TCU plenary approves first stage of Eletrobras privatization

In a victory for the Jair Bolsonaro (PL) government, the plenary of the TCU (Union Court of Auditors) approved this Tuesday (15) the first stage for advancing the privatization of Eletrobras, rejecting a divergent proposal that, in practice, , would increase the amount to be paid by the state-owned energy company to the Union and make it difficult to carry out the sale this year.

Most of the ministers accompanied the rapporteur, Minister Aroldo Cedraz, who stipulated the value of the bonus at R$ 25.3 billion to be paid by the company for the renewal of contracts for hydroelectric plants that currently operate under the quota system, remunerated just enough to cover operation and maintenance costs.

The proposal was approved by five to one. A seventh vote, by the now ex-minister Raimundo Carreiro, had already been in favor of privatization, but is being counted separately because the rapporteur made last-minute adjustments to his vote.

The possibility of a recalculation of the grant amount, with an increase of about R$ 34 billion, was one of the points of greatest concern for members of the government, but it ended up being treated as a recommendation. This scenario allows progress in privatization without major unforeseen in terms of term.

The extraordinary general meeting of Eletrobras shareholders to resolve on the company’s capitalization – an operation in which the Union’s share will be diluted, and private shareholders will become the majority – is convened for February 22nd.

Therefore, the TCU’s manifestation is considered essential to provide greater security for the next stages of the process, which include the modeling of the operation and the offering of shares. These steps need to be completed by May 13th. Until then, a second stage, which will analyze the operation’s model, will also need to go through the scrutiny of the court of accounts.

“[Espero] May the ruling bring positive effects in relation to the development of our country and also the necessary protection of electricity consumers”, said Cedraz in his final remarks.

The value of the grant was at the center of a controversy, given the dissenting vote of Minister Vital do Rêgo. He argued that it would be necessary to incorporate the ability to quickly deliver energy from these plants at peak times – called power in industry parlance.

In the words of the minister, it would be “inexplicable and illegal” to exclude the measurement of the power of these plants from the calculation of the grant value, since this increases the potential for future revenues for Eletrobras. Thus, the company would be more valuable than considered by the government.

In addition to the “power factor”, Vital do Rêgo also pointed out other “absences” in the calculation made by the government. The main one is the hydrological risk, the amount of rain that compromises the water level of the reservoirs and that impacts the generation capacity, affecting the price of energy.

According to the minister, there will also be an impact on the consumer’s pocket, which cannot be ignored. Today, the average price per MWh (megawatt-hour) of plants listed by Eletrobras is BRL 65, compared to BRL 194 charged by plants that sell energy freely on the market. In the regulated environment (residential consumers, for example), this average is R$275.

That is, when the mills stop producing under quotas (with subsidies), they will start selling on the free market at the highest price.

The government projected the current value of grants for the renewal of Eletrobras hydroelectric contracts to R$ 67 billion, of which R$ 25.3 billion would directly irrigate the National Treasury coffers.

According to Vital do Rêgo, with the incorporation of the power of these plants and other factors disregarded by the government, the figure would be R$ 130.4 billion – an underestimation of around R$ 63 billion. The share owed to the Treasury, in turn, should rise to R$57.2 billion.

The minister proposed a determination for the government to redo the calculation, but did not receive support from the plenary. As the determinations must necessarily be complied with, guidance in this sense would end up hindering the privatization of Eletrobras in 2022.

“The technical unit talked about the power, the MPTCU determined that this be included in the revenues, the rapporteur mentioned that the gains will be extraordinary in the plants covered by the law, and we are going to sell Eletrobras, privatize Eletrobras, without the power component? Eletrobras considers that the commercialization of power will be one of its main products”, said the minister.

“I think that this mistake must be corrected before the signing of the contracts, to avoid that we perpetuate this mistake for 30 years”, said Vital do Rêgo.

Minister Benjamin Zymler, in turn, even proposed a determination to include a clause in the contract enabling a future review of the amounts to be paid to the Federal Government, with additional transfers in case Eletrobras starts to earn higher revenues from the commercialization of the power of the plants.

“I raise the possibility of including in the contract for the conversion of concessions a clause that establishes the possibility of sharing risks and opportunities according to the regulation of the power market, if it is really implemented and if the new Eletrobras really starts selling power and earning revenues “Zymler said.

“Of course, this is a risk, it poses a risk situation for privatization”, acknowledged the minister later.

Zymler also stated that he shared Vital’s perception of the company’s valuation. “The accounts for the privatization of Eletrobras are not yet at an adequate level of maturity. If Eletrobras were mine, I would not privatize with these accounts”, he said.

Even so, Zymler decided to go along with Cedraz’s vote, without imposing any setbacks on the government.

Minister Augusto Nardes said that there is currently no legal basis for the use of the power factor in calculating the cost of energy and, consequently, the value of the grant. According to him, there is currently no sample or database that can guide the estimates.

In addition, according to Nardes, if, on the one hand, the incorporation of the power factor could raise the values, the separation of the components would end up devaluing the price of energy itself. Today, both are a reference for the consolidated calculation of physical guarantees in the electricity sector.

“Following this reasoning, I would like to follow the vote of the rapporteur minister”, said Nardes, endorsing the tone of recommendation to the government to incorporate calculations about power in the future in any new contracts for hydroelectric plants.

Minister Jorge Oliveira, a former minister of the Bolsonaro government, said that the insertion of a clause for the future review of the contracts of the plants that will be renewed would cause legal uncertainty, given the “subjectivity that this clause can generate”. He also accompanied the rapporteur minister.

Understand the main points of Eletrobras privatization

How will privatization take place?

The Jair Bolsonaro government approved a law that authorizes a new issue of Eletrobras shares on the market, without the Union accompanying the subscription. In practice, with the capitalization of the company, the participation of the federal government will be diluted, and the control will pass to the hands of the private initiative.

Will the Union obtain revenue from the operation?

With the capitalization funds, Eletrobras will pay a bonus to the Federal Government for the early renewal of contracts for 22 hydroelectric plants, most of them currently operating under the quota system, instituted in 2012 under Dilma Rousseff (PT) government and which pays generators just enough to cover operating and maintenance costs. With the new contracts, Eletrobras will be able to sell energy at free prices, more attractive to the company.

What will be the value of this bonus?

The value of the bonus for renewing the contracts of the plants was the subject of the first stage of analysis by the TCU (Court of Accounts of the Union). The court of accounts endorsed the estimates of a payment of R$ 25.3 billion to the National Treasury. Another R$ 32 billion will be transferred to the CDE (Energy Development Account) and used to cushion increases in consumers’ electricity bills.

What are the next steps?

• Conclusion of studies on Eletrobras’ capitalization model and definition of the target price of shares to be issued;
• Analysis of the modeling by the TCU;
• Conducting the offering of shares.

Is there a deadline for the transaction to be completed?

The government has until May 13, 2022 to complete all these steps, according to rules from the SEC, the agency that regulates the American capital market.