Privatisation of the Brazilian electricity industry: opportunities and pitfalls

In the early 1990s, Brazil started a debate about the role of the state in the economy in general, and the energy sector in particular. A major privatisation process of state assets began in which energy, and in particular the electricity utilities, were earmarked for special attention, given their monopolistic structure and perceived low productivity and inefficiency. Thus, the privatisation of the Brazilian power industry cannot be analysed in isolation, but as an integral part of the overall privatisation process currently happening in the country. The privatisation program in Brazil is progressing well despite its complexity, its magnitude and conflicting political interests. The proceeds from the privatisation of state owned assets from 1991 to April 2001 reached $102.2 billion ($84.1 billion from sales, and $18.0 billion worth of debt transferred). The total proceeds from the first three months of 2001 alone were more than $1.8 billion. The sectors with the highest proceeds from sales were telecommunications (33%) followed by electricity with 31%. The share of the public sector of energy distribution has been reduced from 98% in 1995 to 37% in 2000, and that of energy generation from 78% to 22% over the same period, (see [1]). The monopolistic structure of the electricity industry posed serious questions with regard to its economic and financial viability. The price structure of the previous two or so decades was partly at the root of the problem. The program of reforms is having profound implications for the energy sector e.g. the creation of ANEEL (the National Energy Electricity Agency) with power to ensure free competition in the energy market. However, the new energy policy thinking was more a direct result of the need to find answers to increasing economic and financial difficulties, than the desire to modernise the electricity industry. The main aims of this paper are: 1) to present a historical overview of the transition period experienced by the Brazilian electricity sector in the last decade; 2) to present a critical analysis of the institutional procedures being implemented; and 3) to assess the new opportunities and challenges emerging from this privatisation process.