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Why the Eletrobras privatization is at risk

Bnamericas Published: Tuesday, March 17, 2020
Why the Eletrobras privatization is at risk

The privatization of Brazilian power holding Eletrobras is among economy minister Paulo Guedes' top priorities for discussions in congress to combat the negative economic impact from the coronavirus, but there are several factors that put the privatization plan at risk.   

Before the pandemic hit Brazil, the head of the lower house, Rodrigo Maia, had already said it was unlikely that major privatizations would take place in 2020. “Many senators are not comfortable with this bill so it will be an arm-wrestling between the government and congress. The bill is ready for a vote but Maia will not go ahead if he is not certain of approval in the lower and upper houses,” Fábio Di Lallo, an attorney at Brazilian law firm Souto Correa Advogados who focuses on the electric power market, told BNamericas.  

The combative attitude of far-right President Jair Bolsonaro and opposition to privatizations of many senators and lower house legislators have made it very difficult to secure enough support for the Eletrobras privatization.  

The ability to hold a proper voting session has also come into doubt as one senator and one lawmaker in the lower house have been infected by the coronavirus. And the privatization stands little chance to see the light during the second half of the year as legislators will then focus on October's municipal elections.

The problem for the Bolsonaro administration is that it counted on the proceeds from the Eletrobras privatization when planning its 2020 expenditures.

The negative impact that the coronavirus has had in recent days on the Brazilian stock market further complicate things as the close to 20% of ordinary shares that are traded have lost about 40% of their value due to pandemic-related selling.

The plan of the government is to privatize Eletrobras through a public share offering.  

The revenue pressure faced by the government is great and the development of the coronavirus situation in the coming days will be a test of strength for the Bolsonaro administration, said Di Lallo. 

Eletrobras’ privatization process began in 2017 during the administration of former president Michel Temer but stalled due to political and technical reasons.    

If the privatization goes ahead, experts then expect the company to focus on improving service quality for final consumers and possibly also participating in concession auctions. Despite investment limitations in recent years, Eletrobras is still Brazil’s largest power generation firm and with 49.9GW is responsible for 30.2% of the country’s installed capacity. It also remains Latin America’s biggest power transmission firm, with 71,042km of lines, making up 46.5% of Brazil’s total.

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