The Brazilian Senate approved on 4 March, the controversial provisional measure n. 144/2003, which establishes the new framework for the Brazilian electricity sector created by the Government of President Luiz Inácio Lula da Silva.
The new framework brings important changes, principally in relation to the commercialisation of electricity as a response to the electricity shortages of 2001 when it was necessary to adopt rigid measures to control consumption, including surcharges and the threat of suspension of supply to those consumers exceeding their quotas, with a view to avoiding the risk of a national blackout.
During the eight years of President Fernando Henrique Cardoso’s government, many changes were carried out in the electricity sector, leading to its hitherto greatest restructuring in the so-called “RE-SEB Project”. These changes however were never fully implemented in particular as regards the question of electricity generation.
Notwithstanding the government’s intention at that time, due to political pressure, the large energy generators were not privatised and, in view of the impending privatisation that never took place, there was little investment to enlarge the generating capacity. Therefore, the modernisation and re-powering of thermal and hydroelectric plants were always postponed, prejudicing any increase in the supply of electricity.
Thus, the increase in energy consumption, caused by the economic growth experienced during the “Real Plan” (mainly in it’s first phase), added to the indecision in the energy policy together with an unexpected drought, resulted in an energy crisis without precedent in the country, which seriously prejudiced Brazil’s economic development in 2001.
In view of the difficulties caused by the energy shortage, the energy policy adopted by Fernando Henrique Cardoso was severely criticised by various sectors of Brazil’s society, as well as by President Lula, who considered it a cause of the situation faced by the country and a restrictive factor to Brazil`s economic growth.
When President Lula was elected, he nominated the economist Dilma Vana Rousseff, who defends greater State control over the public services, to the Ministry of Mines and Energy. Rousseff had two successful terms of offices as the Energy, Mines and Communication Secretary, in the Labour Party’s administration of the State of Rio Grande do Sul, one of the few States which didn’t suffer with the lack of energy.
The difficult mission given to the Minister was to guarantee lower prices to the final consumer, avoid the risk of rationing of supply, establish a stable regulatory mark and create conditions to resume investments in the expansion of the system, seeking to balance the interests of the consumer and the private investor.
The Ministry of Mines and Energy began it’s studies in February 2003, creating a working party to elaborate a proposal to reformulate the present rules.
In July, the National Council of Energy Policy (CNPE) approved the guidelines of the “Proposal for an Institutional Model for the Electricity Sector”, released for public debate and, at the meeting that took place on 10 December, the CNPE approved, by means of resolution number 9, the submission of the proposals to the President, and the final technical report resulting in provisional measure n. 144/2003.
This measure represents the outline of the first important change in the electricity sector under Lula’s government, establishing the following goals:
• promote low tariffs, as the essential factor to attend the social role of energy and to improve the competitiveness of the economy;
• guarantee the safety of the electric energy supply, which is a fundamental condition to the development of sustainable economic growth;
• assure the stability of the regulatory framework, seeking to attract new investments into the system; and
• promote social inclusion, in particular through programs that intend to bring energy to every single area in Brazil.
The model, according to the government, is focused directly on those questions seeking to achieve the desired goals through the following measures:
• restructure of medium and long term planning;
• monitoring, in the short term, customer service;
• redirecting the contracting of energy to the long term, compatible with the amortisation of investments effected;
• competition in electricity generation with public tender through the criteria of the lowest rates;
• coexistence of two environments for contracting energy, one regulated (Regulated Contracts Environment – ACR), to protect the captive consumer, and a free one (Free Contracts Environment – FCE), to stimulate the initiative of the free consumers;
• establishing a pool of regulated energy contracting, for energy to be purchased by the distributors;
• separation of distribution from any other activity;
• provision for a reserve to re-establish the balance between supply and demand; and
• restore the role of the Executive.
However, some of the measures are considered controversial, such as those by which generators could sell electricity in auctions of old energy (produced by plants whose construction cost has already been depreciated) or auctions of new energy (produced by new plants); the proportion of resources to be applied in projects of technological development; the obligation of the self-producers to pay the Contribution to the Energy Development Account (EDA), which is destined for the Rural Area Electricity Program and the financing of alternative sources of energy; besides the creation of new measures to combat non-payment, amongst others.
These points were widely debated in both legislative Houses, with the direct participation of the Minister Dilma Roussef in negotiations with the energy sector.
Many of the electricity sector’s demands were attended to and incorporated in the legislative Bill for the conversion of the provisional measure n. 144/2003 into law, such as the inclusion of guaranties over the full and automatic transfer to the consumers of the cost of old energy bought in auctions and the possibility of participation in new energy auctions of those plants that started operating after 1 January 2000 and who have signed no energy supply contracts at the date of publication of the new law
The approval of the Senate, however, is not the final step in the legislative process for the conversion of the provisional measure into law. The amendments to the provisional measure, proposed by the opposition, will be voted on 9 March and the matter will then return to the House of Representatives, for ratification or otherwise of the alterations made by the Senate.
Thus, considering that there is still some way to go until the law is sanctioned by the President and that the subject is still being debated, it is still too early to affirm if the framework in its present form will suffer further alterations until it’s final approval. Nevertheless, it is possible to safely conclude that the new regulatory framework will provide greater security to all involved such as to encourage the investments necessary to expand the supply of energy, indispensable for the country’s economic development.