To measure what Eletrobras is, consider that for every 10 light bulbs turned on in the country, at least 3 are supplied by the energy generated by the company. The largest energy company in Latin America, owner or partner of the most important hydroelectric plants in Brazil, such as Belo Monte and Furnas, and responsible for almost 44% of the country’s transmission system, the state-owned company was placed in a race against time to be privatized.
The process needs to be concluded in the first half of the year, before the electoral campaign enters the decisive phase and alienates investors. The sale was modeled to occur through stock market capitalization. Shares and share receipts (ADRs) will be issued, respectively, in Brazil and the United States.
If successful, the offer will be one of the largest operations on the stock exchange in the history of Brazilian companies, around R$ 25 billion, according to estimates. It will only lose to the iconic Petrobras issue in 2009, when the state-owned oil company raised US$ 69 billion (R$ 353 billion at current prices).
The offer seeks to dilute the Union’s share, which needs to fall from 72% to 45%, raise funds to pay the grant to the State and transform the company into a corporation. No shareholder may hold more than 10% of the total shares.
But the operation is also seen as a profitable investment opportunity, according to financial advisers. A report from the UBS bank, for example, estimates that the share price, currently around R$35, could double in a year, reaching R$70, with efficiency gains in private management.
Priority offers are planned for shareholders, employees and retirees. There will be space for institutional operators and small investors. As in other privatizations, it will be possible to use half of the funds deposited in the FGTS (Fundo de Garantia do Tempo de Serviço), via funds, to participate in the offer.
Market analysts who follow the process oscillate between euphoria and disbelief over the size of the offer and the short deadline for its completion. The bureaucratic marathon is not easy, says Marcos de Vasconcellos, investment advisor and columnist for sheet.
“Given the size of the operation and the size and characteristics of Eletrobras, a state-owned company with national scope, it is very difficult for it to be concluded in such a short period, in an election year”, says Vasconcellos. He recalls that it would be enough for a group of disgruntled officials to shelve one or two vital documents to delay the process and make privatization unfeasible this year.
On Tuesday (22), shareholders approved the transaction at an extraordinary meeting, a vital step to continue the process, fueling the optimism of those with an eye on the shares. The moment considered the most sensitive is the next meeting of the TCU (Union Court of Auditors), which should take place between the end of March and the beginning of April.
The rite allows the process to be requested at least twice, which, in the limit, could extend the work in court for 60 days — which would make it impossible to offer the offer within the timeframe desired by the government and shareholders.
One of the items under analysis will be the minimum share price. The values, calculated by consultants hired by BNDES, are confidential. There have already been debates in court about the value of the company. Minister Vital do Rêgo Filho questioned the calculation formula and said that the company would be worth R$ 130 billion and not the R$ 67 billion defined. It was the only vote against.
“Privatization arrived at the end of an election year and we are faced with a Dantesque scenario of the delivery of an asset already amortized, paid for, which we will have to pay again to continue using”, says the minister. “Who is going to make the party is the financial market.”
PT threw another ball to TCU. On Tuesday (22), at the STF (Supreme Federal Court), he filed a preliminary injunction for the court to analyze a questioning about the value of the company, which was sent by Congress.
Former president Luiz Inácio Lula da Silva, who leads the polls for the presidential election, has already declared that the PT is against the operation. “We understand that the company is publicly traded, but Eletrobras is also a company with the role of guaranteeing the supply, development and sovereignty of Brazil – it must have control of the State”, says deputy Gleisi Hoffmann, president of PT .
“Our expectation is that privatization does not take place this year”, says the deputy. If it happens, and the PT wins the election, Gleisi believes that there is a way to reverse the process. “It was an operation on the Stock Exchange, we can do another one, and even buy back the shares.”
In the last annual financial statement, referring to 2020, Eletrobras had a profit of R$ 6.4 billion, a decrease of 42.6% in relation to the R$ 11 billion of the previous year. The next result is expected to be released on March 14th.
Results in recent years have fluctuated a lot. In 2016, it celebrated a profit of R$ 3.4 billion, after four years of losses. In 2017, another drop, with a loss of R$ 1.7 billion. Since 2018, it has been showing positive results, partly attributed to one-off restructuring processes, including the sale of loss-making distributors.
Eletrobras privatization does not guarantee a reduction in the electricity bill
Privatizations have always been controversial and noisy, accompanied by legal battles and employee mobilizations. But the way in which Eletrobras’ privatization was conducted by the government and captured in Congress attracted questions even from historical defenders of privatization.
The parliamentarians included in the MP (provisional measure) of privatization amendments that imposed future billionaire expenses for the new Eletrobras, and that will raise the electricity bill, when the privatization goal was to reduce. In political jargon, these strange amendments are called tortoises.
The new company will have to subsidize coal-fired thermal plants — against the grain of the world, which invests in green sources. It will have to pay for gas-fired thermal plants in the interior of the country, where there is no gas production. So, it will still have to pay for the construction of gas pipelines to supply these thermal plants, and to build the transmission lines to take energy from the countryside to the larger cities.
