R$1 trillion in privatization is electoral fiction, says creator of privatization program


For Luiz Chrysostomo, 58, director of the Institute for Economic Policy Studies/Casa das Garças and one of the creators, in the early 1990s, of the PND (National Privatization Program), the 30 years of privatization in Brazil make up one of the best -successful state reform programs in the western world.

Coordinator of the sale of Telebras in 1998 and acting in 49 privatizations and concessions, inside and outside the government, Chrysostomo says that the next frontier in the area is to improve the institutional model by strengthening regulatory agencies -which, in many cases, suffer today of a “frame vacuum”.

“When we break the public monopoly, what is wanted is competition and efficiency. Without that, we have the greatest perversity that exists, which is the transfer of the public to the private monopoly.”

He claims to have doubts that the two main candidates in this election, Luiz Inácio Lula da Silva (PT) and Jair Bolsonaro (PL), will give priority to institutional improvement in the area.

“Unfortunately, because this is linked to a new moment of growth in Brazil, which will only advance with a modernized infrastructure. And the new investment cycle will not be state-owned. It has to be private”, he says.

How do you evaluate the 30 years of privatization and concessions in Brazil, a period in which most of the important assets, such as telephony, energy, highways and busiest airports were transferred to the private sector? How is it possible to move forward?These three decades have allowed us to build one of the most successful programs of state reform in the Western world. I’m not just talking about emerging ones, but about the Northern hemisphere, about the State revision processes from the end of the 1980s, started in England by Margaret Thatcher [1925-2013]and which served as a parameter even for Brazil.

Brazil had the characteristic of being a very large state due to the development model adopted from the two PNDs [Plano Nacional de Desenvolvimento, de 1972 a 1974, e de 1975 a 1979, ambos no regime militar]. It is not for nothing that we built another PND, purposely called the National Privatization Program.

It is important to note that privatization in Brazil spanned the PSDB, PT, PMDB and Bolsonaro government, in addition to [Fernando] Collor, where it all began, and Itamar Franco. In the case of privatizations, we did not have a government plan, but a state plan.

From now on, the total assets directly controlled by the State are extremely concentrated: Petrobras, public banks [BB, Caixa e BNDES] and Post Office; in the latter case, something relatively small.

The important thing going forward is to pursue institutional maturity that involves the regulation of privatized companies in terms of quality control of the assets sold and the expansion of competition, so that all the benefits and innovation of private capital reach the final consumer.

One of the negative points is precisely the inconsistency of a more technical and effective performance of regulatory agencies. In some cases, there are political indications from members and slow decisions to increase competition in services. How do you rate this?There were different phases. Anatel [Agência Nacional de Telecomunicações] it was set up correctly, with its own budget, top-notch technicians and before privatization.

Aneel [Agência Nacional de Energia Elétrica] emerged in the midst of privatization, and the process took place without anyone knowing exactly what the final horizon of the sector would be. But it was also created with first-rate technicians, just like the ANP [Agência Nacional do Petróleo].

In a second phase, there was the political rigging, in which the agencies lost their space. This became very clear, especially in the Dilma Rousseff government. [2011-2016]. More recently, in the Bolsonaro government, we have not filled several vacancies and staff, which has made it impossible for agencies to carry out the work of supervision, control and institutional improvement.

Thus, the new frontier of privatization, to which the next governments must dedicate themselves, is precisely the improvement of the institutional and regulatory model. This is what will generate efficiency in the economic model. When we break the public monopoly, what is wanted is competition and efficiency. Without this, we have the greatest perversity that exists, which is the transfer of public to private monopolies.

On these two vectors, competition and efficiency, in which sectors have you advanced the most and where could you improve? In energy, for example, until today we do not have a free market for residential consumers to decide from whom to buy energy.Overall, we have agencies for each of the sectors and a Law on Agencies. What we don’t have is institutional progress. Brazil is in a position to make changes in this regard, and this passes through Congress. Everything that involves privatization has to pass through Congress or through local entities, such as legislative assemblies, to be fully legitimized.

Between advances and setbacks, we have an Anatel that has gone through difficult times, but has the structure to improve. Aneel clearly lacks an element of institutional change that allows for increased competition. But the global energy crisis and the rise of alternative energies will naturally force this evolution.

With Eletrobras now private, it will also be more permeable to a competitive environment. The institutional framework that permeates the electricity sector in a privatization of more than 20 years is also reaching a level of maturity, with the coexistence of local and international private entities and financial capital.

This mix allows for healthy competition. It won’t be in the next two or three years, but the vector is indicating that. We have a fuller than an empty glass in that sense.

