!#"$% $$ % !&'($! *)!!#%$)$ +-,/.103254687/9:6(;=<5>1.1?A@50<CB5D/EF6HG <C,/I-9AB5G 91J <C25D/.K9L;=<5,/2MG ,F68.12C09:6HG <-,/N-@503<PO3.LEQ6(9L,/BM?1D/?:6H9LG ,/9LR5G J G 684 Iguassu Falls, PR, Brazil, 09 - 11 October 2007 ANALYSIS OF THE INSTITUTIONAL ARRANGEMENT MANAGEMENT OF THE BRAZILIAN ELECTRIC SECTOR Ricardo Moreira da Silva (UFPE/PROPAD) [email protected] Maria de Lourdes Barreto Gomes (UFPB/PPGEP) [email protected] Josilene Aires Moreira (UFPE/GPRT) [email protected] The Brazilian government, between 1994 and 2001, adopted the neoliberal management model; promoting important changes in the Brazilian electric sector, which had had an institutional arrangement with the public administration since 1960, aand incorporating a market vision to manage the sector, now regulated. The new government, in place since 2002, has argued the need for keeping the terms of the signed contracts, striving for perfect balance in this specific area, but has modified some elements of the institutional arrangement, while preserving the same neo-liberal managerial essence. It is possible to show that Brazil copied and has kept an institutional arrangement focused on market vision, similar to the one introduced in England, and that administrative gaps have to be filled. The main objective of this article is to understand these changes, and to explain the facts based on the neo-liberal and Keynes theories. This being so, it is a fact that in Brazil’s case: (1) the past institutional arrangement has not been able to finance itself; (2) the private institutional arrangement is not competitive; (3) it would be more adequate to work under a hybrid management model, like in Sweden. Keywords: Brazilian Electric Sector; public administration; private administration STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 1. Introduction Brazil is a country of continental size and, for this reason, its electrical management has presented further difficulties for the government since its beginning. Furthermore, Brazil has some very populated regions, but it also has some sparsely populated regions with or without energetic autonomy, where consummation centers do not correspond with productions centers. Being that hydraulic production has always been the main source of electricity in Brazil, local politicians chose state management. The control of energy and water by private companies was never allowed. In the 90’s, however, the government began giving the department back to the private sector. According to Cisneros(1995), by this time, the department was “without investments and had no capacity to react”. Since the beginning of the century, the department has passed through three phases, as shown in figure one: Until 1960 Private Management 1960 a 1990 State Management 1990 a 2006 “Regulated” Private Management Figure 1: SEB’s Chronology of Management - Source: Moreira (2006) Historically, the institutional arrangement of SEB – Brazilian Electric Sector – has aligned itself to Brazilian economical moments and, according to Souza (2002), has passed through four periods: • 1st period - Institutional transition and state intervention (1960 – 1965): With the end of the war, there was a clear tendency for state intervention at the formulation and execution levels of electrical energy politics, with noted differences of opinion between the liberals and the interventionists. • 2nd period - Institutionalization and apogee (1965 – 1980): The military government consolidated the interventionist politics, with an institutional rearrangement, nationalized the department and invested hugely in public work. • 3rd Period - Preparation for a change in the institutional arrangement (1980 – 1995): This period was marked by the worldwide implantation of neo-liberalism and deficient SEB management. This period was further marked by the worst crises in its history, and the near bankruptcy of the department. • 4th period - Institutional reorganization (1995 – 2005): The institutional erosion of SEB accelerated with the de-capitalization of the department, commercial liberalization and the external pressure for the adoption of the Washington Consensus, at which time the privatization of the department began being dictated according to the English model, which, according to Rosa (1995, p. 44), “hardly considered the essentially hydraulic characteristic of Brazil”. The declared goal of these reforms was to make a more competitive market viable, which in fact, never happened. This article analyzes SEB under two points of view: the state interventionist management, and the current public management with state regulation, adapted from the English model. It is part of a doctorial thesis, with a qualitative conception that uses a historical comparison methodology to describe the changes at SEB, and eventually analyzes the state and the private 2 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 arrangement. 