Brazil:
Legislation, Institutional Structure and History
Source: BNDES (http://bndes.gov.br)
Legislation
The PND - National Privatization Program - is currently governed by Law no 9,491 of 09.09.97, the text of which absorbed all the alterations made to Law no 8,031/90, with the objective of streamlining the privatization process.
One of these alterations was the creation of the CND – National Privatization Council, made up of Ministers of State, which has expanded evaluation and decision – making powers of BNDES, the manager of the Program.
Law no 9,491 also introduced the possibility of workers being able to use their FGTS (Government’s Employee Severance Indemnity Fund) funds for the purchase of securities, within the sphere of the PND.
Decree No. 1068, dated 3/2/94, includes on the PND all minority participations held by foundations, entities, public companies, private and public joint stock company and any other entities being directly or indirectly controlled by the Federal Union.
The Constitutional Amendments approved by the National Congress in 1995 are also very important for the Program development: opening of services to exploit piped gas to the private concern, end of the distinction between Brazilian company and national capital Brazilian company, authorization for companies established under the Brazilian laws and with head office and domicile in the Country to perform ore prospecting and mining, as well as authorization for the Federal Union to sign contract with private companies aiming at the development of activities in connection with the exploitation of telecommunication services and crude oil. These measures shall provide for a greater attractiveness as to future privatizations.
The PND scope has been expanded by the current government and started covering not only the selling of companies, but also the transfer of the carriers control to the private sector and the bidding for new concessions regarding the exploitation of public services by the private concern.
In this regard, the approval of Act No. 8987, defining the new concession and permits for public services, was of utmost importance, which is primarily applicable to the electric power and transportation sectors, the latter involving the road, rail, and port systems.
In 1995, Act No. 9074 was also approved, which is applicable to the concessions of public works and services, particularly the electric power services, making their transfer to the private sector feasible.
Along the fiscal year of 1996, the legislation related with the National Privatization Program (PND) was amended, being worth mentioning those introduced in Law 8,031/90, allowing the National Privatization Committee (CND), at the request of States and Counties, to establish adjustments with them, so that the procedures of Law 8,031/90, may be used in the privatization of their companies, being able, furthermore, to determine that procedures foreseen in the specific law of the sector in which the company operates are adopted in the privatization processes.
Also in 1996, through Decree No 2,077/96, the Decree No 1,204/94, which regulates the PND, was amended, allowing CND, at its discretion, to establish simplified procedures, including establishment of a minimum price, in the privatization of public services.
Constitutional Amendment No 13/96 abolished the state monopoly for the reinsurance sector, allowing, as a consequence, the participation of private enterprises in the sector.
Decree No 2,003/96 regulated the production of electric power by independent producer and by self producer, through concession or authorization.
Law No 9,427/96 instituted the Electric Energy National Agency (ANEEL), linked to the Ministry of Mines and Energy, with the purpose of regulating and inspecting production, transmission, distribution and sale of electric energy, according to policies and guidelines of the federal government.
Law No 9,295/96, regulated by Decree 2,056/96 was also issued, instituting the Mobile Cellular Service, to be rendered without exclusivity, under concession, in delimited areas of the National Territory.
Bill No 2,648/96, which deals with the new general organization of telecommunication services, the creation of a regulating body, and other institutional aspects in the sector, was submitted to the National Congress.
Provisional Remedy No 1,514/96, established mechanisms with the purpose to encourage the reduction of the presence of the State public sector in banking financial activities, and the privatization of financial institutions.
Institutional Structure
The National Privatization Program (PND)’s institutional structure consists of two major agents: the National Privatization Council (CND), a decision making entity, and BNDES, in the capacity of the National Privatization Fund (FND) manager.
CND is the decision making entity superior to the PND and is directly subordinate to the Republic’s President. This Council is made up of the State Ministers of Planning, Treasury, Trade and Tourism, Federal Administration and State Reform as well as the Chief Minister of the Republic Presidency’s Civil House. In addition, CND also relies on the participation of Ministers whose presences are required in view of the sector the company to be privatized is subordinate to, as well as the Central Bank’s President, when it comes to the privatization of financial institutions.
Including and/or excluding companies, financial institutions, public services or assets in/from PND is an exclusive assignment of the Republic’s President and shall be achieved against a specific decree.
BNDES has been appointed as the FDN manager, a fund with an accounting nature, where the stock by the companies to be privatized are deposited. In the capacity of the FND manager, BNDES manages, follow up and execute the selling of the companies included in the PND.
Program History
For many years the privatization has been part of the national agenda and has undergone many distinctive stages.
In the 80’s
"Reprivatization" of 38 companies
Approximately US$ 780 million were collected
This stage was characterized by the "reprivatization" of companies which had been absorbed by the State, in most cases due to financial difficulties. The government had not yet the intention to implement a large scale program. Small-size companies were privatized and the economical results were conservative (US$ 780 million). The main goal was to prevent the government from expanding its presence on the production sector even further, and not to generate revenues for the Treasury.
