Electricity in Brazil is not privatized, but granted to private companies through public tenders, as established by law. The operation of the service is transferred to a private party for a fixed period, but ownership remains under State control.

Below, learn how the concession process works and the State’s role in supervising and regulating this essential service.

Electricity is not privatized

Energy in Brazil can only be granted under concession. A concession is a mechanism by which the State transfers the performance of a public service to a private party for a fixed period, after a tender process. Under Brazilian law, power generation, transmission and distribution services may be granted to the private sector, but not privatized.

Concession is not privatization. Under the 1988 Constitution, in a privatization the government permanently sells a company or public asset to the private sector, while in a concession the public service remains owned by the State and is merely operated by a private party. This means the State still holds responsibility for the service, even if its operation is in the hands of a private company.

Concessions are governed by the 1995 Concessions Law. The law’s fundamental principles include continuity of service; technological updating; universal access to the service; affordable tariffs; among others.

Efficient resource management is another essential requirement. Christian Fernandes Rosa, a specialist in Economic Management, points out that although the Concessions Law does not specifically address service quality, it remains important.

Regulation is crucial to balance public and private interests. Regulatory agencies, such as ANEEL (the National Electric Energy Agency), are responsible for overseeing concessionaires and ensuring they fulfill their obligations.

The State can intervene in the concession

The Federal Government, states, the Federal District or municipalities can intervene in the concession. The Concessions Law ensures that the party granting the public service may temporarily take over the management of the granted service in the event of failures to comply with the contract or poor service.

At the end of the intervention, the service is returned to the concessionaire, with exceptions. The service is returned unless the concession is terminated for other reasons, such as forfeiture or bankruptcy of the concessionaire. The goal is to restore the service in accordance with the contract.

The intervention process is formalized by decree. It must specify the appointment of the intervenor, the duration of the intervention, and the objectives and limits of the measure.

Intervention is an exceptional measure and only occurs in serious situations. Used only in cases of serious breach of contract or risk of service interruption, intervention is considered an extreme measure, applicable when other attempts at resolution have failed.

The government plays a fundamental role in the concession process because, although the management of certain services is delegated to the private sector, ownership of public services remains with the public administration. Regulation and oversight are therefore essential to ensure that the public interest prevails over private profit.Christian Fernandes Rosa, lawyer specializing in Economic Management at Giamundo Neto Advogados

The contract can be terminated

The contract can be terminated. When the concessionaire fails to comply with the contract in whole or in part, the granting authority (Federal Government, state or municipality) may open an administrative proceeding to establish the default, guaranteeing the right to a full defense. Causes include inadequate service, breach of clauses and loss of the necessary technical or economic conditions.

Poor service is one of the main causes for contract termination. Inefficiency in providing the granted service, combined with breach of contract clauses, can lead to termination of the concession. Unjustified stoppages and tax evasion are also among the grounds.

The company will have the opportunity to defend itself during an administrative proceeding. It may argue, for example, that it did everything within its power to avoid the breach or minimize the damage.Christian Fernandes Rosa, lawyer specializing in Economic Management at Giamundo Neto Advogados

Termination only occurs after other penalties. Christian Fernandes Rosa explains that the contract is not terminated because of a single incident. “This requires a sequence of failures demonstrating a continuous breach of contractual obligations,” he notes.

Measures other than terminating the concession may be applied. The granting authority may choose alternative measures to correct failures before terminating the contract, such as intervention, fines and contractual penalties, a requirement to remedy the situation, and legal action.

Requiring a remediation plan allows the concessionaire to correct failures. This measure is an opportunity to make adjustments within a set deadline, and may avoid more severe penalties.

Where ANEEL comes in

ANEEL (the National Electric Energy Agency) is responsible for regulating and overseeing the electricity sector in Brazil. Linked to the Ministry of Mines and Energy, the agency is responsible for supervising compliance with concession contracts, approving trading rules and imposing penalties on concessionaires.

Overseeing the electricity sector is one of ANEEL’s main duties. Due to the complexity and number of concessionaires, the agency enters into agreements with state bodies to assist with oversight, while maintaining control and coordination of these decentralized activities.

ANEEL has the power to fine concessionaires. Penalties can reach up to 2% of the concessionaire’s revenue over the previous 12 months or of the value of the energy produced, in cases of self-production or independent production.

It is essential to check whether these concessionaires are meeting their performance obligations and, if necessary, to carry out contract reviews. This process is part of the ongoing management of concessions, ensuring that any failures are corrected without the entire system being affected. Christian Fernandes Rosa, lawyer specializing in Economic Management at Giamundo Neto Advogados

Originally published by UOL (in Portuguese).