2. State Institutional Arrangement Although the Ministry of Mines and Energy and Eletrobrás were created as government bodies to centralize the actions between 1960 and 1961, as far back as the 30’s, according to Pontes (1999, p.44), “the country had chosen a monopolist and centralized administrative institutional arrangement at the most important areas of economy and (…) a clear option for the state intervention in the economy.” Among the lieutenants of the 30’s, and later, the militaries of the 60’s, there had been an interest in the nation security, and an idea of nationalist consciousness that was taken to an extreme. In this context, SEB administrative politics, that was in place through the beginning of the 90’s, is based on the keynesian principles, whose scheme is presented below: Transmission Power Companies Load Distribution Figure 2: SEB state scheme from 1960 to 1990 - Source: Moreira (2006) During this scheme, many state companies were in charge of the power, transmission, distribution and commercialization, but they all had a single coordinator, centered in the company Eletrobrás. In this environment, there was no competition and the client was unable to choose from whom he wanted to get his service. The brazilian state determined everything through laws, decrees and edicts, using either the legislative power or the Ministry of Mines and Energy and furnished the electrical energy to the consumers through companies that belonged to Eletrobrás holdings. The big advantage of this management model is that it left the electrical energy department, strategic as it was, under the single coordination of the state. Any possible imperfections could thereby be more easily corrected. In addition to this, one can observe the following characteristics of the state arrangement: 2.1 Regulatory body: Since its creation in 1968, the Departamento Nacional de Águas e Energia Elétrica –DNAEE- the regulatory body for water and electrical energy usage, has been subordinate to Eletrobrás. The total accomplishment of its functions could never be actualized since the company itself regulated and supervised the holding companies. 2.2 Transmission, verticalization and system connection: The generation and transmission were connected and usually belonged to the same state company. Even though there were losses in the energy transportation, there were no reasons for serious worries since the system gained idleness capacity in the 80’s. Its central coordination, for example, made it possible to supply the northern part of the country through the CHESF system in case of a drought or the maintenance of the gates in Tucuruí. 2.3 Quality and productivity: The goal was to attend to demands without accidents. The training offered to the employees was always directed at the accomplishment of tasks and specialization. The indices were only measured according to errors in the system and work accidents. It had always been a characteristic of state companies to develop austere O&M programs, with a high degree of bureaucracy. 3 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 2.4 Water management: The possibility of efficient water management was a direct consequence of the system connection. 2.5 Workers: Apparently the companies were not worried about the diminishing the costs of workers. The study of Barbosa (2003, p.55) shows that “employment at the electric department during the period before the privatization does not present a linear dynamic”. This can be verified in the following graphic, where the average employment reached 180.600 employees/year. Number of work posts W o rk e rs 8 6 -9 5 2 0 0 0 0 0 1 9 0 0 0 0 1 8 0 0 0 0 1 7 0 0 0 0 1 6 0 0 0 0 1 5 0 0 0 0 1 4 0 0 0 0 19 86 1 98 7 19 88 19 89 1 99 0 19 91 1 99 2 19 93 19 94 1 99 5 y e a r Figure 3: Number of work posts at SEB from 1986 to 1995 - Source: Moreira (2006) 2.6 Politics of costs, prices and investments: The re-selling of energy was based on service by the cost. According to Gonçalves (2002, p.116), “The amount collected should only be capable of covering all costs of operation and maintenance, besides the amortization and depreciation of the equipment, plus the corresponding amount for the remuneration of the invested capital”. The goal was not obtaining profit, but getting only a sufficient sum to keep functioning. In this scheme, the costs “were simply shared among all the concessionaires involved, according to each one’s volume of assets” (ARAÚJO, 1999, p.201). 2.7 Social aspects and physical security of the population: SEB adopted a vision of the welfare state, concerned with social issues. The tariffs were smaller in comparison to current ones. Additionally, the energy supplied in some given locations were compromised with respect to physical security. As an example, the illumination of shantytowns like Rocinha could not only take financial interests into account (MOREIRA, 2004). 