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Rodrigo Limp, who has been named the new CEO of Brazilian electricity company Eletrobras, gets mixed reviews from experts. (Photo: Bazil Mining and Energy Ministry)
Wednesday, May 5, 2021
Perspectives

Eletrobras: New CEO Gets Mixed Reactions


Will the new CEO of Brazil’s Eletrobras privatize the firm?

BY ENERGY ADVISOR
Inter-American Dialogue

Brazil’s government has named Rodrigo Limp Nascimento as the new chief executive officer of state utility Eletrobras. He replaces Wilson Ferreira, who resigned in January over what he referred to as a lack of political backing in Congress for the company’s privatization plans. Limp’s appointment sparked some criticism, as the government reportedly ignored a recommendation by a headhunter firm that was hired to pick Eletrobras’ new CEO, prompting at least one company board member to resign in protest. Is Limp the best person to lead Eletrobras, and what issues can he be expected to prioritize? What is the state of Eletrobras’ privatization plans, and what are the major benefits and drawbacks of such a move? Can progress in the company’s privatization efforts be expected soon, and what are the most important obstacles standing in the way?

Erich Decat, political analyst at XP Investments: On its search for its next CEO, Brazilian state electricity company Eletrobras hired a specialized headhunter firm, but the government decided to bypass it and appoint its own candidate.

That decision did not negatively affect Eletrobras’ share price in the slightest—because investors welcomed the choice. Rodrigo Limp is a former secretary of energy, with strong congressional relationships, which is why investors like him. In fact, Limp, as a congressional advisor, participated in the 2017 negotiation of a failed bill aimed at privatizing the company. At the time, different political interests derailed the attempt.

However, legislators are currently debating a provisional measure based on the 2017 bill, with the same content. Due to his background, Limp knows how to overcome congressional opposition. Currently, investors are focused on the sponsor of the bill, which is in the lower house of Congress.

The changes he has signaled to the original proposal have made some funds and banks apprehensive. One of the proposed changes is to privatize the company by splitting it into three. Recently, the sponsor started debate with congressional party leaders.

This is when opposition against proposals usually emerges. The discussion will drag on in the lower chamber until mid-May. The Senate has to give its final say by July 23.

Despite the controversy that the privatization of Eletrobras has created, there is room for Congress to pass the bill. The new CEO will be key to the outcome.

Francisco Ebeling Barros, independent energy consultant based in Berlin:  Despite the Eletrobras board’s disappointment with Limp being named the company’s new CEO, some commentators have welcomed this choice. Some believe Limp has the disposition to carry out the company’s privatization plans, which Ferreira no longer saw as a top priority. This reflected Presi-dent Bolsonaro’s correct perception, despite his initially liberal rhetoric, that privatization could lead to higher electricity prices, as occurred in the late 1990s. Throughout history, successive governments repeatedly used Eletrobras as an instrument of electricity price stability, often at the cost of the company’s short-term profitability. Bolsonaro knows that high electricity prices may bear significant political costs and could even threaten his re-election plans. Moreover, Bolsonaro also needs support from the market to ward off the risk of being impeached.

Because of this unstable political equilibrium, it is unlikely that Eletrobras’ privatization will march at the pace that free-marketers desire, and Limp’s tenure as CEO could be ashort one.

Ana Karina Souza, partner at Machado Meyer Advogados: Eletrobras’ privatization plans are closer to achieving concrete results with Provisional Measure No. 1,031/2021, which President Jair Bolsonaro enacted on Feb. 23. The provisional measure provides that Eletrobras’ privatization shall take place in the form of a capital increase, with the dilution of the current controlling stake held by the Brazilian federal government, and the prohibition that any shareholder or group of shareholders hold rights that exceed 10 percent of the voting shares of Eletrobras. The creation of a special class of preferred shares, to be held by the Brazilian federal government with protective veto rights in order to avoid a shareholding concentration above 10 percent of the voting shares of Eletrobras, is also contemplated. Other highlights include the government’s decision to allocate a larger portion of Eletrobras’ privatization resources (50 percent) to reduce tariff increases, through the Energy Development Account, and the exclusion of subsidiaries Itaipú and Eletronuclear from the privatization plans. The federal government’s objective with the provisional measure is to expedite the company’s privatization process, but it is still uncertain whether the Brazilian Congress will approve its conversion into law within 120 days. Recent changes in the management of Eletrobras were dictated by the federal government’s attempt to have a closer alignment between the company’s leadership and the government’s privatization plans. However, major obstacles remain, such as Congress’ current political agenda, which includes the creation of a congressional investigation commission to probe the Brazilian government’s response to the Covid-19 pandemic.

Vítor Sousa, equity research analyst at Genial Investimentos: I’m not positive about Limp’s nomination. Despite his high education level and long track record as a public employee, he has no experience in working for private corporations. Eletrobras is not just the biggest company in the power industry, it is also one of the most complex.

Coupled with that, the way in which he was chosen—bypassing all the statutory procedures—was really negative. For the company’s possible privatization scenario, more important than the new CEO and how clever he may be is the political will to move forward with such plans. I am not convinced that the Brazilian government truly has a desire to go through with privatization plans this year; and 2022 is an electoral year.

 Republished with permission from the Inter-American Dialogue's weekly Energy Advisor

 

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