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Eletrobras’ Alternative Privatization Model Could Attract Electric and Chinese

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The eventual adoption of an alternative model for the privatization of state-owned Eletrobras, through the sale or separate capitalization of the company’s subsidiaries such as Furnas and Eletrosul, could attract strategic investors such as the French company Engie or even Chinese giants, experts told Reuters news agency.

The original plan for the privatization of Eletrobras involves issuing new Eletrobras shares, reducing the company’s share of the company to a minority position, but authorities have admitted that there are internal conversations in the government about other designs for the transaction.

One of the options on the table would involve transferring state-owned subsidiaries to Eletrobras’ holding company Eletropar, which could then conduct sales or the capitalization process, a source familiar with the matter said.

This possibility is well regarded by some who believe that the eventual sale of Eletrobras’ control as a whole to private investors could undermine competition in the electric market, as the company operates almost a third of Brazil’s generation capacity and half of the transmission.

“I think this is a necessary debate. The country has to evaluate the best selling model not only to allow adequate revenue but also to build a market that is sustainable in the long term,” said the CEO of Engie in Brazil, Mauricio Bahr.

“If you have a company of the size, the size of Eletrobras today … it is a very important agent, with weight and influence in the market that may be better be divided, rather than being sold as a whole,” he added.

French have an interest in parts of Eletrobras

A different model could still attract investors such as Engie for the deal, Bahr said, noting that the company, still under the Tractebel name, won the Eletrobras privatization auction of its subsidiary Gerasul in 1998.

“We will always be evaluating the opportunities that are associated with our strategy,” he said.

If the government were to follow the current proposal, to capitalize on Eletrobras and limit its participation to 10% of the voting capital, the operation would attract mainly investment funds, while the sale or attraction of partners to subsidiaries would generate interest among large electric companies, he said. The partner of Leite, Tosto and Barros Advogados, Tiago Lobao Cosenza.

“If you sell the ‘closed package’, there’s going to be an important role for the (competition body) Cade, who’s going to have to look at who’s buying it if it’s going to have any competitive impact,” he said.

Chinese are eyeing moves

The president of the Brazil-China Chamber of Commerce and Industry, Charles Tang, told Reuters that Chinese investors have followed with interest government signals about Eletrobras’ privatization model.

“They have been following and I believe they are going to participate, I think that selling the subsidiaries would make all sense, the interest depending on the subsidiary is high,” he said.

Minister of Mines and Energy Bento Albuquerque recently said that the government will have a decision on the privatization model by June.

Eletrobras president Wilson Ferreira Jr. said last week that discussions on the topic have involved mines and energy ministers and the economy ministry, led by Paulo Guedes.

Before presidential elections last year, then-candidate Jair Bolsonaro went so far as to say that “strategic” state-owned companies should not be privatized and cited Furnas as an example. He also criticized at some moments the acquisition of energy assets in Brazil by Chinese.

Experts criticize government proposal

Eletrobras’ proposal to capitalize has been harshly criticized by former president and former chairman of the state-owned company, José Luiz Alquéres, now the honorary vice president of the World Energy Council.

“It will be a disaster for the functioning of the electric system, for the Brazilian economy and, I dare say, for democracy, should the process go this way,” he said

“Changing a mega Eletrobras privatized by its four or five privately owned regionalized companies is good … as early as the 1930s Roosevelt dismantled the monopolies of electric power, oil exploration, and communications. We will not, a century later, recreate them now in Brazil this model of privatization is announced, “he criticized.

The risks to competition could be even greater due to the government’s prediction of a reform of the Brazilian electricity sector that would liberalize the energy market, giving companies more freedom to set their prices, added the coordinator of the Energy Sector Study Group Federal University of Rio de Janeiro, Nivalde de Castro.

“You could have some interference in price formation, so it’s a risk. The idea of selling by subsidiaries already mitigates that risk a little,” he said.