TCU forms majority to approve Eletrobras privatization process

The TCU (Union Court of Auditors) formed a majority to approve the privatization process of Eletrobras, as indicated by the vote of the ministers in judgment on the afternoon of this Wednesday (18). The decision gives the government free rein to relinquish control of Latin America’s largest energy company.

As is often the case at decisive moments in privatization processes, the hours before the trial were tense.

Still on Tuesday night (17), the vote of Minister Walton Alencar caused apprehension. He defended a change in the schedule in the contributions of the CDE (Economic Development Account), which seek to reduce the burden of charges and alleviate the electricity bill.

Alencar proposed that there be no transfer of BRL 5 billion, scheduled for 2022.

The privatization law does not have a timetable, so the change, in the minister’s analysis, would be a fine adjustment that would not compromise the process.

Banks accompanying the offer, however, warned of another risk: the current calendar was submitted to the AGE (extraordinary general meeting), and the change could lead to a new meeting, which would postpone capitalization by up to 50 days, pushing the deadline to a dangerous limit.

At the end of the morning, the information circulated that Eletrobras would be removed from the agenda of the judgment of the day. In fact, the rapporteur minister, Aroldo Cedraz, received a request in this regard, but did not grant it.

There were protests too. A group gathered at the entrance of the TCU’s headquarters, in Brasília, to demonstrate against the sale.

DIVERGENT VOTE LIST ILLEGALITIES

At the opening of the trial, Minister Vital do Rêgo Filho proposed, even before presenting his dissenting vote, a preliminary discussion.

He reinforced that the court had already authorized the inspection of the procedures adopted by Eletrobras for provisioning for contingencies related to legal demands for the compulsory energy loan, observing the balance sheet for the third quarter of 2021.

As the result of this inspection could change the company’s value, he proposed to suspend the judgment. This preliminary proposal, however, was rejected by seven votes to one.

In his dissenting vote, Vital do Rêgo presented a list of what he called irregularities.

He highlighted, for example, the dividends owed by Eletronuclear to the Federal Government. According to him, they create distortions, and need to be paid in advance so as not to generate future problems. Since 2010, R$ 2.7 billion in unpaid dividends have been accumulated.

Under the proposal, ENBPar, a new state-owned company, controlled by the Union, will take over the operations of the nuclear area, but Rêgo reinforced that, if in the future the dividends due are paid, in the end, the new Eletrobras will own the majority of the common and preferred shares. of Eletronucelar, all with voting rights, while there is no payment.

“Brazilian nuclear policy is going to be privatized,” says Vital do Rêgo. “Don’t tell me we’ll get it right later, it needs to be seen first.”

On the subject, he also questioned the lack of consultation with the bodies responsible for the National Nuclear Policy, especially the recently created National Authority for National Security.

The minister also questioned the declared value for Itaipu. It was calculated that it is worth R$ 1.2 billion based on its share capital and not its cash flow. This undervaluation helps to improve the share value of the new Eletrobras and, at the same time, facilitates the acquisition by the government. But, reinforced the minister, Itaipu has a much greater value.

The minister also questioned the independent assessments, which would have made errors in the long-term sales price estimate. Among the examples were the values ​​of Furnas, Chesf, Eletronorte and Ceteep, for transmission, whose result would be an additional R$ 9.3 billion, said the minister.

Another assessment difference that reinforced was that of debt. There was a difference of R$30.64 billion in the calculation of Eletrobras’ adjusted net debt, he said.

“There were no details left to discuss”, said Vital do Rêgo Filho. “We have errors of R$ 40 billion that need to be reviewed before concluding this privatization”

VOTES IN FAVOR

The ministers agreed that the studies and data presented by the minister of Vital do Rêgo Filho broadened the debate and deepened the discussion. However, they addressed issues that could be debated, but were not enough to deny the continuity of the process, because of the benefits that privatization would bring to the country.

Minister Bruno Dantas, for example, said that the company’s valuation left something to be desired, in fact, but that the market would make the necessary adjustments, and that the country needed a modern energy company capable of investing. Privatization was the way to do that, he argued.

“The market economy will provide conditions for Brazil to leverage its competitiveness,” said Augusto Nardes, accompanied by the other ministers.

Minister Jorge Oliveira highlighted the process of maturing. “Eletrobras is going towards a privatization that is not classic, but it is going with a high advantage for the country”, he said. “The Brazilian State is not handing over an asset, the Union will have part of the result of the advances that will be generated by the private sector in this capitalization.”

Government races against the clock to meet privatization deadline

Now, the government is racing against the clock to carry out the operation as soon as possible. The next step is to register the transaction with the CVM (Securities and Exchange Commission, the authority responsible for overseeing the market) and with the SEC (Securities and Exchange Commission, the American CVM).

The need to notify the US regulator exists because the company has shares traded in that country and, therefore, both bodies (CVM and SEC) need to receive the information.

In parallel with the request at the CVM, the stage of serial presentations to investors (the so-called “road show”, which aims to attract interested parties) would already be initiated. The government has already met with potential investors.

In recent weeks, members of the government and the company have stated that it is possible to carry out the operation between June and the beginning of July.

The deadline would be mid-August, considering the legal term for operations after the release of balance sheets.

Executive and company members consulted by the Sheet sought to demonstrate an optimistic view in recent weeks by saying that privatization can still happen even after the request made by the TCU last month for more analysis time.

However, market conditions in 2022 are recognized by government and company members as the main risk of the process. The approximation of the electoral calendar tends to increase tension between investors and may, as a consequence, make the operation unfeasible.

The more time passes, the greater the risk of turmoil and the window of opportunity closing. Some members of the government even question whether this window has already closed – although the last word is one of optimism.

The history of retraction of offers on the Stock Exchange in election years challenges Eletrobras’ operation.

Survey of Sheet based on data from B3 in the last 18 years shows that the average number of operations drops 34% in years of dispute for Palácio do Planalto. Considering only second semesters, the average amount drops by almost half (46%) in presidential race years.

The sale of Eletrobras shares is crucial for Minister Paulo Guedes (Economy), who promised privatization during the 2018 campaign and later said he was frustrated at not having been able to move forward on the issue (despite several subsidiaries, such as Petrobras, having been sold ).

For him, Eletrobras does not have the capacity to invest the amounts necessary to meet the Brazilian energy demand over the next few years. Privatization, he says, would mobilize resources to diversify the country’s generation matrix, make generation cleaner, recover watersheds and allocate money even to nuclear energy.

According to the minister’s accounts, the company would need to invest around R$ 15 billion per year to maintain its relevance in the Brazilian energy matrix, but it can only invest R$ 3.5 billion per year. “The company not only puts itself at risk and loses that market share, [como] jeopardizing Brazilian energy security,” he said this month.

At the same time, presidential candidate and poll leader Luiz Inácio Lula da Silva (PT) has criticized the operation. “I hope that serious businessmen who want to invest in the Brazilian electricity sector do not embark on this weird arrangement that the moneylenders in the country of the current government are preparing for Eletrobras, a strategic company for Brazil, months before the election,” Lula said in February in social network.

STEPS FOR THE PRIVATIZATION OF ELETROBRAS:

• Provisional Measure on the process (completed)
• Law arising from the Provisional Measure (completed)
• Studies (completed)
• Public hearing (completed)
• Shareholder approval (completed)
• Protocol in the TCU (completed)
• TCU judgment
• Transaction protocol with the CVM and the SEC
• Presentations to attract investors (“roadshow”)
• Pricing
• Stock Exchange Operation