Approved by the Federal Audit Court (TCU) on Wednesday (18), the government’s proposal to privatize Eletrobras has entered its final stretch. President Jair Bolsonaro (PL) is racing to complete the sale of control of the state-owned company as soon as possible, and may even complete it in June. Popular movements, however, intend to challenge the project in court before it is concluded. With this, it is possible that privatization will be postponed to such an extent that it ends up being defined in an eventual new government.
Former president Luiz Inácio Lula da Silva (PT), leading pre-candidate in all presidential polls, has already said he is against the privatization of Eletrobras, the largest energy company in Latin America. Ciro Gomes (PDT) as well, as well as other presidential candidates affiliated with left-wing parties.
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This means that, if Eletrobras is not sold during Bolsonaro’s term, there is a great chance that it will not be privatized.
For that to happen, there are still some steps to be taken. The first is compliance with all TCU determinations. According to the lawyer Elisa Alves, who represents the National Electricity Collective (CNE) and follows the process about Eletrobras in the court of accounts, it is not yet known for sure what the requirements will be.
According to her, although the TCU judgment was clearly in favor of privatization, all the details of the body’s decision are only known when recorded in a judgment, a kind of document about the judgment. This ruling may bring some conditions and recommendations for privatization. It may take some time for them to be fulfilled.
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“TCU rulings usually take about ten days to be published from the end of the trial”, explained Alves. “It may be that in this case, due to the interest in this process, this will be expedited. But you have to wait and see.”
Notice to investors
She also said that, once matters have been addressed with the TCU, Eletrobras will have to notify the Securities and Exchange Commission (CVM) about the offer of its shares that will culminate in privatization. The CVM is a public agency that oversees the market for this type of security in Brazil. As Eletrobras has shares traded on the Stock Exchange, the CVM needs to be alerted about its capitalization.
Eletrobras also has shares for sale on the New York Stock Exchange, in the United States. Therefore, the “North American CVM”, called SEC –Securities and Exchange Comission– also needs to be warned.
According to Alves, these notices are quick formalities to be carried out.
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Once that is done, banks hired to make the privatization viable will hold a series of meetings with potential buyers of Eletrobras shares. These meetings are known as a “road show”. They try to explain details to interested parties and solve possible doubts about the operation.
After these meetings, investors have to formalize their interest in Eletrobras. Based on this, a minimum price will be defined for each state-owned share that will be offered for sale. Then each investor will decide whether to buy or not. If there is competition, the share price goes up.
The purchase of these shares by investors will automatically reduce the government’s stake in the company. Today, it holds about 75% of the company’s voting capital. It will drop to 45%, causing the Union to lose control of the state-owned company.
For Alves, it is possible that all this will happen until the first half of July.
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When contacted, neither the government nor Eletrobras commented on a deadline for privatization. The vice president of the National Confederation of Urban Workers (CNU), Fabíola Antezana, said that the government intends to offer the shares on June 8 and settle between June 13 and 14. It is not known, however, whether this schedule is feasible.
Elisa Alves said that there are many lawsuits against the privatization of Eletrobras going through the courts. An injunction or decision may stall the process or postpone it. A postponement can even make the project unfeasible.
Alves explained that SEC rules require a company to only make an offering of shares within 130 days after the publication of a balance sheet. The requirement is to ensure that investors have access to up-to-date information when deciding whether or not to invest money in a company.
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Eletrobras released the balance of the first quarter on Monday (16). This implies that it has to be privatized by mid-August.
If this does not occur, the company will have to publish a new balance sheet and redo its notice to the SEC. This is the only way to create a new window of opportunity for privatization.
In this case, however, the sale would take place during the electoral calendar. This tends to scare away investors, which could make privatization unfeasible.
Fabiola Antezana, who is also a member of the CNE, stated that the collective already has other lawsuits planned to stop the privatization of Eletrobras. The processes must be opened in courts in Brazil and abroad.
She said that there will be a mobilization of various movements and parties to denounce irregularities in the process of selling control of the company. There will also be mobilization in the National Congress and in public hearings to discuss the negative impacts of the privatization of Eletrobras.
“What starts wrong is beyond repair,” said Antezana. “We will put up resistance so that the Brazilian people do not pay the bill for privatization”, she says.
If the company’s control is actually sold, the electricity bill, for example, should rise 25%.
Editing: Rodrigo Durao Coelho