2.8 Restrictions to the state institutional arrangement: The Brazilian state arrangement model was administratively worn away, and the investment capacity of the state eventually came to an end. It doesn’t matter if this was a natural consequence of the model, external interference with this goal, or both things combined. Abreu (1999), Cisneiros (1995), Gonçalves(2002), among others, have proved that SEB lost its financial auto-management capacity and as a result, the operation units started to fall apart. Since there was no kind of substantial investment in the department, between 1994 e 2001, it suffered severe losses, including blackouts and electricity rationing. It was the end of the state institutional arrangement as a model for the Brazilian Electric Department management. 3. Brazil Institutional Arrangement same English Arrangement Brazil adopted the same English institutional arrangement from Thatcher’s time. (ABREU, 1999; MOREIRA, 2004; ROSA, 1995; ARAÚJO, 1999). Parts of the company were transferred back to the private sector, but the government was not careful enough to make the adaptations on the micro-actions level. 4 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 In England, the Central Electricity Generating Board - CEGB was created in 1957, as well as twelve regional companies (RECs) responsible for the distribution and furnishing of the electrical energy produced by companies that eventually became private in 1983, according to Rosa (1995). In Brazil’s case, all distribution companies became private (KLINGELHOEFER, 1995), with the exception of those that were not largely profitable, as well as Itaipu Binacional (for politic reasons) and the nuclear ones (for national security reasons) (ROSA, 1995). The “English” institutional arrangement of Brazil presents some of the following characteristics: 3.1 Regulatory body: Like England, where the Office of Electricity Regulation (OFFER) was created to supervise prices and stimulate competition, according to Klingelhoefer (1995), Brazil created the Agência Nacional de Energia Elétrica –ANEEL- in order to support governmental regulation actions with real political power. 3.2 Transmission and deverticalization: The Sistema Nacional de Transmissão de Energia Elétrica - SINTREL was created and a calculation of transmission and furnishing costs methodology was developed. Additionally, a transportation tariff was included in Brazilian consumers’ monthly bill. 3.3 Quality and productivity: According to Klingelhoefer (1995) there was a high elevation of productivity indices in England, but also a generalized complaint regarding the service quality, including blackouts. The same could be seen in Brazil. 3.4 Water management. Since 70,44% of the energy produced in Brazil has hydroelectrical sources, water is the primary resource, and according to the constitution, belongs to the state. Even if the government could de-verticalize all of the electrical energy production chain, the private generation would still be directly connected to the state. Regardless of this “detail”, water, although believed differently 20 years ago, is limited, has hidden costs and should no longer only be used for energy production. 3.5 Workers: “In England, 50% of the workers were dismissed”. (Klingelhoefer, 1995) In Brazil, SEB reduced a large portion of the labor force. Demand and the energy supplying rose, but employee levels went down. One might wonder if this reduction is related to the implantation of technologies that replaced man work. Unfortunately, it is more closely related to an intensification of work at the companies and limitless outsourcing politics, as seen in the following figure 4: 2 0 0 1 8 0 Number of work posts 1 6 0 1 4 0 1 2 0 1 0 0 8 0 6 0 4 0 2 0 0 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 y e a rs Figure 4: Reduction of employment at privatized SEB - Source: Moreira (2006) In the current government there are still the Programas de Demissão Incentivados (PDI), but there is not yet a high level of automation, which probably means that this falling tendency 5 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 should stabilize. 3.6 Tariffs and investments: In England, there was no increase in investments and the domestic consumers never incurred increases as they had after the privatization. In Brazil, with rare exceptions, there were no investments in the generation and transmission areas. There is still hydraulic potential to be explored, however, with the exception of the assemblage of the machines 9A and 18A at Itaipu, not a single plan has left the drawing board. 