For another 20 years, it will continue to maintain Proinfa, a program to encourage alternative energies, which are no longer so alternative. All of this goes to the electricity bill.
“When privatized, a state company gains productivity just by getting rid of the shackles of public control, Courts of Auditors, Public Ministry. Even without changing directors and employees, it will work better just by eliminating the paralysis of pens”, says Jerson Kelman, former director of the agencies that monitor the energy and water sectors, Aneel and Ana.
“But the tortoises included in the Eletrobras privatization project constitute a regrettable capture of the energy planning process by a Congress dominated by parochial and physiological interests.”
As these measures serve political interests, some energy experts saw them as a kind of extra price to pay to secure the support of parliamentarians and get privatization moving.
It also helped to reduce the resistance of politicians to include in the privatization that the new Eletrobras will make regular transfers to regional funds aimed at maintaining the hydrological structure, vital for energy generation.
In practice, they will be able to announce on their bases the transfers that will benefit rivers such as the São Francisco, those in the Amazon and basins that support the Furnas system.
There are two procedures defined in the privatization rule that try to alleviate the electricity bill.
The first is the commitment of the new company to transfer, for 30 years, resources to the so-called CDE (Energy Development Account), which will be used to lower the tariff of residential consumers connected to a distributor.
In the first year of privatization, the rule provides for a transfer of R$ 5 billion to go directly to the reduction of the residential tariff. There would be a 2.5% drop in the electricity bill by estimates. As the government is rushing to complete the operation this year, before the elections, the measure, although welcome, is considered electoral.
Privatization will also end the so-called quota, the name given to a type of energy contract created under Dilma Rousseff’s government. This contract guaranteed a fixed payment to the generator and passed variable expenses to the consumer.
Since then, when it rains, there is no extra expense and is great for the consumer. But in the event of a drought, the production of the hydroelectric plant drops, the owner of the plant produces less and needs to buy more expensive energy on the market to deliver what he promised – and this expense goes to the electricity bill.
As the last few years were dry, with exceptionally high expenses for generators, the electricity bill exploded. The discounting process, as the end of quotas is called, was also criticized for being gradual and for having diluted benefits for the consumer.
In a report released in July 2021, Fiesp estimated that the decotization model and the tortoises of parliamentarians would lead to an increase in the cost of energy between R$100 billion and R$150 billion.
The privatization model still has two problems that compromise the reduction of energy costs, according to experts.
First, it does not offer any mechanism to alleviate the burden of energy for the industry, which reaches the consumer embedded in the final price of the products. Expenditure on energy represents 48% of the cost of milk, 25% of cement, 32% of chicken, 10% of the cost of sugar and building materials for popular housing, according to a survey by Abrace, an entity of large industrial energy consumers. .
Electricity accounts, on average, for 12% of the monthly family cost. In the consumption basket of 16.7 million families with an income of up to two salaries, this expense rises to around 15% of monthly expenses.
“The invisible cost of energy will continue in the price of products”, says Paulo Pedrosa, president of Embrace.
Another risk to the reduction in energy prices, according to experts, is the final size of the new company. Even without Itaipu, which will be transferred to another state-owned company, Eletrobras will have 26% of the generation. It will be a giant. Second in the ranking, Engie has less than 6% of the market.
Initially, the Tucuruà and Mascarenhas plants, which are large generators, would be privatized separately, reducing the weight of the new company and encouraging competition. Without further discussion, however, they were included in the privatization package.
“My opinion is that, at this point, the process cannot be stopped, as the damage would be high, but the Eletrobras offer will go down in history as the worst privatization ever made”, says Elena Landau, economist and partner at the law firm Sergio Bermudes.
Elena was the director of Privatization at BNDES and believes that, given the size of Eletrobras, its privatization would allow the structural reorganization of the energy sector in Brazil, after a broad debate with different agents in the sector. This is what happened with the privatization of the Telebras system, she recalls, which led to the popularization and drop in the price of the telephone.
Among the defenders of privatization, what is now expected is that, if transferred to the private sector, free from political interference, Eletrobras will become more efficient and, over time, will be able to offer more modern products and services at competitive prices.
“Privatization is controversial by nature. You can say that if the state-owned company is so good because the state doesn’t keep it and monetize its benefits — it’s a legitimate debate”, says Luiz Augusto Barroso, CEO of the PSR consultancy and former -president of EPE (Empresa de Pesquisa Energética), responsible for planning the electricity sector in Brazil.
“The issue is that the State cannot keep the company competitive, within an industry in transformation, so why not sell and take care of those attributes that are characteristic of the State, such as education, health and public safety?”
The report sought out the BNDES and the Ministry of Mines and Energy to counter the criticism. Both replied that they are fulfilling the period of silence. This period, established by law, normally occurs 60 days before the date set for a stock exchange transaction. The date of Eletrobras’ offer has not yet been defined.
Collaborated with Lucas Bombana
I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.
