The Brazilian government is planning to increase Petrobra’s capital so the oil giant can finance a $220 billion plan to increase drilling and improve production and distribution through 2014.

Brazil’s Lower House approved a bill in March that will exchange the rights to oil reserves for shares in the company and gave the Senate 45 days to consider the proposal. At present as lawmakers squabble over how much their States will get from future production; investors are waiting for details on where the oil rights will be.

After the discovery of the Tupi field in 2007, Petrobras has become even more important to the Brazilian government. Early estimates from the company suggest that the Tupi fields may contain as much as 8 billion barrels of oil and gas that is trapped beneath 2km of salt.

According to London based BP Brazil ranks as the 13^th largest oil producer but if Tupi and Brazil’s other smaller finds contain as much as Petrobras is saying then they would make Brazil the fourth largest producer behind Saudi Arabia, Russia and the US.

The TCU’s Aguiar says the court will continue to do its job and investigate Petrobras’s contracts.

“We cannot condone companies or people who misappropriate or misuse public funds,” Aguiar, 68, says, speaking from his office overlooking Brasilia’s Square of the Three Powers. “We’d be stimulating fraud and the waste of our own money.” He added.

As the government prepares for the 2014 World Cup and the 2016 Olympics in Rio, conflicts with the TCU are bound to worsen. According to the organising committee the Olympics will need at least $11 billion in investments. Already Lula’s PAC programme has committed a staggering 70% of that total for the Olympics. To help fund that Lula wants to remove government oversight and environmental screening that would slow projects for the sports events.

“We need to create some accord or code of conduct among the control agencies and the executing agencies in the government so that we don’t give the same treatment to these events — be it on the financial audits, or the environmental issues, or the internal controls, or at the TCU,” he said.

Saving the Amazon is not just about the trees and for environmentalists of whom I like to count myself among this is one step to far for Lula. He has already weakened Brazil’s environmental agency Ibama by removing some of its power to review giant hydroelectric power dams (such as the Belo Monte Dam). Now he risks ruining his legacy by bulldozing ahead with Brazil’s growth spurt.

Hedge Fund Review reported that Earth Capital Partners had launched its ECP Forestry Fund One LP Fund investing in sustainable timber plantations in Latin America.

The general details of the fund are as follows: the fund will be aiming to achieve a $300 million investment, which will have a 10 year maturity and will go towards eight projects in the region. The minimum investment that investors will be expected to put up is $10 million with a 1.5% management fee and 20% performance fee.

Stanley Fink, Chairman at ECP, commented: “The fund provides a vehicle for institutional investors to engage in forestry and biomass in Brazil and Latin America, which offer attractive returns coupled to strong sustainability benefits. ECP aims to reach a first close for this fund later in 2010 and a final close in 2011.”

Through its ownership of productive land and fast growing sustainable timber ECP expects to generate solid non-correlated returns.

ECP’s head of sustainable agriculture and forestry, Bosworth Monck, told Hedge Funds Review that Latin American countries like Brazil offered huge opportunities. As a sign of things to come Monck said that in the initial stages there had been significant interest from investors.

One of the eight projects proposed was the planting of eucalyptus trees on degraded agricultural land. According to Monck, within seven years the eucalyptus trees could be cut down and turned into charcoal to feed Brazil’s growing iron and steel industry.

“Trees have a myriad of end markets and there are many end uses for wood. The key component is cost. Latin America is at the forefront of development of species and clones and management techniques of plantations. They are among the most advanced in the world,” noted Monck.

Other countries in Latin America of particular interest to ECP are Colombia and Central American states, where they hope to find more opportunities like that in Brazil.

A meeting was held on Tuesday between Finish and Indonesian officials. On the agenda were discussions regarding combining bio-energy development, forestry management and investment.

“Certainly we will focus on investment, renewable energy and forestry,” Coordinating Minister for Economic Affairs Hatta Radjasa said on Tuesday.

In regard to the renewable energy forestry regulations that had been issued in 2006 and 2008 Hatta said that: “They are already signed by the President. We will use them. Finland will provide the funds for forestry management in Riau and Kalimantan,”

He also went on to state that Finland was very active in relation to renewable energy development. “We wish to find the best form of cooperation in the development of bio-energy including biofuels,” he said.

So far no figure has been announced to reveal how much investment Finland will be putting into Indonesia. “The essence is we will push efforts in investment, bio-energy development and forestry management. We will also offer geothermal energy development,” Hatta said.

After the increase last week failed to tame rising inflation expectations Brazilian traders are betting for the first time on the central bank raising the benchmark lending rate by 1% point next month.

