Electrical Politics

The large federally owned and operated electric companies
are gearing up to resist the first step in 'revitalizing'
the sector, read as 'get needed private investment'.

Conrad Johnson

Reporting electric energy in Brazil, in fact any segment of its infrastructure, is always a matter of attending to the policies of the sector in the context of national party politics. March was a momentous month in the structure of Brazilian party politics, in the entire political culture as it were. The present federal government no longer controls a majority in Congress, at least by party affiliation, and for over eight years nothing has gotten through Congress without needing party-faithful support.

Historically the Brazilian political left has prided itself, in fact identified itself, by not seeking allies except with other leftist parties that too insisted on isolation from centrist and rightist parties. They exhort the population that it is unethical to work with parties dominated by hereditary political elites. The result has been that they are left out of power except in a few municipalities and a few states (where such coalitions are common), while the PFL (Partido da Frente Liberal—Liberal Front Party), dominates in the Northeast—and with important party enclaves throughout the entire country—has never had less than the second largest Congressional representation since its birth as the 'liberal alternative to military rule'.

The party of President Fernando Henrique Cardoso, the PSDB (Partido da Social Democracia Brasileira—Party of the Brazilian Social Democracy), has accumulated only the third largest Congressional representation, but leads the present federal administration and considers itself a leftist party with centrist and rightist coalition partners All other parties of the left, at the national level, are in opposition to the PSDB and its larger central and rightist allies; the leftist parties are ever, the contemporary 'opposition'.

This style of identification by being in 'opposition' was assumed a few weeks ago by the principal 'right' coalition partner of the PDSB, the PFL, its larger 'liberal' partner. All started when Roseana Sarney—by then a presidential hopeful with impressive number in the polls—was personally linked to business entities that were the subject of a Justice Department search and seizure warrant (one of 82 issued in this particular investigation). The PFL chose her candidacy over its almost 8 year partnership with the PSDB. (The petty cash drawer, incidentally, had nearly $US 1 million in assorted, but bundled currencies.)

Until last year's drought and crisis in electric energy with consequent rationing, the electric sector has been dominated by the PFL. Tucanos, or card-carrying members of the PSDB, recently took limited control of the electric sector through its emergency crisis committee the GCE. With the PFL leaving the Cardoso coalition the electric sector will now finally come under PSDB control. Just how many PFL members will resign their jobs in the electric sector is not known, but the Presidents of Eletrobrás (government holding company for Brazil's electric companies), Furnas (Eletrobrás subsidiary) and the Minister of Mines and Energy—in effect—all the highest government jobs in electric have been vacated by their PFL faithful.

Pedro Parente, the Tucano who lead the GCE and the person responsible for recent efforts to revitalize the sector, has taken over the Ministry. Since he will probably leave government soon to run for office, it is no doubt an interim appointment. But he is already talking about reforming the Ministry. President Cardoso has indicated he would like a "professional" in the job for the rest of his term. A "professional" means someone who is chosen for their knowledge of the sector and their ability to manage, and not necessarily someone with the right political party credentials. The model is Arminio Fraga, the Brazilian-American President of the Brazilian Central Bank.

If one is looking for a good spin in electric for these recent events, one needs look no further than the struggling wholesale market. Furnas refusal to honor its contractual obligations, and then Eletrobrás insistence that the new Itaipu production does not belong to the distributors who buy its generation, have ever retarded wholesale market development. Although never made public, it is well known that Parente and Eletrobras have very different ideas about Itaipu (world's largest power plant) 'excess'.

Parente has consistently sided with the electric regulatory authority Aneel that has twice ruled that the new (since last April) excess (worth US$300 millions in 2001) belongs by contractual right to its distributor-clients to commercialize under the same conditions they presently purchase from the bi-national Itaipu. Eletrobras foiled these efforts by getting a court injunction that prohibited closing wholesale accounts on this basis.

As a result wholesale accounts have never cleared even for 2001, and just recently the government has had to purchase over US$200 million in receivables from the two natural gas generators who produce only for the wholesale market. This alone won't make gas thermo generation viable; even Petrobras and Eletrobras have publicly announced they are discontinuing further investment in natural gas generation.

Difficulties will undoubtedly outweigh advantages however because the large federally owned and operated electric companies are gearing up to resist the first step in 'revitalizing' the sector (read as 'get needed private investment'). Especially the large federal companies in the economically problematic North and Northeast—Eletronorte and Chesf—are upset with the whole idea of diverticalization, even though they are specifically excluded from privatization in the government's present plans for the sector. These companies have been the playgrounds, since the years of military dictatorship, for present and future PFL faithful to learn the political patronage game that gives their party cohesive power.

Strangely, or perhaps logically, no offers of resignation have been sent to Brasilia by management of these companies. They claim "technical expertise" underlies their appointments—something like what the President is calling "professional"—even though their objections to separating into separate transmission and generation companies is that the companies will be weakened. That this 'structural weakness' would assist in creating competitive conditions in the electric sector, as it does in all competitive markets, serves no coherence in the North and Northeast. There development is inconceivable unless wed to patrimony.

The profound extent to which Brazilian infrastructure is dependent on private investment is written large in the specific content of its needs. There are critical projects totaling $US 215 billion in infrastructure investment through 2005 already on the country's plate. Nearly half of that is in electric projects. With failed state privatizations in 2001 in Paraná, São Paulo and Goiás (all with assets offered at very competitive minimums, prospective investors agreed) Eletronorte wants to offer, by October 2002, controlling interest in its $US 6 billion, 11 mil MW 'dream' hydro project Belo Monte in the heart of the Amazon Basin on the Xingu River.

It can't fail but be interesting to see how patrimonial-minded rightists in the North team-up with development-minded Tucanos in Brasília and together find that much new investment for one electric project. Fernando Henrique has said, "I want it done", no doubt with October elections for his successor in his propositional attitude. This coming attraction will be played out, as well, before a worldwide coalition of NGOs because Belo Monte has long been their collective 'nightmare.'

Conrad Johnson, the author, is an American attorney, permanently residing in Brazil. He writes for various publications on development and legal issues in Latin America. You can reach him at conrad@alternativa.com.br

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