Operator series: Eletrobras expecting greater revenues after privatization

Wednesday, January 3, 2018

Responsible for a third of power generation in Brazil, Eletrobras is experiencing a key moment in its 55-year existence as the federal government works to privatize the state-run holding company.

Eletrobras, said to be currently worth 46.2bn reais (US$14.3bn), owns generation, transmission and distribution assets totaling 171bn reais, including 50% of Itaipu Binacional hydroelectric dam, one of the largest plants in the world and shared with Paraguay. 

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The company's assets are controlled by several subsidiaries, among which are six power distributors currently for saleAmazonas Distribuidora de Energia, Boa Vista Energia, Centrais Elétricas de Rondônia(Ceron), Companhia de Eletricidade do Acre (Eletroacre), Companhia Energética de Alagoas (Ceal) and Companhia Energética do Piauí (Cepisa). 

Eletrobras' privatization also includes the sale of minority stakes in 178 special purpose vehicles (SPEs) developing wind and transmission projects; and of new shares in the holding, in order to dilute the government's stake to below 50% from the current 63%.


President Michel Temer recently signed a provisional measure overturning a ban on privatizing Eletrobras and its subsidiaries FurnasChesfEletronorteEletrosul and CGTEE, paving the way for the sell-off, which is planned to be concluded by September.  

The move, however, has come under fire from the country's lower house, where Temer's team is facing growing resistance to the privatization of the company's subsidiaries.

Needless to say, the two frontrunners in the upcoming presidential election, Luiz Inácio Lula da Silva and Jair Messias Bolsonaro, are both against the sale. 

And the opposition is not limited to Brasília: a recent survey by Datafolha found that 70% of Brazilians are opposed to privatizations, including that of Eletrobras. 

With elections to choose a new president, governors, senators and lower house lawmakers scheduled for October, privatization plans could be put on standby, as politicians tend to avoid unpopular measures during election years.


In its latest five-year business plan (2018-22), Eletrobras said the "democratization of its capital" is expected to result in greater revenues and create further investment opportunities with capital from new potential partners.

The firm plans to invest 19.8bn reais (US$6bn) over the period, 45% lower than the 35.8bn reais in capex during its previous five-year plan.

Some 70% of the projected investment, or 14.2bn reais, is earmarked for corporate activities, including 7.30bn reais for the transmission segment, 5.15bn reais for generation, 1.53bn reais for infrastructure and 261mn reais for distribution.

Another 5.52bn reais will be invested in special purpose companies in the generation (4.84bn reais) and transmission (680mn reais) areas.


A total of 77 special purpose companies and six corporate concessions totaling 4.6bn reais have been selected by Eletrobras to be put up for sale during the period.


The company is aiming to achieve 959mn reais in savings from personnel cost reductions with the potential dismissal of over 3,000 employees during 2018, among other initiatives.


Another goal is to set the conditions for resuming construction of the Angra 3 nuclear plant. The plan is to seek new partners, develop studies to adjust the project's power rates, review contracts and renegotiate loans in order to conclude the works.


Eletrobras' new business plan stresses its aim of improving sustainability indexes, and so facilitate access to more attractive credit lines.

Another strategy set by the company as a means of aligning with the United Nations 2030 Agenda for Sustainable Development is to evaluate issuing "green" bonds focused on financing sustainable projects.


Eletrobras posted a 2.27bn real-profit between January and September 2017, down 77% from a year earlier, according to the company's latest financial results.

Total net operating revenues in the period were 26.8bn reais, down 44% from a year earlier.

"It's a very good result, considering that we are in a recovery stage after years of financial difficulties," CEO Wilson Ferreira Jr said during a press conference held after the financial results were released in November.