Congress may be able to delay energy readjustments, say banks

The legislative decree that tries to prevent the readjustment of Ceará’s electricity bill may evolve into a greater negotiation, which preserves the contract with the company, but manages to postpone higher tariff increases across the country. The outlook is outlined by different reports from international banks.

The Draft Legislative Decree 94/22, by deputy Domingos Neto (PSD-CE), provides for the suspension of the 24% increase in the electricity bill of consumers served by Enel Ceará — a readjustment already authorized by Aneel (National Electric Energy Agency) .

The president of the Chamber, Arthur Lira (PP), however, stated that the discussion should include other states with readjustments above 15%.

The urgency for processing the project was approved on Tuesday (3) by 410 votes in favor and 11 against. Novo was the only party that did not support the proposal. Thus, the text does not go through the committees, can be put to a vote at any time and does not even need presidential sanction.

The proposal was poorly received by the private sector. In a note this Monday (9), the project was qualified as “populist and electoral” by Abdib (Brazilian Association of Infrastructure and Basic Industries).

“The measure, with a clear populist and electoral character”, says the text. “Initially, it only applies to the readjustment in the state of Ceará, but if approved, it should prevent similar increases in other parts of the country.”

The decree was also interpreted as a threat to the entire tariff system, and could set a precedent for breach of contracts and interference in adjustments in other sectors with some type of regulation, such as sanitation, telephony, banking, airports, ports, railways and tolls.

Last week, Abrasca (Brazilian Association of Public Companies), which represents 85% of the total market value of B3, the Brazilian stock exchange, mobilized to dissuade congressmen. “This decree is an attack on the backbone of privatization”, says the entity’s president, Eduardo Lucano da Ponte.

Analysts who follow the area do not believe that parliamentarians will determine the breach of contracts, but they consider that the discussion in Congress with representatives of the agency and the government may evolve to other alternatives that, in the end, would alleviate the weight of readjustments this year.

Credit Suisse, for example, highlights in its report how the sector works and the harmful effects of an intervention for investors.

It recalls that the tariff calculation rules are openly discussed with sector members, including companies, customer representatives and energy specialists, and periodically reviewed at public hearings. The concession contracts, in turn, are granted by the Ministry of Mines and Energy.

That is, any negotiation would still require the participation of the federal government.

“Contracts cannot be changed without the consent of all parties, including companies,” the text states. “That said, in the event that tariff increases do not comply with the rules included in the contracts (approved by the regulator), companies are entitled to receive compensation (full tariff difference) and the contracts would be considered breached.”

The bank also says that the parliamentarians’ proposal generates noise, and that investors may want to reduce their exposure to distributors listed on the stock exchange that operate in the poorest regions of Brazil, in the North and Northeast, potentially more sensitive in the event of an intervention. However, it advises investors to wait.

“We believe that contracts must be respected, especially in a sector that continues to require large investments and where the government is planning the privatization of its federal energy company. [Eletrobras]”, states the text. “A change in legislation that violates concession contracts in the electricity sector could easily be applied to other infrastructure sectors, with an undesirable negative impact on risk perception.”

The Spanish Santander already highlights in the title of his report that “there is no reason to panic”, as he does not believe in the pure and simple suspension of the readjustment – however, he also recommends attention to parliamentary action.

“We believe that the most reasonable solution would be to increase sectorial funds to support the tariff deferral, as has been done several times in the past”, highlights the Santander text. “We also see the possibility of Aneel postponing other payments of Parcel A [de consumidores residenciais] or try to anticipate the return of tax credits to consumers.”

There are R$ 60 billion in tax credits that can be used to reduce the electricity bill in all states, but distributors claim part of this amount, and the issue is under analysis at the agency.

In the worst scenario, according to Santander analysts, the debate could anticipate the renewal of concessions for distributors, as occurred in the government of Dilma Rousseff (PT). In this case, they assess, “companies would probably have to accept lower tariff readjustments or a change in the inflation index (from IGP-M to IPCA).”

Bank of America is another that does not believe in intervention that leads to the rupture of the regulatory framework. “Political friction over tariffs is particularly common in election years, but the economic structure of distributors has historically been preserved,” he says.

However, the bank’s energy analysts also believe that the urgency to discuss the decree will lead to the search for alternatives. In this case, they consider it feasible to consider another sectoral loan for distributors, with the transfer of costs to consumers in the following years. “While not ideal, such an alternative has delayed tariff increases in the past,” the report says.

The bank recalls that loans were made to avoid a large increase in the electricity bill between 2014 and 2015 (R$ 21 billion), to circumvent the effects of Covid on the sector in 2020 (R$ 15 billion) and also to alleviate the effects of the pandemic. shortage of water energy between 2020 and 2021 (R$ 5 billion).