by Giuseppe Giamundo Neto and Fernanda Leoni

Given the breadth of the powers provided for in article 71 of the Federal Constitution, the Federal Court of Accounts (TCU) has always reviewed the acts performed and contracts entered into by state-owned companies, regardless of their nature, treating them, for all purposes, as subject to its audit jurisdiction.

However, at the end of last year, the TCU issued an important precedent on the subject, ruling out its competence to review acts and contracts of privatized state-owned companies, even where the proceedings involved the investigation of alleged damage to the public treasury, on the grounds that it no longer had jurisdiction over the responsible party or the matter addressed in the case.

The case involved an operational audit of the special purpose company Norte Energia S.A. (Nesa), which acted as the concessionaire responsible for the construction, operation and maintenance of the Belo Monte hydroelectric plant, controlled by Eletrobras, which was recently privatized. The specific purpose of case TC No. 017.053/2015-3 was to assess the regularity and effectiveness of the controls over investments and contracts entered into by the company, especially regarding the possible overvaluation of investments in the Belo Monte HPP.

Pending since 2015, the case also investigated facts related to Operation “Car Wash” (Lava Jato), with findings pointing to evidence of flaws in the structuring of the energy auction, misuse of purpose in Eletrobras’ equity interest in Nesa, lack of transparency, inconsistencies in an amendment and overpricing of the works.

In the opinion supporting Judgment No. 2,158/2023-Plenary, Justice Antônio Anastasia, the reporting justice, stated that “following the privatization of Eletrobras, completed on 6/17/2022, there was a significant change in the situation of the companies involved, which ceased to be part of the list of units subject to TCU jurisdiction”. Given this lack of jurisdiction, the initiation of a special accounts review to investigate the evidence of overpricing and hold those involved accountable would be barred, due to the absence of the conditions for the valid and regular establishment and development of the proceedings.

Also as grounds for closing the case, it was noted that any damage to Eletrobras, which would already be indirect, since it acted as a shareholder of the actual service concessionaire, would become second-order, since the Federal Government, after the privatization process, held a minority stake in the company.

This judgment also ruled out any liability that might remain for managers in relation to acts performed before privatization, by virtue of another precedent on the subject (Judgment No. 1,134/2023-Plenary), which recognized the possibility of this type of investigation. In the case of former managers of Nesa and Eletrobras, the lack of investigation stemmed from the factual circumstances of the specific case, since the audit findings were based on events that took place back in 2010, for which no accountability matrix had even been prepared.

The precedent in question, which specifically addressed the possibility of initiating special accounts review proceedings in view of the subsequent privatization of Eletrobras, established the understanding that after privatization “the prerequisites for establishing and conducting a special accounts review aimed at obtaining compensation for damage cease to exist, whether for damage directly suffered by the company or for damage directly or indirectly suffered by the federal state shareholder”. On the other hand, it was established that managers could still be sanctioned by the TCU for irregular conduct prior to privatization, and have their accounts judged irregular (provided this occurs within the limitation period).

A highlight of this judgment is the opinion of Justice Benjamin Zymler, the reporting justice, which provides a relevant historical overview of the federal Court of Accounts’ case law, recalling precedents from the 1990s to more recent times in which the TCU restrained its action due to this supervening loss of jurisdiction. In this regard, cases involving well-known privatized state-owned companies are cited, such as Cosipa and Telesp, in the state of São Paulo [1]; several telecommunications companies in the privatizations of the early 2000s [2]; and, more recently, BR Distribuidora, a Petrobras subsidiary [3].

Thus, although not discussed very often, the matter is settled at the TCU, which, in an important stance of restraint and even of saving public resources, limits its action and efforts to cases in which there is an actual risk to the public treasury, without affecting proper oversight, which remains with the shareholders and private interests, not compatible with the Court of Accounts’ role [4].

Finally, this position is also consistent with the regime currently envisaged for state-owned companies which, although still subject to the influence of Public Law rules, especially where their activities are more focused on public services, are increasingly moving towards a Private Law regime and the various compliance rules that reduce the need for attention from external oversight.

[1] Judgments 4/1994-2nd Chamber (Justice Lincoln da Rocha), 59/1995-Plenary (Justice Fernando Gonçalves) and 161/1995-Plenary (Justice José Antônio de Macedo), concerning Companhia Siderúrgica Paulista (Cosipa), as well as Judgment No. 196/1999-Plenary (Justice Valmir Campelo), concerning Telecomunicações de São Paulo S.A. (Telesp).

[2] See Judgments 295/2000-2nd Chamber (Justice Ademar Ghisi), 351/2000-2nd Chamber (Justice Adylson Motta), 430/2000-2nd Chamber (Justice Valmir Campelo) and 240/2000-Plenary (Justice Adylson Motta), concerning Telecomunicações de Goiás S.A. (Telegoiás), Telecomunicações do Ceará (Teleceará) and Telecomunicações de Sergipe S.A. (Telesergipe).

[3] Judgment 3,079/2020-Plenary (Justice Augusto Nardes).

[4] As rightly highlighted in the opinion, the matter remains under the oversight of private-sector regulatory entities, such as the Securities and Exchange Commission of Brazil (CVM), in addition to the action of the Federal Prosecution Service.

Article originally published on the ConJur portal (in Portuguese), on 01.10.2024.