The experiences lived in sectors such as telephony and energy also tend to better inform the next steps in other areas, such as the issue of the new framework for sanitation. This is a sector with less competition, but the experience of what went wrong in other areas can help the regulator to better establish what the commitments, duties and rights of new concessionaires are, both from an investment and a tariff point of view.

About tariffs, there are a lot of complaints from users in some sectors, especially in energy and highways.Privatization processes have tariff impacts. This is a global reality. In some cases, they are broader, from the point of view of higher tariffs, either because of inflationary issues or bottlenecks, or because of wrong ways of doing privatization.

In some privatizations, when poorly modeled, there are setbacks. Whether from the point of view of ownership, which can be taken over again by the public sector, or when, during the management process, an economic-financial rebalancing becomes necessary so that the business does not go bankrupt.

In Dilma’s government there was a concept, also present in other countries, of low tariffs in the highway sector. An incentive to generate a certain subsidy in the tariff and a lot of demand for investments, which subverted any economic-financial balance. We’ve seen this on some highways and airports. It was the mistake of placing an almost ideological element in a technical aspect.

In the case of airports, the model was wrong in maintaining the 49% share of Infraero, a broken company, and based on a growth in demand that did not happen. Dilma was more ideological in the sense of wanting to preserve artificial tariffs in the case of highways and a public entity in the case of airports.

But, to be honest, many believed that the country would grow a lot, so much so that these roads and airports were granted. Model flaws exist in many countries. Portugal made a PPP program (public-private partnerships) that went wrong, just like in the Dilma government. They estimated a huge growth of the country with European integration and had to return everything [as concessões] because there was no demand.

The important thing is that when there are failures, the models are improved. The Bolsonaro government inherited both the Law on Regulatory Agencies and the Law on State-Owned Companies. [para tentar blindá-las de interferências políticas]in addition to rules for re-bidding.

But we are seeing what happens with Petrobras [objeto de interferências de Bolsonaro] and with agencies, where there is a staff vacuum. In the case of re-biddings, nothing has come of it. There was a work to try, but, due to institutionality and legal aspects, it did not work.

Minister Paulo Guedes has promised up to R$1 trillion in privatizations, but we have not seen Bolsonaro’s willingness to tamper with state-owned companies such as Petrobras and Banco do Brasil. Is there BRL 1 trillion in assets to privatize? And how to expand privatization and concessions in areas less attractive to the private sector?R$ 1 trillion in privatization is an electoral fiction. Any estimate of this value would have to incorporate other Union assets, in addition to state-owned ones.

The feasibility of this would take decades, for example, in the real estate part of the Union. As for less attractive assets, some of them will have to stay with the State for some time, being well managed by agencies or ministries until regional growth can be organized where they are. Or until the closing of these assets.

In several developed countries, the State has an important presence in some activities. But the calculation of subsidies for them must be budgeted and transparent, until they can be transferred. There are cases where they simply have to be liquidated.

The idea of ​​taking a good asset and mixing it with a bad one, and thus trying to sell, may not work. We would be creating two types of problems: not having a better exit operator; or cause a problem ahead for a good operator.

What can you expect from a Lula or Bolsonaro government, today leaders in research, concessions and privatizations?I don’t see any regression in privatization. My concern with the two eventual governments is with the agencies and the regulatory aspect. This is the crucial element for advancing the process.

Before, we needed the BNDES, almost exclusively, to make investments in infrastructure. Now, despite the fact that the capital market has developed a lot in the last five years in terms of private financing, we still have a lethargy in the advance of regulatory reforms, in the direction of greater general and tariff competition.

Our new frontier is not BRL 1 trillion in privatization, but progress in regulation. For this, there must be a political willingness on the part of the Executive to forward the necessary regulatory reforms to the Legislature.

No privatization process in the world works, whether for the sale of assets or institutional improvement, without the consent of the National Congress. This is what state reform means on this issue.

I doubt this will be a priority in either government. Unfortunately, as this is linked to a new period of growth in Brazil, which will only advance with a modernized infrastructure. And the new investment cycle will not be state-owned. It has to be private.


is a partner and member of the board of directors of the Institute for Economic Policy Studies/Casa das Garças. Former head of the BNDES Privatization Office in the early 1990s, he coordinated the privatization of Telebras in 1998 and acted, inside and outside the government, in 49 privatizations and concessions. Master’s and bachelor’s in economics from PUC-Rio, he specialized in administration from the Wharton School (USA). He was the managing director of investment banks JPMorgan and Chase Manhattan.

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