Since central bank President Henrique Meirelles raised the overnight Selic rate by a bigger than predicted 75 basis points from a record low 8.75% on April 28^th, the futures were raised by 14 basis points. In addition yields on overnight interest rate futures contracts due in July climbed two basis points (0.02 percentage point) to an 11 month high of 9.7%.

In a central bank survey published last week economists are driving up their year end inflation forecast for a 15^th straight week, which has led to bets on the first full percentage point increase since Meirelles’s second month in office in 2003. Since November the median estimate has risen from 4.25 percent to 5.42 percent. This is above the bank’s 4.5% annual target, reflecting the quickening expansion in Latin America’s biggest economy.

“The front end of the curve has just blown out,” said Ram Bala Chandran, a Latin America currency and rates analyst at Citigroup Inc. in New York. “The momentum is so strong that it’s hard to step in front of it. As long as inflation is on the rise, the central bank has to go after it.”

The national statistics agency said last week that industrial production soared by 20% in March, which is the biggest increase since records began in 1991. According to the central bank survey Brazil’s economy will grow by 6.1% this year with banks boosting loans by 17% in the month from a year ago to a record $840 billion (1.45 trillion reais).

In a Bloomberg survey of economists Meirelles’s interest rate increase last week topped most of their predictions. Last month the Selic was held at 8.75% in a move that surprised economists, who had forecast an increase. Inflation has accelerated to an 11 month high of 5.2% in the year though mid-April.

“The mood in Brazil is that activity is very, very strong, and the central bank is behind the curve,” said Ures Folchini, executive vice-president of local markets at the Brazilian unit of WestLB AG in Sao Paulo. “The market is confused about the next move.” He said he’s sticking to his 75 basis-point increase forecast at the June 10 policy meeting as “the market is overshooting.”

The biggest threat to Brazil’s real is concern on Greece’s credit crisis spreading to other European countries and driving away investors from higher yielding assets.

The real  posted a 33% advance in 2009 becoming the world’s best performing currency. Nelson Barbosa, the Finance Ministry’s secretary for economic policy told lawmakers in Brasilia that the government might have to take extra steps to control the real if it observes ‘excessive appreciation’. This was confirmed by Guido Mantega, the Finance Minister, who said that the government plans to make the exchange rate less volatile in order to aid growth. To do this he said that the government would be announcing new measures to help boost exports and these might include tax breaks.

A week after Meirelles left the overnight rate unchanged yields began rising on the July futures contract on March 24^th. Since then it has risen 59 basis points from 9.11%. Compared to inflation linked notes, Brazil’s fixed rate bonds are yielding the most in the past two years where there has been concern that consumer price increases will accelerate. Since the inflation linked notes were sold in January 2008 the gap between yields on the two securities due 2013 expanded to 613 basis points. The so-called breakeven rate reflects expectations for average inflation during the period.

“The shift is taking place,” said Guillermo Mondino, head of Latin American research at Barclays Capital in New York. “We think they will do 75 basis points, but the market is likely to be positioning for a more aggressive hike. Activity has been very strong.”

The pulp and paper sector will finish this quarter as it started, by adding substantially to its list price. The largest producer, exporter and recycler of paper in Brazil is Klabin and they are expected to increase their market share from Kraft paper, paperboard and corrugated cardboard. According to Reinoldo Poernbacher, the director general of the company, the increases of 12% that were announced in April will also be applied throughout the months of May and June.

“The outlook at present is high,” says industry analyst at Paper Pulp Link Investments, Leonardo Alves.

Like many sectors the pulp and paper sector was hit by the recession. However, according to the balance sheet released this week Klabin saw its net profit grow by 6% in the first quarter of 2010, compared to the same period last year. The company’s profit was R$31 million versus $29 million from January to March 2009.

With these increased sales the company can be forgiven for believing that the dark days of recession are over. Well at least for them anyway. “The crisis does not exist in our company, this period is behind us,” says the director-general.

It would be wise though not to get too complacent, this result fell far short of the estimates provided by the industry analysts. On average the forecast of realised net income was R$37.6 million, which was 22.5% higher than the figure released by the company. According to Sergio Alfano, the CFO of Investor Relations, the exchange rate was the reason why the profit was positive but still lower than expected.

During the previous quarter of October to December 2009, due to a reduction of debt with the IRS under the Tax Instalment Programme, Klabin recorded losses of R$185 million. Net revenue totalled R$844 million, an increase of 17% compared with the performance recorded in the first quarter of 2009. Earnings before interest, taxes, depreciation and amortisation or EBITDA was R$242 million, which was 35% higher than that of the year before.

Despite the encouraging signs the Brazilian Association of Pulp and Paper (Bracelpa) still do not believe in the complete recovery of the sector.

