Spotlight: The hurdles facing a privatized Eletrobras
Conditions imposed by Brazil’s congress for the privatization of Eletrobras may hamper the federal electric power holding’s investment capacity, Edmar Almeida, an analyst at the energy institute of Pontifícia Universidade Católica do Rio de Janeiro (PUC-Rio), told BNamericas.
The provisional measure (MP) authorizing Eletrobras’ capitalization process was approved Monday by the country’s lower house, one day before its expiration date. It must be signed by President Jair Bolsonaro to become law.
Among the factors that are seen raising costs for the company are the mandatory investments for the recovery of river basins and labor obligations the company will have to bare.
“The capitalization and loss of control by the federal government may contribute to greatly improve the governance and financial capacity of the company. However, the bill that was left for the company to pay as a condition was exaggerated,” Almeida said.
Meanwhile, the mandatory contracting of thermal power plants in specific regions of the country by the federal government and the renewal of contracts under the Proinfa renewable energy incentives program could increase costs for consumers.
"The granting of benefits to specific segments of the electricity market, without adequate studies and a discussion within the institutional planning framework of the sector, tends to increase regulatory conflict and judicialization [legal action], besides diminishing the relevance of the work done by sectoral planning institutions," Almeida said.
Rafael Winalda Francisco Borges, an analyst for Banco Inter, said the privatization of the company is expected to increase transparency and competition in the Brazilian market, potentially attracting more investments.
He agrees, however, that the mandatory thermoelectric power contracting could be a burden for consumers.
“Many of these locations [where thermal power will have to be contracted] do not have the necessary infrastructure, such as pipelines and transmission lines, which will require additional investment,” Borges told BNamericas, recalling that the MP also foresees mandatory contracting of small hydro plants, not necessarily with the most competitive prices.
According to the MP, at least 1GW of natural gas-fired thermoelectric plants to be purchased in 2026 should favor the consumption of natural gas produced in the Amazon region and used by thermoelectric plants in state capitals or metropolitan regions not yet served by the fuel.
In 2027, another 2GW must be contracted in the northeast and north regions, also with natural gas, and from two capitals or metropolitan regions of states lacking gas pipelines.
In 2028, the 3GW auctioned should come preferably from the center-west (2.5GW) and north (500MW) regions from cities not yet supplied with natural gas.
The 2029 and 2030 auctions should be extended to states with natural gas supply (1.25GW) and to southeastern cities (750MW) without gas pipelines and served by the superintendence for the development of the northeast (Sudene), namely Minas Gerais and Espírito Santo. The contracts will be valid for 15 years.
Opponents of the MP claim that it compromises national sovereignty by shifting control of the company that is the largest producer and distributor of energy in Brazil from the state to the private sector. They also argue that the terms of the bill create "sectoral oligopolies" that will reduce competition and make electricity rates more expensive.
BNamericas presents some of the MP’s highlights:
FREE MARKET
The federal deputies managed to exclude from the MP the establishment of a transition period from January 2023 through July 2026 for all power consumers to be able to opt for the contracting of electricity from any supplier. This matter will be dealt with via federal bill 414/202, known as the bill for the modernization of the electric power sector.
LABOUR ISSUES
Two approved amendments deal with labor issues. One of them limits to 1% of the remaining Eletrobras shares held by the federal government the stake that can be bought by employees of the company and its subsidiaries due to dismissal after privatization. The option to buy shares with severance money must be accepted within six months of dismissal, and the price of the shares to be sold would be that of five days before the MP was issued (in February this year).
The MP determines the government must hire Eletrobras employees fired without just cause in the 12 months following the privatization in federal public companies for positions of the same nature and with salaries equivalent to those previously received.
TUCURUÍ TRANSMISSION LINE
The deputies also approved an amendment to allow the start of construction of the Tucuruí transmission line after the basic environmental plan-indigenous component (PBA-CI), prepared by indigenous affairs agency Funai as part of the environmental licensing, is concluded and delivered to the indigenous people.
The 123km line will pass through Waimiri-Atroari land to interconnect Roraima state to the national grid.
ELETRONUCLEAR AND ITAIPU
The text authorizes the federal government to create a public company or JV to manage Eletronuclear, which controls the Angra nuclear power plants, and Itaipu Binacional, which administers the giant Itaipu hydro plant owned jointly by Brazil and Paraguay. For constitutional reasons, both must be under the control of the federal government.
This company will also manage the account of the national program for conservation of electrical energy (Procel), may join electric power research center Cepel, and will maintain the rights and obligations of the program of incentives for alternative sources of electrical energy (Proinfra), and will manage the financing contracts that use resources of the global reversion reserve (RGR) signed when Eletrobras was responsible for it.
ITAIPU MONEY
After Itaipu's debts are paid off, as programmed for 2023, the company's resources that remain and are due to Brazil will be divided as follows:
– Until 2032, 75% will go to the energy development account (CDE) and 25% to finance federal government income transfer programs;
– From 2033 on, the CDE will keep 50% of the additional profits from Itaipu, the income program will keep the 25% and the remaining 25% will be left to the new state-owned company to carry out obligations for river basin revitalization and energy generation in the northern region.
Additionally, resources from the energy funds of the southeast and center-west (Fesc) and the northeast (Fen) not committed to projects contracted by February 23, 2021 should be reverted to the CDE for tariff moderation.
The CDE is a fund sustained with charges deposited by the companies in the sector and partially passed on to the final consumer. It is used to finance energy from alternative sources, pay for the fuel used in the generation of energy in the north region in order to reduce rates, universalize the distribution of electricity and other purposes.
CONCESSION RENEWAL
With the new model, the Eletrobras plants will be granted 30-year concessions, including those whose terms have has already been extended by law 12,783/13 for the Tucuruí, Itumbiara, Sobradinho, and Mascarenhas de Moraes plants. But the deadline starts from the signing of the new contracts.
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