Eletrobras privatization model has side effects, say economists

Redefining the role of the State, preventing the increase in the electricity bill and guaranteeing investments to modernize the system and seek social inclusion. In the opinion of economists and specialists, these challenges will continue to exist in the energy sector even after Eletrobras is privatized.

The government and the syndicate of banks responsible for capitalization are racing against time to complete the operation in the first half of the year, while different trends see relevant medium and long-term impasses for the country after privatization. In many cases, these are problems generated by deficiencies in the chosen privatization model and in the conduct of the operation.

Economist Armínio Fraga, a partner at Gávea Investimentos and former president of the Central Bank, for example, still has doubts about the efficiency of the adopted design. Instead of promoting the sale of the company, which Fraga considers more appropriate, the option was to dilute the Union’s share from 72% to 45%, which preserves the presence and influence of the State within the business.

Like the other shareholders, the government will have 10% of the shares with voting rights, but tends to have two directors. Today, the board of directors has ten members. The Union will still have a veto in corporate matters.

“I fear that the model will not solve the company’s historical governance problems”, says Fraga, who is a columnist for Sheet. “It would be better to sell the subsidiaries, and the sector would remain regulated, of course.”

Some believe, however, that this reduction in the state’s firepower will be enough to root out old vices — such as pressure for political appointments at its subsidiaries Eletrosul, Eletronorte, Chesf and Furnas.

On the other hand, the Union, now as a minority in a company with dispersed control, would gain space to act as an interlocutor between the demands of the public and private sectors — although without the autonomy to hit the hammer.

“In the current structure, Eletrobras is in a cast and its subsidiaries have become competitors with each other [brigando] for power, funds and projects to the point that they have already been called uncontrolled by Eletrobras”, says the former Minister of Mines and Energy and deputy Fernando Coelho Filho (União-PE), who worked for privatization.

“As a large corporation in the energy area, Eletrobras could become an important investor in Brazil and in other countries, matching global companies such as AES, EDP and Engie.”

There are, however, additional legacies of the privatization project that concern scholars such as Samuel Pessôa, head of research at the Julius Baer Family Office and researcher at the Brazilian Institute of Economics at FGV (Fundação Getulio Vargas).

Pessôa questions the mandatory construction of gas-fired thermal plants, a measure that was included in the company’s privatization law during its course in Congress.

The final text predicts that Eletrobras will buy 8,000 MW (megawatts) of thermal plants to be installed in the Northeast, North and Center-West regions. These projects will cost from R$ 2.4 billion to R$ 27.8 billion per year until 2030, according to estimates by Abrace (Association of Large Industrial Energy Consumers and Free Consumers).

“The privatization of a state-owned company like Eletrobras makes perfect sense at this moment, as private capital tends to make it more competitive when the sector undergoes a major transformation, towards cleaner energies”, says Pessôa, who is also a columnist for Sheet.

“However, the same cannot be said for gas-fired thermal plants, which are polluting and were included in the proposal only to cater to the private lobby, with effects on the cost of the energy tariff.”

These thermal plants, by definition, will also require the construction of transmission lines and a network of gas pipelines to take gas from the coast to the interior. The pipeline network fuels clashes in Congress, as there is an expectation that it will be funded with public resources.

Pessoa believes that it would be more rational to work in Congress for a review that would eliminate these additional costs.

A measure in this sense is also defended by economist Nelson Barbosa, former Minister of Finance and Planning of PT governments. “It is certain that we will have an increase in the electricity bill if this gas bag is not checked”, says he, who is a columnist for Sheet.

Barbosa followed studies on the privatization of the last Eletrobras distributors, loss-making companies that harmed the company’s results. The six companies went up for auction on the Stock Exchange in 2018, under the administration of President Michel Temer (MDB), paving the way for the sale of the state-owned company, which was already under study.

Another side effect that worries specialists and is on Barbosa’s radar is the so-called decoupling, which, in practice, means a change in the way electric energy is sold.

Currently, there are quotas for the regulated market — which supplies most homes and most small and medium-sized companies. In this environment, the readjustment follows rules and is monitored. Privatization establishes a timetable for these quotas to be dissolved and energy to be sold on the free market — where the price is formed by the relationship between supply and demand.

“When the offer is abundant, everyone will be happy, but what about when there is a restriction? Given the climate situation, the risk of having a lack of water in the plants and an increase in the price of energy is very high”, says Barbosa. “The government was in a hurry to sell to make cash, so it accelerated the process, without establishing counterparts and goals to reduce this risk for the final consumer.”

Candidate for president by the PT, Luiz Inácio Lula da Silva has said that he can review the privatization of Eletrobras if he is elected. Senator Jean Paul Prates (PT-RN), who is following the construction of the PT government’s energy program, confirms that this discussion exists and makes considerations.

“Any government can buy back a state-owned company if it makes public policy sense, just as any big businessman, like Jorge Paulo Lemann or Elon Musk, can act to review the direction of businesses in which they are shareholders,” says Prates. “But this type of change does not happen overnight, and is always accompanied by a lot of dialogue and planning, within the rules of the market.”

As a member of parliament who followed the progress of the privatization project, the senator sees many deficiencies in the final model, especially the aforementioned gaps that impact the price of energy. “This privatization promises an increase in the tariff and period”, he says.

The issue of public policy planning and energy security is what worries another economist, Nelson Marconi, a professor at the FGV School of Business Administration who advises the pre-candidate for the presidency of the Republic Ciro Gomes (PDT).

“I understand that capitalization seeks to reduce the Union’s share, so that directors and shareholders can make more agile investment decisions”, says Marconi. “But we are doing privatization at a time when Russia’s invasion of Ukraine is causing the world to discuss the opposite: the strategic role of state energy control.”