would get an extra BRL 76 per month.</p> <hr class="wp-block-separator"/> <h2>&#8220;Trial of the Year&#8221; nears its conclusion</h2> <p>Today, Brazil&#8217;s Supreme Court is set to finalize a trial on whether defendants may begin serving prison sentences before exhausting all appeals routes. Current precedents state that after a single failed appeal, defendants may be sent to jail to begin their punishment. Pundits believe that the tribunal will overturn its understanding and maintain the presumption of innocence until defendants have used every recourse available to them.</p> <p><strong>Why it matters. </strong>Former President Luiz Inácio Lula da Silva has been in jail since April 2018 for a corruption and money laundering conviction. However, he still has a number of appeals remaining and would be eligible for release were the Supreme Court to alter its precedents.</p> <p><strong>Deciding vote. </strong>As things stand, the court is split at 4 v. 3 in favor of maintaining the current precedents and allowing defendants to go to prison before exhausting all of their appeals. However, there are still four justices left to vote, and if they decide according to form, the trial will be tied at 5 v. 5, awaiting the casting vote of Chief Justice Dias Toffoli. He has indicated that he will vote in favor of changing the court&#8217;s precedents.</p> <p><strong>Compromise?</strong> However, there is a chance that Dias Toffoli will vote neither for nor against, and instead propose a third alternative to the trial. He has floated the idea of allowing defendants to begin serving jail sentences after having their appeal upheld by the Superior Court of Justice, the second-highest court in Brazil. This would represent a middle ground, but it would require another five justices to agree with his suggestion and form a majority, which would also delay the trial further.</p> <hr class="wp-block-separator"/> <h2>What else you should know today</h2> <p><strong>Oil spill. </strong>After the Brazilian government called out Greek tanker Bouboulina as the main suspect of causing the massive oil spill that has devastated the Northeast coast, new information has surfaced to suggest that there may be a different culprit. The Brazilian Navy and Federal Police are investigating four other Greek ships, all belonging to the same company. Satellite images found a large stain of what appears to be oil off the coast of Rio Grande do Norte. While the trajectory is similar to Bouboulina&#8217;s route, it appeared before the original suspect passed by Brazil&#8217;s coast.</p> <p><strong>Argentina 1. </strong>In what will be a break with a decade-long tradition, Jair Bolsonaro will not attend the inauguration ceremony of newly elected Argentinian president Alberto Fernández on December 10. In his place, Mr. Bolsonaro will send Citizenship Minister Osmar Terra to represent Brazil. The last time a Brazilian president did not turn up to the inauguration of their Argentinian counterpart was 2002, when Fernando Henrique Cardoso skipped Eduardo Duhalde&#8217;s swearing-in ceremony. However, the center-right leader was present at the inaugurations of Fernando De La Rúa and Carlos Menem in 1999 and 1995, respectively.</p> <p><strong>Argentina 2. </strong>The House&#8217;s Foreign Relations Committee—presided over by Jair Bolsonaro&#8217;s son Eduardo—approved a motion of repudiation of Alberto Fernández. The initial petition, written by congressman and member of Brazil&#8217;s royal family Luiz Philippe de Orleans e Bragança, stated that Mr. Fernández &#8220;disrespected the decisions of judicial institutions of the Brazilian state, violated international decorum to uphold good diplomatic relations&#8221; and behaved as a &#8220;political activist&#8221; in internal Brazilian matters.&nbsp;&nbsp;</p> <p><strong>Towns to become extinct?</strong> One of the measures announced on Tuesday by Economy Minister Paulo Guedes—covered in depth in yesterday&#8217;s <a href="https://brazilian.report/newsletters/daily-briefing/2019/11/06/paulo-guedes-proposes-revolution-brazilian-state/">Daily Briefing</a>—foresees the extinction of municipalities which have less than 5,000 inhabitants and tax revenue of less than 10 percent of total income as of 2025. These towns would be merged with neighboring municipalities. <em><a href="https://www.poder360.com.br/">Poder360</a></em> calculated that 769 towns would be affected by this change. After resistance from Congress, the government has already admitted that it will have to alter the proposal, potentially extending the deadline until 2028.</p> <p><strong>Twitter followers.</strong> In the latest chapter of disagreements within the President&#8217;s Social Liberal Party, member of Congress and former government whip Joice Hasselmann filed a criminal complaint against Eduardo Bolsonaro for his comment that his father could reenact a notorious decree from the dictatorship era which led to the institutionalization of state-sponsored torture. In her complaint, she claimed that Mr. Bolsonaro incited attacks against her on social media, leading her to lose &#8220;500,000 Twitter followers.&#8221;

Read the full story NOW!

BY Euan Marshall

Euan Marshall is a Scottish journalist living in São Paulo. He is co-author of A to Zico: An Alphabet of Brazilian Football.