By Célio Yano
On the same day that President Luiz Inácio Lula da Silva filed a lawsuit with the Supreme Court (STF) challenging provisions of the law authorizing the privatization of Eletrobras, the president of the Workers Party (PT), Gleisi Hoffman, said the party’s position is for the resumption of the company “as it was.”
Eletrobras ceased to be controlled by the Union in June 2022 in the government of Jair Bolsonaro (PL).
A critic of the initiative, Lula won the election four months later, promising to review the privatization process and defending a resumption of the protagonism that the state-owned companies had during the PT governments.
“We have no condition to make development in Brazil without a company like Eletrobras controlled by the Brazilian State,” Gleisi told Valor Econômico.
Responsible for 23% of the country’s energy generation capacity, the company is no longer under state control after a history of losses, inefficiency, and episodes of corruption in previous PT governments.
The possibility of Eletrobras returning to “the way it was” has caused the company’s common stock to fall nearly 30% since Lula’s election.
“At the time of the Eletrobras capitalization, investors saw the potential of the paper with a more efficient management, without government control,” says economist Bruno Monsanto, partner at RJ+ Investimentos.
“The stock was also priced with this horizon. Now, the government wants to increase its voting power and influence in the company, being able to appoint directors and officers again.”
The market’s mistrust of a return of state management over the company comes from the recent history, especially under the last PT governments.
The most notable episode was the Provisional Measure (MP) 579/2012, issued by then-President Dilma Rousseff (PT) to reduce the energy tariff price by 20%.
At the time, the government proposed to renew, in advance, for another 30 years, concessions for companies in the electricity sector that were about to expire, under the condition that the companies sold energy at cost price.
The largest companies in the sector, such as Copel, Cemig, and Cesp, didn’t go along with the plan, and Eletrobras, under government control, paid the bill alone.
That same year, the company closed its balance sheet with a negative result of R$6.8 billion, its first loss in almost two decades.
Publicly traded, the company saw its market value melt in the following years.
The Treasury received R$20 billion to compensate for the 20% reduction in Eletrobras’ tariffs.
The issue of MP 579, which occurred on September 11, 2012, became known as the “September 11 of the electricity sector”.
But it was not the only decision under state management to generate losses for Eletrobras, according to industry analysts.
In 2017, investment manager 3G Radar released a study pointing to losses of R$85 billion (value at the time) due to inefficiencies at Eletrobras.
To arrive at the figure, the subsidiaries of the state-owned company were compared with their private competitors, taking into account expenses, assets, and works, and how much the two groups of companies returned to the country, whether in tax payments or dividends.
“Three private companies generated more revenue for the country by paying taxes than Eletrobras subsidiaries paid by adding taxes and dividends,” says the study.
In other words, if the private companies acted in the place of Eletrobras, the federal government would have received more taxes and dividends than with the company under state management.
In a report to clients, the investment manager said that between 2002 and 2016, Eletrobras would have added R$186 billion in losses, resulting from errors, inefficiencies, and corruption, citing evidence raised by the Lava Jato task force on the construction of the Belo Monte, Jirau and Santo Antônio plants.
“We conclude that during the last 15 years, the real shareholders of Eletrobras were corrupt contractors (…), suppliers, and politicians, together with those who benefited from inefficiencies, which created value for themselves without returning anything to the country,” the manager’s analysts wrote at the time in a letter in English.
To avoid the control of Eletrobras by political groups, the company’s bylaws were changed in the capitalization process so that no shareholder could determine the course of the business alone.
The company’s policies are defined by a Board of Directors, which has representation from both the majority and minority shareholders.
In addition, one of the new rules in the bylaws states that each shareholder has a limit of 10% of the votes at the General Assembly, regardless of the number of common shares he or she owns.
Thus, although the government held 40.3% of the company’s voting shares, its decision-making power was restricted to one-tenth of the assembly composition.
“This limitation prevents any shareholder with interest in the power sector from raising its stake to influence decisions to the detriment of Eletrobras itself,” Monsanto says.
“At the time of the capitalization of Eletrobras, investors saw the potential of the paper with more efficient management, without government control,” he recalls.
It is exactly this rule that the Lula government is now questioning in the STF.
In March, the president classified the capitalization process of Eletrobras as a “crime against the country”. On May 11, he called it a “sacanagem” (low kick).
“Now look at the sacanagem: the government has 43% of the shares of Eletrobras, but on the board, it only has the right to 1 vote.”
“Our forty [percent] is only worth 1 [vote]. Who has 3% has the same right as the government.”
“We have gone to court so that the government has the number of votes for the number of shares that it has,” said Lula in Salvador during a ceremony to launch the Participative Multi-Year Plan and the digital platform Brasil Participativo.
GOVERNMENT MEASURES AND RECENT COURT DECISIONS INCREASE LEGAL INSECURITY
In the direct action of unconstitutionality (ADI) proposed by the Advocacy General of the Union (AGU), Lula, represented by the Solicitor General of the Union, Jorge Rodrigo Araújo Messias, maintains that the rule limiting the right to vote, along with other features of the privatization of Eletrobras, generates “disproportionate burden to the Union” and “serious injury to the public interest,” in clear violation of the right of ownership of the federative entity, “the principles of reasonableness, proportionality, and various constitutional mandates governing the actions of the Public Administration.”
At the Federal Supreme Court (STF), the reporting justice for the case is Justice Nunes Marques, who has not yet decided on the case.
In a material fact notice to investors, Eletrobras said its privatization process “faithfully followed all the legal procedures”.
For the company, if the injunction request is granted or the ADI is deemed valid, “the Union and its group would potentially regain the preponderance in the deliberations of the general meeting (…), which goes against the legal and economic assumptions that underpinned the investment decisions of the market – including thousands of workers who are holders of FGTS accounts – based on modeling developed by the Union itself.”
The note refers to the R$6 billion invested from 370,000 beneficiaries of the Guarantee Fund for Length of Service (FGTS) who expressed interest in buying Eletrobras shares with resources from the fund during the company’s stock offering.
“What the Lula government is trying to do with the re-nationalization of Eletrobras is absurd from any point of view.”
“It is destroying the company’s value, bringing tremendous legal insecurity to the business environment, and shooting itself in the foot, by driving away investments to the sector”, analyzes Monsanto.
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