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Brazil's Thermoelectric Priority Programme and its Present and Future Viability
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David Andrew Taylor
Foreign Legal Consultant, Garcia & Keener Advogados
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Introduction
Brazil has long benefited from its hydroelectric potential, which today is responsible for more than 90% of its installed electric energy generating capacity. However, electric energy shortages are a result of limited rainfalls, which impact seriously on the full generating capacity of this system. Recognising this reality, the Brazilian government has ambitiously promoted the development of a comprehensive natural gas-fired thermoelectric energy market as the most appropriate alternative energy source complementary to hydroelectric power production.
The Thermoelectric Priority Programme (PPT), established by the Brazilian Ministry of Mines and Energy (MME) under Decree 3.371 of 24 February 2000, contemplated the installation of 15GW from 2000 to 2003 as a priority national energy programme measure towards increasing the relative participation of natural gas as a primary fuel source from 3% to 12% by 2010. Under this programme, thermoelectric plant natural gas-fired power generation from 53 thermoelectric plants in 18 different states would consume natural gas mostly supplied by the Bolivia-Brazil Pipeline. It would serve to strategically strengthen Mercosul-Brazil relations as a powerful long-term incentive for natural gas consumption in Brazil, as a relatively inexpensive and clean electric energy generational source and as the solution to the electricity crises affecting the country.
To date, the majority of these thermoelectric plants have not been implemented, calling into question not only the viability of the PPT itself but also prompting strong pleas for a restructuring of the power sector in general to adopt a regulatory model that will adequately and effectively address the pricing and other normative strategy issues relevant to achieving long-term success in the diversification of the Brazilian energy matrix. With the appropriate rules and directives in place, the reactivation of the thermoelectric plant construction projects under the PPT presently suspended or cancelled should provide a dynamic energy supply change of significant consequence.
Brazil’s Energy Sector Structure and Reform
Political, Economic and Historical Context and Development of its Natural Gas Agenda
Prior to the 1930s, the major activity of the Brazilian state in the development of the energy infrastructure in Brazil was in granting concessions to local and foreign capital to operate local utilities as a service to foreign capital. With the revolution of 1930, the ascendance of Getulio Vargas to the Presidency and the imposition of the ‘Estado Novo’ in 1937, the role of the state changed dramatically towards centralised bureaucracy and direct intervening regulation in developmental projects. The National Petroleum Council (CNP), the precursor of Petrobras, was founded in 1938 as a state-operated initiative. In 1945, President Vargas was overthrown by the military in a ‘return to democracy’, which leaned towards liberal international policies, but was re-elected in 1950 and, in 1953, Petrobras was created to exercise state monopoly over petroleum exploration and refining.
The Brazilian National Development Bank (BNDES), another important state enterprise, was created in the early 1950s for infrastructure financing, through which the government became the controlling shareholder in the new ‘mixed-enterprise’ electric-energy-generating companies Furnas and Cemig of the state of Minas Gerais. The MME was created in 1960 to oversee the energy sector and promote adequate energy supply. Eletrobrás was created in 1963 as a holding company under which the other companies involved in electric energy generation became subsidiaries or associates. The National Department for Water and Power was established in 1965 for the granting of generation, transmission and distribution concessions, the state’s controlling involvement in petroleum and electricity generation considered synonymous with public sector infrastructure development.
The military dictatorship of 1964 to 1985 that followed the 1964 overthrow of President João Goulart applied a marked economic liberalism and technological entrepreneurship to state control to develop Brazil’s industrial potential. (1) Concurrently, state enterprises consolidated their positions in their respective industry sectors. (2) The government’s success in generating an internal market for sustained self-sufficient economic growth, however, was severely stunted in the wake of the 1973 Middle East crisis, which quadrupled oil prices, (3) and then by the increasing energy demand, industry inefficiencies and financial crisis of the 1980s. (4) As a result, in the 1990s, Brazil’s political economy gradually shifted to a different configuration – that of private financing and competition – which in turn provided incentive for an energy market restructuring.
Category:
Overview & Strategy
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David Andrew Taylor is a Registered
Foreign Legal Consultant, currently
with Garcia & Keener Advogados, a
Rio de Janeiro-headquartered fullservice
corporate law firm. He has
substantial familiarity with Brazilian
Law and the Brazilian legal system
from his four years of experience
as a foreign legal consultant in
Brazil. Mr Taylor has authored a
book on exporting to the US and
drafted the "Intellectual Property
Rights" chapter of the second
edition of Doing Business in Brazil,
a book of The British Chamber of
Commerce and Industry in Brazil,
as well as writing numerous
technical reports, short articles and
legal bulletins on a variety of
topics relevant to international
business with Brazil. Mr Taylor was
admitted to the New Jersey Bar in
1995. He holds a JD degree from
Seton Hall University School of Law,
Newark, New Jersey (1995), an MA
degree from the Graduate School of
Arts & Sciences, Columbia
University, New York, New York
(1990) and a BA degree (Honours,
Phi Beta Kappa) from Rutgers
College, Rutgers University, New
Brunswick, New Jersey (1989).
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