Privatisation in Brazil: the Case of Public Utilities

OECD Observer
Page 86 

Rio de Janeiro, 29-30 April 1999 

Privatisation continues to arouse fresh interest among decision-makers in a good number of emerging markets, including those in Asia and Latin America which have experienced far-reaching financial crises. That was certainly the impression given at a seminar held recently in Rio de Janeiro. It was equally understood that privatisation could not be seen as a substitute for broader financial and fiscal consolidation.

There must be few venues as suitable as Brazil for discussing matters of public utility reform; despite some regulatory drawbacks, revenues generated since the start of the national privatisation programme there in the early 1990s amount to nearly US$90 billion, one of the highest figures in the world. The impact on public finances of the proceeds generated depends, more-over, on the use to which they are put by government. Between 1996 and 1997 total proceeds from Brazilian privatisation rose from US$4.7 billion to US$27.7 billion. While they more or less served to pay off unofficial go-vernment liabilities, they had relatively little impact on the public sector debt/GDP ratio. Last year proceeds again rose -- to US$37.5 billion -- but it remains to be seen how the government will decide to use these receipts. Another important point is the confidence of investors -- both domestic and foreign -- which is vital. The revised estimate of privatisation proceeds for 1999-2000 amounts to US$36 billion. The privatisation process had suffered from the economic and political uncertainties affecting Brazil during the previous year. However, the successful sale of Comgas, the San Paulo gas company, which yielded US$1 billion -- more than twice the minimum price -- has been interpreted as signalling a return of investor confidence. However, while the Brazilian real crisis is now more or less under control, the environment remains uncertain. One of the Brazilian authorities' current priorities is to set up the sort of regulatory framework which will attract private investors. The impressive results seen in the telecommunications sector are in large part attributable to the fact that new market-friendly regulations had been put in place before the sale of Telebrás, the former State monopoly, in July 1998.

It is in the electric power sector, however, where the rather unwieldy regulatory situation comes into view. Reform there has been introduced only gradually. The complexity of the institutional and regulatory environment surrounding the sector is due to the fact that different segments were owned by different levels of government: the federal government controlled generation and transmission, while distribution and some vertically-integrated utilities were in the hands of state governments. Many of the state-owned utilities had debts, preventing privatisation going ahead as a single transaction. For the electricity sector, and also for other sectors, such as transport and water, the stakes are considerable: with a market of 160 million consumers, demand for this type of utility is constantly growing. For the time being, the Cardoso government, which took office in 1995, will probably continue, even accelerate, the privatisation of Brazil's public utilities. The institutional aspects have been strengthened, with the creation of a state-level privatisation programme and of the cabinet-level National Council for Privatisation, which has the task of extending the programme to the public utility and mining sectors. The Concessions Law, voted in February 1995, paved the way for the privatisation of new sectors: telecommunications, electricity, gas, rail transport, motorways, ports and airports, water supply and basic sanitation services. Still, progress remains uneven across sectors, especially as regards the regulatory side: this is one of the problems that the government will have to try to remedy if it is to complete its reform.

The seminar, "Privatisation in Brazil: the Case of Public Utilities", was organised jointly by the OECD Development Centre and the Brazilian Development Bank, 29-30 April 1999.

Brazil is not a member of OECD, but is a member of the OECD Development Centre (cendev.contact@oecd.org).

©OECD Observer No 217/218, Summer 1999 




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