3.7 Social aspects and physical security of the population: Since the vision of a welfare state concerned with social issues is no longer accepted, governmental actions are minimal and the SEB, as a state agent, does not exist. ANEEL is present in Brazil not to regulate energy use with social or physical security goals, but to prevent abuses in supplying and contracts, as well as to maintain a certain control over tariff increases. 3.8 Restrictions to the “English” institutional arrangement in Brazil: The institutional arrangement planned by SEB included the separation of generation, transmission, distribution and commercialization. The system was open for companies to sell energy in any segment, and also for company exploration, using ANEEL as a regulatory body for the whole sector, as shown in the following representation: Power T1 G1 G2 Load Companies2 Load Companies3 Load T2 T3 T4 G3 Companies1 Transmission A N E E L Distribution Figure 5: Institutional arrangement planned by SEB - Source: Moreira (2004) In Brazil, this type of management system did not work well since there was no competition, and thus the goal of private investors was to maximize profits. In this case, regulation via decrees or edicts interfered with the strategic planning, but could not efficiently attain the whole productivity chain. Each state, town or village had only one concessionaire distributing energy which, in turn, bought energy from single generation companies as well. This means that there was no competition and the market remained captive. Even with all the effort and expectations from the government, there were some contrary reactions and the implantation of the English arrangement did not proceed exactly as forecasted. There was no privatization of the department and no verticalization either: • Distribution was not all privatized due to the fact that some companies were not profitable. In addition, there were reactions from the people, jurists, politicians and others against the privatization of some companies, such as COPEL, in Paraná State and CEMIG in Minas Gerais State; • In regard to transmission, SINTREL was created but there was an internal reluctance 6 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 about the transmission sector selling, and privatization was left aside for further studies; • Power, with the exception of ELETROSUL, was not sold. From this, we can affirm that the institutional arrangement of the Brazilian Electric Department had a market essence with state protection mechanisms. 4. Final Considerations Since the implementation of the “half” English arrangement for SEB in 2005, the government has studied an adaptation of the current system through the Ministry of Mines and Energy. The result, called “New Re-organization of Brazilian Electric Department”, follows the ideology, with some slight modifications: (a) It confirms officially the privatizations that have already occurred. (b) It removes the chance of further privatizations, when plans to invest again on the improvement of companies that have not yet been sold are actualized. (c) It gives the planning back to Eletrobrás. It is possible to affirm that SEB’s current institutional arrangement is a badly implemented copy of the one used in England. Brazil has lived through two visions of management: one institutional arrangement that was present from 1960 to 1990, which believed in state intervention, and the current one, which has market vision. But which is the best model for Brazil? Hope (2003) affirms that there is no best model or institutional arrangement in a absolute way, but only models and arrangements that can be well implemented or not, and work properly or not. Further studies are necessary in Brazil, searching for a more flexible institutional arrangement than the state offers: an institutional arrangement that allows for the entrance of private resources, and contemplates social aspects, forgotten by the private arrangement. Some countries (Spain, Chile, Argentina, etc.) have also changed the institutional arrangement of their electric departments. Others (France and Germany) have maintained their state institutional arrangement and are models of competency. Others still, have adopted a hybrid arrangement (USA and Sweden), where there is a state management and a private system at the same time. In the Swedish case, according to Silveira (2002), there are two companies that own 80% of the generation: Vattenfall with 50%, and Sydkraft with 30%. Distribution (municipal majority) is under the charge of 250 different companies. Consumers can change their distributors, and the transmission network includes the whole national network operated by the state company Kraftnatt. As far as competition, Sweden exports energy to all Scandinavian countries and considers Sweden itself as only a region. It is important to stress that, even surrounded by a big number of companies making up the energy market, the Swedish National Energy Administration (STEM) is the regulatory body responsible for investigating the formation of little distribution cartels. It is important to remember that a state institutional arrangement offers interesting particularities for a state-nation. The single management, even with the operational part decentralized, favors a global vision, connecting the different existing systems. 