“In our assessment, the sector will only come out of the crisis in 2011, but this year will be better than last year. This year the focus is on reducing costs and value of products in the domestic market,” said Elizabeth Carvalhaes, President Executive Bracelpa. But the industry is optimistic about this year.

“The pulp and paper closes the first quarter of 2010 are better than those recorded in the pre-financial crisis and indicative of maintaining this good performance during the year,” concluded the president.

The Chinese market became the main buyer of pulp in Brazil, as stated by CEO of Bracelpa.

“To have an idea in 2009, the procurement volume in China saw an increase of 128% compared to 2008. Exports totalled 2.8 million tons last year,” he explains.

In the case of Klabin, export accounts for 25% of net revenue of the company, however it is unknown how much of that amount is sent to the Chinese market.

This month sees the launch of a public share issue aimed at raising money for the Cochabamba Project, which was set up to provide help for communities in Bolivia as well as helping to reverse deforestation in the Amazon.

Investors who are ethically minded have been invited to put their money into this pioneering community forestry enterprise, which will support poor Bolivian farmers while at the same time earning a decent return in the form of interest payments of up to 7.5% per annum.

The Cochabamba Project Ltd was set up in the UK as a co-operative and while the registered office is in Sheffield the real work is happening thousands of miles away in the tropical regions of the Cochabamba, Santa Cruz and Beni provinces in Bolivia.

The project works in partnership with the local farmers to establish and run a profitable, sustainable community based forestry enterprise. These enterprises are financed by the UK investors, who enable the farmers to plant native species of tropical hardwoods as an alternative to unsustainable farming practices.
A spokesman says the project is “a true partnership between investors, who provide capital for seeds and infrastructure, and over 1,500 Bolivian smallholders, who own the land and provide the labour, with timber revenues being shared equally”.

The first share issue raised $620,000, which funded the planting of 241 hectares (595 acres). This month sees the launch of the second share issue, which the team hopes will raise over $400,000. It is estimated that a $10,000 investment could fund the planting of 4,000 trees for timber, create one acre of conservation and triple the income of a poor Bolivian family.

The spokesman for Cochabamba’s has said that their contribution to tackling climate change was recognised by its accreditation as a clean development mechanism project under the Kyoto protocol. This allows the project to earn carbon credits, which can then be sold to international governments.

Despite fierce opposition from environmentalists Brazil has awarded the tender for a controversial hydro-electric dam project to be the world’s third largest. The government mounted a rushed appeal to beat back a last minute suspension order and since then they have pushed ahead with the bidding process to begin the construction.

After a succession of court injunctions, which had blocked and unblocked the auction process the contract was finally awarded to Norte Energia, a consortium led by a subsidiary of the state electricity company Electrobras.

Throughout the decision process for the Belo Monte dam environmental activists and indigenous groups staged demonstrations decrying the dam as ecologically irresponsible and a threat to the livelihood of 12,000 families. The majority of those are Brazilian Indians living on the banks of the Xingu River, which would feed the facility.

Protestors surrounded the entrance to the National Electric Energy Agency in Brasilia, where the tender process was held and brandishing placards that read ‘We the indigenous demand justice and respect.’ Greenpeace along with roughly 500 activists also dumped three tons of manure in front of the building.

“There are other possible energy sources, such as wind power, biomass or solar,” a Greenpeace spokesman said.

It seems that the opponents of the construction are not deterred by the awarding of the tender and vow to continue.

“We will not be discouraged, we will continue to demonstrate,” said Renata Pinheiro of the Xingu Vivo movement.

The next demonstration is likely to be a planned occupation of some of the 500 square kilometres of Amazon rainforest land, which Greenpeace predicts will be flooded by the dam. Greenpeace have also claimed that the dam will also divert some 100 kilometres of the Xingu River in an area that is home to 20,000 to 30,000 families.

It hasn’t even been built yet and the dam is already causing huge international controversy, with even James Cameron the director of ‘Avatar’ giving his support to the opponents and drawing parallels with his natives versus exploiters film. Cameron even wrote a letter to President Silva urging him to rethink the plans.

Calling the dam an ‘affront to environmental laws’ the regional justice ministry in the state of Para tried to stall the tenders for the $10 billion Belo Monte project in a ruling. The judge ruling in the case said that there were too many questions remaining over how the huge project would affect the flora and fauna in the region as well as what would become of the families who would have to be relocated.

