The proposed privatisation of Eletrobras, Latin America’s largest power utility, has received the green light from Brazil’s audit court, paving the way for president Jair Bolsonaro to fulfil an important pledge ahead of elections.
A majority of the court’s members on Wednesday ruled in favour of allowing the state to reduce its controlling stake in the publicly listed entity, an official from the ministry of mines and energy confirmed.
Eletrobras has a market value of R$67 billion ($13.5bn) and is capable of supplying around one-third of the country’s electricity needs, with most of its generation from hydropower sources.
Brasília intends to dilute its shareholding in Centrais Elétricas Brasileiras, as the group is formally known, from 72 to 45 per cent through a capital increase. Ministers have argued that putting Eletrobras in private control will enhance its ability to invest and lower bills.
The transaction would be the most important sale of a public asset under the Bolsonaro administration and boost its liberal economic agenda, which won the backing of corporate elites but has largely been frustrated since the president took charge in 2019.
It will also test investor confidence in Latin America’s biggest economy in the run-up to the October race for the country’s presidency.
Bolsonaro’s main rival and frontrunner, former leftist president Luiz Inácio Lula da Silva, has cautioned prospective buyers against participating in the Eletrobras sale, sparking fears the privatisation could be reversed.
Critics contend that the planned sell-off could lead to higher electricity tariffs, at a time when South America’s most populous nation is already grappling with double-digit inflation.
Augusto Neves dal Pozzo, an infrastructure lawyer, described the aim of concluding the transaction by August as “very optimistic” and said the process could yet face legal challenges.
“Privatisation is always controversial in Brazil,” dal Pozzo said. “The biggest risk for investors is certainly political”.
The audit body, known as the federal accounts tribunal, said on Wednesday night that the matter was still under discussion. Once the decision is confirmed, the next steps will involve filings with financial regulators and an investor roadshow.
Gabriel Dufflis Fernandes, research analyst at consultancy Wood Mackenzie, said most of Eletrobras’s assets had “long-term contracts with well-defined conditions”.
“If well managed in the future, the company can resume investments to maintain its important market share and generate good returns for shareholders,” he added.
Eletrobras this week reported a 69 per cent increase in its first-quarter net income to R$2.7bn.
Shares in the Rio de Janeiro-headquartered company were down 0.7 per cent Wednesday at R$42.12 apiece. So far in 2022 the stock has gained 30 per cent, outstripping the local Bovespa index, which is up 2 per cent.
Additional reporting by Carolina Ingizza in São Paulo