Four lies about the privatization of Eletrobras

The Senate scheduled for today (17) the vote on Provisional measure 1.031/2021, which regulates the privatization of Eletrobras, through the public offer of shares in the stock exchange, resulting in the loss of state control of the company.

The MP vote, which has already been approved in the House of Representatives, happens amid the CPI of the Pandemic, which attracts all the attention of public opinion and takes the spotlight of the privatization agenda of strategic sectors of Brazil.

The main power generation and transmission company in the country, which would go to private control with the approval of the measure, has an installed capacity of 51,143 MW, which represents 30% of the total electric generation in Brazil. In all, the company has 48 hydroelectric plants, 12 thermoelectric plants with natural gas, oil, and coal, two thermonuclear plants, 62 wind power plants, and one solar plant.

Check out four big lies about the company’s privatization project according to experts in the electric sector.

1 – Lie: Privatization will bring “competitive” prices to the sector

Truth: The electricity bill will increase.

The Minister of Economy, Paulo Guedes, claims that the market is capable of generating energy at more competitive prices for the development of the country. Not even representatives of the more liberal sectors of the economy, however, believe this.

The Federation of Industries of the State of São Paulo (FIESP), for example, has already expressed its opposition to privatization, fearing the impact of the company’s sale to the industrial sector, which is the country’s largest energy consumer.

Gilberto Cervinski, from the National Coordination of the Movement of People Affected by Dams (MAB), explains that Eletrobras is the most efficient company in the national electric sector and charges the cheapest energy. “While the privately-owned hydroelectric power plants of transnational companies charge an average of R$250.00 per 1,000 kWh, Eletrobras’s power plants practice R$65.00 per 1,000 kWh,” he said.

Even analysts from the National Electric Energy Agency (ANNEL) have warned about the risk of rising tariffs with the sale of the company. In 2017, when the Temer government was already trying to privatize Eletrobras, the Agency handed the Ministry of Mines and Energy a study that predicted an impact of at least a 17% increase in the average residential electricity bill inthe country, if the company wasprivatized.One of the explanations for this is that the private sector will acquire plants already amortized – that is, whose investment costs have already been recovered from energy bills paid by Brazilians. However, they will now reference the tariff, not in the cost price of energy, but the market prices, subject to speculation.

Economist and researcher Paulo Santos, from the Institute of Functional Finance for Development (IFFD), explains that the cost of producing Brazilian hydroelectric power is comparatively low. “The price of energy in Brazil for the consumer should be one of the cheapest in the world, similar to what is practiced in Canada, in the province of Quebec, for example, which has a hydroelectric power system very similar to ours Because producing hydroelectric energy is cheap compared to other sources”, highlights the researcher.

The problem, he explains, is that from the neoliberal reforms of the 90s, and ever greater deregulation of the price policy of the sector begins, with the increase of consumer tariffs. “Since, 95 when the privatization process of the electric sector began, a business model was created where the commercialization of energy is based on a simple question of supply and demand, which favors the profits of companies. When you try to maximize the individual profit of an agent in that sector, you hurt the whole, and the overall cost increases, “adds Paul.

Fabiola Antezana, from the National Electricians’ Collective and the Workers’ and Peasants’ Platform for Water and Energy, explains that tariffs can increase especially in the poorest regions of the country, in the North and Northeast. This is because Eletrobras’s subsidiaries play an important role in incorporating investment costs in regions with low distribution network density into their balance sheets, which avoids the increase of electricity in the poorest regions of the country.

2 – Lie: Eletrobras gives loss
Truth: The country can give up one of the most profitable companies in Brazil and hand it over to foreign capital

According to the company’s annual report, Eletrobras recorded a net profit of R$ 6.4 billion in 2020, even in a pandemic year, being the sixth most profitable company in the country in this period. In addition, the company has a cash generation of R$ 15 billion a year.

“So, the issue of selling assets to appeal is mistaken. When you sell a company that pays dividends – robust and regular – you are giving up a future cash flow,” says Glaucia Campregher, professor in the economics department at the Federal University of Rio Grande do Sul (UFRGS).

Gláucia also believes that the justification for selling the company to make a box does not make sense because the government will have to create another state-owned company that would be responsible for Eletronuclear and the Itaipu Hydroelectric Plant. The first subsidiary cannot be handed over to the private sector for operating with nuclear power and the secondfor being a binational company.

Cervinski warns that with the privatization 30% of the country’s power generation can be under the monopoly of a single company, probably foreign. This is what happened to the four mills located in Minas Gerais that were auctioned by the federal government in 2017. The main buyer was Spic Pacific Energy, owned by the Spic Group, which is run by the Chinese government.

3 – Lie: The privatization of Eletrobras is necessary for the resumption of growth
Truth: Eletrobras’s privatization increases the risk of blackout and deepening the economic crisis

“Energy is the first requirement for the development of a vibrant industry and all sectors of society. That is why the debate about the privatization of Eletrobras is so complex. Does private enterprise really have the capacity to offer energy cheaper than the state?” asks economist Campregher.
Gilberto Cervinski has no doubt that the answer is no. He says that privatization will not only provoke a significant increase in the electricity bill but can result in blackouts, as what happened in 2020 in Amapá, as a result of the precariousness of the structure of the state electric company after its sale to private enterprise.
Professor Gláucia defends the need for the country to have control over a sector that is so strategic for economic and social development. “Energy is a strategic resource because it is simply necessary for everything. To put a factory to work, to generate other forms of power, to keep the ventilators of a hospital on, a working school, an irrigated agricultural area. So, you cannot deprive any territory of having energy if you want to be a nation with less inequality”.

4 – Lie: With privatization, Eletrobras will become more modern and efficient
Truth: The government gives up decades of research and technological production that could put Brazil at the forefront of the energy transition.

In addition to the main hydroelectric plants in Brazil, Eletrobras has several research centers and laboratories, such as Eletrobras CEPEL, the FURNAS Civil Engineering Technological Center, and the Itaipu Technological Park – Brazil. These centers have an essential importance in the production of knowledge, research, and innovation in the electric sector, but can simply be abandoned.

According to researcher Paulo Santos, the Provisional Privatization Measure foresees that Eletrobrás will be able to support CEPEL for only six more years, but it does not determine a definitive solution for this, which is one of the most important groups of research laboratories and metrology in the country, an essential tool in the energy matrix diversification process.

Paulo points out that Eletrobras is fundamental for the diversification of the Brazilian electric matrix since the capacity to store energy in its reservoirs ensures the possibility of investing in the development of intermittent renewable energies, such as wind and photovoltaic energy, relying on the stored hydropower to complement these sources.
“Losing control over Eletrobras means losing the ability to direct the future of the energy transition of our electrical matrix, which means causing chronic energy poverty for large segments of our people, means giving up actively participating in the growing renewable energy market.”, strengthens.

Gláucia estimates that the loss of assets related to this privatization goes beyond the company’s plants. “Imagine the natural heritage involved, all our rivers and all the human and technological resources that we used to build a renewable energy park. This is what the population needs to understand that the government is putting up for sale, “provokes the teacher.