President of Brazil submits bill for US$3.8 billion privatisation of Eletrobras to Congress

The President of Brazil, Michel Terner, has advanced the privatisation of state-owned power company Centrais Elétricas Brasileiras SA, commonly known as Eletrobras, by submitting a bill defining the terms of the sale to Congress. The bill states that the company will be privatised through a capital increase, with an option for a secondary offering of government shares (currently 52%).

Eletrobras is the country's largest power conglomerate. It holds stakes in a number of Brazilian electric companies, so that it generates about 40% and transmits 69% of Brazil's electricity. The company's generating capacity is about 43,000 MW, mostly in hydroelectric plants.

In the budget, the government estimated it would raise BRL12 billion (US$3.8 billion) from the sale.

Terms outlined in the bill include:

• The federal government will hold a golden share in the company with veto powers
• The voting power of any single shareholder will be limited to 10% maximum regardless of the stake held
• The government will retain control of Eletrobras' subsidiaries Itaipu Binacional and Eletronuclear
• BRL9 billion (US$2.8 billion) of sales revenue must be invested in improving and safeguarding the water quantity and quality of the São Francisco river basin
• Power generation concession projects owned by Eletrobras will be renewed for a further 30 years

Some of Electrobras' hydroelectric dams are currently subjected to a quota regime, which forces Eletrobras to sell energy at below market prices. The government is going to abolish the quotas. The bill also stipulates that a third of the resources generated from the abolition be allocated to reducing power rates.

This is projected to be the largest privatisation in Brazil since the government sold Vale SA, the largest producer of iron ore and nickel in the world, in May 1997. A 41.73% interest in the company sold for BRL3.34 billion (US$3.13 billion at the time).

In December, the CEO of Eletrobras stated publicly that the sale was expected to take place between September and December 2018. The exact terms of the sale are scheduled to be decided by 15 August 2018. However, congressional approval of the President's bill is not guaranteed. There is considerable political opposition to the privatisation, meaning the process of evaluation by Congress will be lengthy and members may suggest a number of changes to its terms.