However, the government is adamant that the dam is essential to its plan to boost energy production in Brazil as much as three fold over the next two decades. To give the government their due the benefits of the dam are pretty damn attractive (forgive the pun). The dam would be the third biggest in the world and has been defended by some of the local population who hope to benefit from the estimated 18,000 direct jobs and 80,000 indirect jobs that the government says the project will create. The Belo Monte dam has been estimated to cost $11.2 billion and produce 11,000 megawatts, which could potentially supply 20 million homes with power. Already hydro-electric power accounts for 73% of the energy produced in Brazil.

A study published on 8th February claimed that the extent of plantations to produce biofuels could create a carbon debt that the country would take more than two centuries to pay. The authors of the study predict that the production of ethanol and biodiesel will be responsible for roughly half of the 121,970 square kilometres of deforestation projected for 2020.

They came to this figure by calculating that although plantations of crops such as sugar and soybeans occupy land previously used as pastures, cattle would then be pushed  onto newly cleared land.

The lead author of the study, David Lapola from the University of Kassel stated that results of the statistical data are so harmful in terms of carbon dioxide emissions, which are produced by forest loss that it would be better to continue using fossil fuels.

“This analysis tells us that we have no carbon dioxide reductions within the next 250 years, if biofuels are used in Brazil and not avoided indirect changes they produce on the land use, “said the researcher.

Due to the high productivity of oil for feedstock the authors of the report found that palm oil would be a more cost effective option. To satisfy the demand for 2020 biodiesel proposal by the Brazilian government the researchers predict that palm oil would require 4,200 square kilometres of plantation land compared with more than 100,000 square kilometres needed for soybeans. The authors also suggested a 6% increase in the density of cattle per hectare across the country in order to prevent further outbreaks of deforestation over the next ten years.

For Lapola he believes it is not worth continuing the expansion of new plantations to produce ethanol and biodiesel if Brazil doesn’t achieve a balance between biofuel production and the use of land. In his opinion the benefits would only be short term in the case of achieving a balance.

“I do not think in 2100 we are able to generate power for fifteen billion people through sugar cane or palm oil. Biofuels are a good solution to reduce emissions of greenhouse gases in coming decades, but in the long term, humanity will have to find another source of energy.

Last month film director James Cameron spoke on the last day of the International Forum on Sustainability. The event was attended by numerous political representatives, businessmen as well as Al Gore, the former Vice President of the United States.

The central theme to Cameron’s speech was the importance of gaining public support and awareness for preserving the Amazon. He went on to urge the attendees that there is not much time to reverse the damage that has already been done. He estimated that they had between five to ten years before the damage would be irrevocable.

In his speech Cameron urged the Brazilian government to rethink building the Belo Monte dam in Para. He claims that the dam will divert the waters of the Xingu River and affect the lives of 25 thousand local residents. Cameron is expected to go visit the site after the conference in order to see for himself exactly what the consequences of building the dam will be. At the end of his speech James Cameron was applauded by Jecinaldo Sater, the Secretary of State for indigenous peoples (SEIND) from the Satere-Mawe tribe.

On a related note, James Cameron has denied rumours that the second Avatar film could be filmed in the Amazon as the first was recorded with the use of computer graphics. However Cameron did say that he wanted to save some work in the state, which could be used to put together a documentary.

There is a growing demand for material from a new fleet of biomass plants and according to a forestry trade group the UK suppliers will struggle to meet demand.

Late last week a new report from the Confederation of Forest Industries was released stating that the rising demand for fuel from large scale biomass energy plants could leave the UK reliant on imports of wood chips and pellets for the first time. In addition a study entitled Wood Fibre Availability and Demand in Britain 2007-2025 predicts that the domestic supply of wood chips and pellets will be exceeded by 2012 if the plans to build new waves of biomass power plants go ahead.

If all the biomass plants in the pipeline are built then the amount of imported wood could rise rapidly to roughly 27 million tonnes per year. By 2025 the demand could almost equal the size of today’s global wood fibre biomass trade. Demand for a variety of different kinds of timbers grown in Britain, including short rotation coppice and sawmill by-products such as wood chips will increase significantly should even a small percentage of the energy plants become operational.

The increased demand for wood fibre to generate energy has been prompted by the government’s climate change policies and associated incentives such as Renewable Energy Certificates.

In the short term prices are expected to increase as pressure is put on global supply chains, which could potentially affect the existing and potential new users of wood fibre. Further pressure could be put on the availability of wood fibre in Britain by the Renewable Heat Incentive, which is due to be launched in 2011. This news will further strengthen the case for investment in improving the biomass supply chain and has been welcomed by forestry firms and wood chip producers.

However, supporters of biomass power maintain that in order to maximise the carbon emission savings from wood fired power plants it is necessary to only use supplies of wood chips and pellets from those sourced close to the facility.