Eletrobras Privatization

The below memo has been prepared by our colleagues in Brazil – Murray Advogados

June 2021

On June 21, 2021, the Chamber of Deputies approved the Provisional Measure (MP) that makes the privatization of the largest electric energy company in Latin America, Eletrobras, viable. The text, which would expire on Wednesday, the 23rd, June 2021, is now going to be sanctioned by President Jair Bolsonaro. Thus, in order not to expire, the MP was the subject of an extraordinary session, on the 21st, June 2021 convened by the president of the Chamber, Arthur Lita.

It should be noted that the measure had already been approved by the Chamber, but, given the 28 amendments made by the Federal Senate, deputies had to vote again, to validate the changes made.

Today, the government holds about 60% of Eletrobras shares, dropping this number to 45% after privatization, which will follow the capitalization model. Thus, the shares will be issued to reduce the participation of the Union in the control of the company, with the capital increases carried out through the public offering of shares.

Furthermore, each shareholder or group of shareholders will not have voting power greater than 10%, as well as the Union’s preferred share of a special class, which will grant it the power to veto decisions on the company’s bylaws.

The text of the Provisional Measure establishes the creation of a new state-owned company, which will have the purpose of managing Eletronuclear and Itaipu Binacional, which will not be privatized.

For the government, the privatization of the holding could reduce the value of electricity bills by up to 7.36%. However, entities in the energy sector disagree, stating that the bills will increase, as the text provides for measures that generate costs to be paid by consumers. An example of the increase brought by specialists is the market reserve for hiring SHPs:

“The text establishes a market reserve for contracting Small Hydroelectric Power Plants (PCHs). The rule applies to auctions held until 2026. Experts say that the measure could make the electricity bill more expensive because the market reserve contravenes the principle of free competition in auctions.”

Another point that may generate additional costs for the consumer is the extension of contracts for plants built through the Incentive Program for Alternative Sources of Electric Energy (Proinfa), for 20 years. Experts say that the price paid for the energy of the projects is higher than the market value and, for this reason, consumers will face more costs.

Regarding costs, the government signals that approximately R$ 25 billion will be allocated to reduce consumer tariffs, and this money will be used to deduct bills only from consumers served by electricity distributors.

Therefore, it is not yet possible to say whether this measure comes to benefit consumers. Part of the specialists confirms that expectations are negative, however, the government guarantees that it will assume part of the burden.