Outdated data allow the government to earn R$ 10 billion more with the sale of Eletrobras, companies say

The biggest generators and the main energy consumers sent a letter to the Ministry of Mines and Energy, BNDES and EPE (Energy Research Company) to complain that the Eletrobras privatization model considers data that will allow the government to receive between R$ 10 billion and R$ 20 billion more than due in the share sale process, scheduled for next year.

Investment banks that are currently evaluating whether the privatized Eletrobras is a good deal warned that there is an overvaluation caused by the use of data only until 2019 — therefore, before the water crisis.

It was these institutions that warned industry representatives, large energy consumers, that if the update were made with data from 2020 and 2021, the total amount that the operation could move would be BRL 10 billion to BRL 20 billion less.

According to the model defined by the BNDES, the Union will leave the control of the state-owned company by selling its shares to the market on the Stock Exchange.

The initial (primary) offer should be worth R$23.2 billion. If that is not enough, there will be a new round until the government’s share of the company drops to 45%. However, the operation as a whole —which includes the migration of Eletrobras plants to the “free market”, a deposit of R$29 billion to amortize the price of energy, and investment commitments on the São Francisco river— should move around R$ 150 billion, according to bank projections. Or from BRL 130 billion to BRL 140 billion, if the correction were made.

The concern of these institutions reached the generators and large consumers of energy in the industry, represented by Abrace (Association of Large Industrial Consumers of Energy and Free Consumers), who sign the letters sent to the government.

A sheet had access to the content of the document sent by Abrace on November 22 to the Minister of Mines and Energy, Bento Albuquerque, to EPE and to BNDES.

In it, they state that, in the modeling, physical guarantee data from Eletrobras plants were used only until 2019. Between 2020 and 2021, with the water crisis, these hydroelectric plants not only started to generate less energy (to preserve water in their reservoirs) , as they registered a reduction in their physical guarantees.

Physical guarantee is the amount of energy that a plant can sell with certainty in view of its installed capacity.

Eletrobras plants operate in a kind of club whose members respect the rules of the so-called MRE (Energy Reallocation Mechanism). According to him, when a plant produces less than its physical guarantee, it can buy energy from another that produces more at a price lower than the market price.

If this energy is still not enough to meet the minimum supply contracts signed, it starts to buy energy from other generators, such as thermal ones, which generate at R$ 2,000 MWh (megawatt-hour), almost ten times the price of reference.

According to the banks, there was an overvaluation of the physical guarantees of the hydroelectric plants by the EPE when using only data up to 2019. It is this difference that was estimated between R$ 10 billion and R$ 20 billion, if the most recent data were considered.

One of the generators consulted by sheet anonymously states that the situation of these Eletrobras plants is worse than imagined, and the other generators [do MRE] they are worried because they will have to deal with these differences. However, this generator did not know how to specify the real situation of these hydroelectric plants.

Investment banks made it known to industry representatives that, between 2020 and 2021, the water crisis reduced at least 1,000 MW (megawatt) of Eletrobras plants.

In practice, this will lead to an increase in the value of the state-owned company and, consequently, in the value of the shares at the time of capitalization. The government could thus earn more money from the operation.

EPE told industry representatives that it only used the data until 2019 because the most recent numbers were not yet made available by ANA (National Water Agency).

“A physical guarantee above the correct value gives Eletrobras an asset that has the value of the difference between the sale price of this additional physical guarantee and the purchase price of this energy within the condominium of hydraulic plants, using the Energy Reallocation Mechanism (MRE )”, says the letter.

“With this, the company will have more value, which benefits the government, in the increase in the value of its shares and in the value of the granting bonus. The same valuation effect extends to the company’s current private shareholders.”

In the document, Abrace considers that “the calculation of the revision of the physical guarantee of Eletrobras plants needs to reflect reality”.

In October, ANA issued two resolutions that update the historical series and future projections of available water in 545 hydroelectric projects planned or in operation.

“This information needs to be considered. If not [consideradas], can have important consequences for the sector and promote the benefit of some segments at the expense of others.”

According to the letter, by using outdated data, the capitalization of Eletrobras would also help the government to inflate the amount to be allocated to the CDE (Energy Development Account), used to reduce the tariff to consumers whenever there are gains in the system.

BNDES projections indicate that this account will be around R$29 billion, enough to cause “neither an increase nor a reduction in the tariff” [após a privatização da estatal], as stated by the bank’s president, Gustavo Montezano, during an event to announce the modeling of privatization.

The industry advocates that the data be updated. Otherwise, consumers will have to bear the extra costs of, in the future, the system having around 1,000 MW less energy to be commercialized.

“Again, our concern is that domestic production is not burdened with a cost, which should be understood as a loss for a company that has, after all, the majority of its capital on the market and in the hands of private shareholders when considering shares with and without right to vote”.

Through its advisory, Abrace informed that it is in contact with the competent authorities to seek a way to solve the problem.

Ministry says data was the last available

When contacted, the Ministry of Mines and Energy said that the data used to calculate the physical guarantee of the Eletrobras hydroelectric plants were the most up-to-date available at the time of publication of the ordinance that defined the privatization guidelines.

“The methodology applied to Eletrobras plants is the one in force and the same used in the last ordinary physical guarantee review carried out in 2017 and in the calculations of physical guarantee of new electricity generation projects of the National Interconnected System (SIN)”, explained the folder through its advice.

Regarding the ANA’s resolution with more updated data on the situation of the hydrographic basins, the ministry informs that the EPE “is interacting with the ANA to verify the application of some series of flows for consumptive uses”.

“This analysis step is necessary so that the input data for calculating physical guarantees reflect the best information available by ANA.”