1990 / 1992
PND establishment (Act 8031/90);
Addition of 68 companies to the Program;
Privatization of 18 companies from the steel, fertilizer, and petrochemical sectors;
A total of US$ 4 billion were collected;
Government bonds used as a payment means;
The establishment of the National Privatization Program (PND) in 1990 caused the privatization to become a constituent part of the economical reforms initiated by the government. The privatization extent and scope have been significantly enlarged.
For example, the selling of Usiminas in 1991 allowed to collect more than double the value obtained in the 80’s. The PND has, therefore, concentrated efforts on the selling of productive state-owned companies belonging to previously strategic sectors for the Country’s development, what explains the addition of the steel, petrochemical, and fertilizer companies to the Program.
Priority to the fiscal adjustment, within this period, was translated into the massive use of the so-called "privatization currencies" (bonds representing the federal public debt) for the acquisition of state-owned companies.
1993 / 1994
Completion of the steel sector privatization;
Emphasis on the use of legal currency;
Privatization of 15 companies;
A total of US$ 4.5 billion were collected;
Minority participation disposal;
The process of transferring productive companies to the private concern is intensified and the ending of the privatization of steel sector companies is observed. The use of a greater percent rate of funds in legal currency on each privatization operation will not reduce the importance of the so-called "privatization currencies" on the PND.
Actually, with the purpose of expanding and democratizing the Program, changes have been introduced into the legislation in such a way to allow expanding the use of credits against the National Treasury as a payment means, the selling of minority participations - held directly or indirectly by the State - and the elimination of the discrimination against foreign investors, allowing their participation in up to 100% of the voting capital of companies to be disposed of.
1995 / 1996
Establishment of the National Privatization Council (CND);
PND Expansion;
Concessions of public services to the private concern;
Inclusion of Cia. Vale do Rio Doce - CVRD;
Support to the state privatizations;
A total of 19 privatizations;
A total of US$ 5.1 billion were collected.
As from the inauguration of the new government in 1995 a higher priority has been assigned to the privatization program. The PND is pointed as being one of the main instruments for the State reform and is a constituent part of the government program. The National Privatization Council (CND) was created as a replacement for the Ruling Commission and the privatization of state-owned companies acting on the industrial segment has been nearly completed.
A new PND stage is initiated, in which the public services are being transferred to the private concern. The schedule includes electric power sectors and concessions on the transportation and telecommunications areas, which adds - to the PND objectives - an improvement in the quality of the public services provided to the Brazilian society, by increasing the investments to be made by the new controllers.
Such new stage is also characterized by the beginning of the privatization process concerning the state companies, under the responsibility up to the corresponding states, which the Federal Government has been supporting.
1997
Sale of Companhia Vale do Rio Doce - CVRD;
Completion of the privatization of the Federal Railway Network - RFFSA with the sale of the Northeastern network;
Three auctions held, under Decree no 1,068/94;
Leasing of the Tecon-1 container terminal in Santos;
Acceleration of the process of privatization of state owned companies, under the auspices of the respective states;
Revenues of US$ 4.265 billion by 31.12.97.
Previously almost exclusively restricted to companies and shareholdings in the PND – National Privatization Program, Brazilian privatization gained a new dimension in 1997 with the accelerating sale of state owned companies. The majority of these privatizations were backed by BNDES.
Cia. de Eletricidade do Rio de Janeiro – CERJ, Cia. Estadual de Gás do Rio de Janeiro – CEG, Riogás S.A., Cia. de Eletricidade do Estado da Bahia – COELBA and the North/Northeast and West/Central distribution companies of CEEE have all been sold.
Taking into consideration the sale of state minority shareholdings in companies such as Cia. Riograndense de Telecomunicações - CRT and Cia. de Eletricidade de Minas Gerais – CEMIG, the results of state privatizations to 31.12.97 amount to approximately US$ 14.9 billion.
Of major importance was the initiation, in 1997, of the privatization of the telecommunications sector. Mobile cellular telephony concessions were auctioned for three areas, for the sum of US$ 4 billion. Sale of the government-owned telecommunications companies was made possible when the General Telecommunications Law was passed, on 16-07-97.
Results per Period
(US$ million)
|
Period |
Privatizations |
Selling Income
(Legal Currency) |
Total Selling Income |
% (Legal
Currency) |
|
1991/92 |
18 |
49 |
4015 |
1.2 |
|
1993/94 |
15 |
1590 |
4593 |
34.6 |
|
1995 |
8 |
327 |
1003 |
32.6 |
|
1996 |
11 |
3057 |
4080 |
74.9 |
|
1997 |
4 |
4073 |
4265 |
95.5 |
|
Total |
56 |
9,096 |
17,956 |
50.6 |