7 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 In Brazil there are no major problems regarding water management, but there is the necessity to use this natural resource perfectly. The water and electrical energy management must be under the same coordination. Private companies controlling water supplying are not acceptable. Besides, SEB’s state management works better for the necessary social aspects of energy. USA and France opened their energy market to the private initiative, but not the management control. The American and French problems are more related to shortage of goods than to management. The idea that a state institutional arrangement is not efficient is a weak point of view, based on concepts of the World Bank and taking as a reference the particularization of SEB itself, that suffered premeditated political and financial erosion. It is also impossible not to admit that at the end of the 80’s, SEB’s state arrangement was bankrupt. The company was at a critical moment, with blackouts in 2000 and the start of the 90’s offering no possibilities of increases. Even though Rosa (1995) proposed another strategy and not privatization, the SEB was forced to submit to the pressure of external agents and chose the institutional arrangement. The taking back of SEB’s increase via internal and external caption of private resources and efficient private management, could recover the technological edge, adjust the production flux, leaving them more balanced and would raise the performance level of the workers. There was, however, the decrease of work posts and the state interference to regulate the energy regionalization. In practical terms however, it eliminated the competition possibilities, which is the pillar of the private arrangement. Therefore, we can affirm that the institutional arrangement applied at SEB from 1990 to 2004 was not competitive. 5. References ABREU, Yolanda Vieira de. A reestruturação do setor elétrico brasileiro: questões e perspectivas. Originally presented as a master memoire, Universidade de São Paulo. São Paulo: USP. 1999. ANEEL. Site www.aneel.gov.br. Visitado em maio 2006. ARAÚJO, João Lizardo R. Hermes de. Questões da transmissão em um setor elétrico reestruturado. In Regulação e gestão competitiva no setor elétrico brasileiro São Paulo: Sagra Luzzato. 1999. CISNEIROS, Saulo J.N. Proposta de Arranjo Institucional empresarial para gestão de empresas estatais de energia elétrica. Informe técnico do XIII seminário nacional de produção e transmissão de energia elétrica SNPTEE. Camboriu: 1995. GONÇALVES, Dorival Junior. Reestruturação do setor elétrico brasileiro: estratégia de retomada da taxa de acumulação de capital. Dissertação de mestrado. Programa Pós Graduação em Energia da Universidade de São Paulo. São Paulo: USP, 2002. HOPE, Einar. Efficiency gains from deregulation: lessons from the Norwegian electricity regulatory reform. Tenth World Productivity Congress. Santiago, Chile: 1997. KLINGELHOEFER, Eduardo de Sá. A privatização do setor elétrico na Inglaterra e reflexões para o caso brasileiro. Rio de Janeiro: BNDES, 1995. MME. Ministério das Minas e Energia. Reestruturação do Setor Elétrico Brasileiro, PROJETO, Sumário executivo, <http://www.mme.gov.br/sen/reseb/resebnovo.html> last visited at 15/10/2003. MOREIRA, Ricardo da Silva. Arranjo institucional do setor elétrico brasileiro: da gestão pública à privada. Originally presented as a PhD Thesis. João Pessoa Pb: UFPB, 2006. ROSA Luis Pinguelli. Participação privada na expansão do setor elétrico ou vendas de empresas públicas? Rio de Janeiro: COPPE/UFRJ, 1995. 8 STUTUTVTUWYXZC[(WY\XTU]^WY\_=`](Wa-ZC[(ZCW` Z=b^ced c^f^gh i5j^d klm+Cc^n^d c^+C+Cj(d c^nek c^fob^pV+Cj^ki5d b^c(hrqMkc^kn^+-qM+Cc^i sLtvuPw x8yz{v|z }~H5uP#vw ~1v Hz ~1tvL|#v | ~vxu#|}~vtvx t8z3uPxvw |z3 ~vt1vw ~8uP Hz |Ft1P1z3| tv|v z y Iguassu Falls, PR, Brazil, 09 - 11 October 2007 PONTES, João Randolfo. A indústria de energia elétrica no Brasil: In Regulação e gestão competitiva no setor elétrico brasileiro São Paulo: Sagra Luzzato.1999. SILVEIRA, Semida. et.al. Building sustainable energy system: Swedish experiences. Svenskbyggtjãnst and Swedish national energy administration. Stockholm. Swedish.2002. SOUZA, Paulo Roberto Cavalcanti de. Evolução da indústria de energia elétrica brasileira sob mudanças no ambiente de negócios: Um enfoque institucionalista. Originally presented as a PhD Thesis. UFSC/PPGEP. Florianópolis, SC. 2002. 9