Privatization: No More a Dirty Word

No More a Dirty Word

In spite of the government’s undiminished privatization drive,
opposition to the sell-off of State-owned enterprises is still strong
and the government has avoided mentioning any plans
that it may have for the privatization of two of its key companies:
Banco do Brasil and oil giant Petrobrás.

Privatization of state-owned companies is an irreversible global trend and a dominant
force shaping societies and economies throughout the world. In Brazil, the perception that
state ownership is bloated and inefficient is a view that has long caught on with
Brazilians. Nevertheless the nation’s privatization program has followed a tortuous path
since its inception ten years ago.

The evolution of Brazil’s privatization process can be divided roughly into three
stages, beginning in the ’80s, under the Figueiredo administration and, later on, during
Sarney’s incumbency. However, most of the sale transactions carried out during that period
were all but a reprivatizing effort, as they involved small, formerly private-owned
companies that had been taken over by the State due to financial difficulties. In terms of
results, the redefinition of state ownership in the economy was insignificant, to say the

The second stage, carried out in the first half of the ’90s, had a much more aggressive
approach. Under Collor’s administration, the National Privatization Program (PND) was
created and Brazil saw the privatization of entire industrial sectors, such as steel,
petrochemical and fertilizers, among others.

Eventually, with the election of President Fernando Henrique Cardoso in 1994, the
privatization program entered its third and current phase, which has been enormously
expanded both in scope and in size. A series of constitutional amendments and new laws
were put in effect, leading to the end of long-standing State monopolies and to the
creation of several regulating agencies to oversee the program’s implementation.

According to BNDES, the federal agency in charge of managing the PND, the proceeds from
all privatizations, dating from 1991 through this year, have totaled $95,705
million—including some of the government debt that was transferred to the
newly-privatized companies. Foreign capital responded for 45.8 percent of the proceeds,
with the United States leading the foreign investors with 17 percent of investments,
followed by Spain, with 11.7 percent and Portugal, with 6.3 percent.

Just recently, the government has announced the sale of Banespa—Brazil’s sixth
largest bank in assets—and electricity utility Cesp Paraná. Various other units of
the huge Eletrobrás power holding await the green light, including Furnas generator,
Eletronorte and Chesf.

However, in spite of the government’s undiminished privatization drive, opposition to
the sell-off of State-owned enterprises is still strong, particularly among labor unions
and certain political factions. Brazilians, for the most part, favor less government
control over the economy, but they have also come to realize that privatization is not the
cure-all heralded by some.

For this reason, perhaps, the government has avoided mentioning any plans that it may
have for the privatization of two of its key companies: Banco do Brasil and oil giant
Petrobrás. (See accompanying story) Although Petrobrás’ monopoly has been extincted, the
government has vowed to keep control of the much-prized company. That remains to be seen.
In August, the Brazilian government engaged in Latin America’s biggest ever global stock
offering of shares in the company. Some fear that the offering of shares to outside
investors is just the beginning of what may eventually become the "privatization in
bulk" of Petrobrás.

To be sure, the privatization program is not to be underrated. Just as new management
was crucial for some of the government’s run-down patrimony, the money raised by
privatizations gave the country time to adjust to two major global crises: the Asian
crisis in 1997, followed shortly afterwards by the collapse of the Russian market.

What hasn’t changed with the privatization program is Brazil’s public and trade
deficits, and the country’s dependency on foreign capital. While few ever believed that
the privatization revenues would do any good to reduce the huge public deficit, one hoped
that it wouldn’t skyrocket as it has. In July, the deficit reached $260 billion, an
increase of over 800 percent from the $32 billion deficit registered in December of 1994.

Other lingering questions about the program’s implementation and accountability remain,
as Brazilians are still adjusting to the new market forces. Take, for instance, the
privatization of the Telebrás system, which expanded and greatly improved the decrepit
telecommunications sector. Two years after the dismantling of the State monopoly, the
number of conventional lines in Brazil has jumped from 20.2 million to 33.4 million, an
increase of over 65 percent. Even more impressive was the growth in cellular phone lines,
which have soared from 5.6 million to 19.1 million, a 241 percent increase. Last year
alone, the cellular phone market grew 110 percent, thus making the telecom sector one of
the biggest job creators in Brazil today.

Still, the number of unhappy consumers keeps growing, and several of the new phone
companies have been hit by lawsuits against abusive practices. Topping the list of
complaints are billing errors, quality of services and lack of information. Criticism
towards Anatel, the regulating body in charge of overseeing the sector, is on the rise,
too. The agency boasts that, as far as quality is concerned, the privatized companies have
reached 75 percent of the established goal against 25 percent in August of 1998. However,
critics contend that Anatel mostly relies on information sent by the companies themselves,
as the agency lacks infrastructure to inspect them in loco.

In the transport sector, it’s the privatization of state and federal highways that has
come under scrutiny, raising nagging suspicions about the concession rules. Faced with
public outcry objecting to the exorbitant fees charged on toll roads, six out of the seven
states that had already privatized their highways have suspended previously granted
concessions and are now drawing up new contracts.

Since each state has established its own concession rules, and each road has specific
characteristics, the discrepancy between fees throughout Brazil can be as much as 600
percent. Rio Grande do Sul’s roads are the least expensive to drive through, while the
5.6-mile stretch linking the cities of Alphaville and São Paulo on the Castello Branco
highway, ranks as the most expensive one.

The lack of alternatives to toll free roads, which is an option in France, puts an even
heavier burden on those who make a living on the highways. Nearly 85 percent of all
Brazilian production is transported by land, yet neither the National Federation of
Transports nor any other interested parties were invited to discuss the future of the
tariffs. For some truck drivers, those fees may slash their incomes by up to 40 percent at

Slick Waters

In spite of international recognition of Petrobrás’ state-of-the-art technology,
especially for deep-water exploitation, something is fundamentally amiss with the
company’s environmental technologies. This year alone the firm has been responsible for
five major spills in Brazil, three times dumping oil into Guanabara Bay, in Rio de
Janeiro; once into the Iguaçu River, in the state of Paraná, and once in São Francisco
do Sul, in Santa Catarina state.

The magnitude of Paraná’s spill was by far the most extensive among this year’s
environmental disasters; one million gallons of crude oil spewed into the Iguaçu river by
a burst pipe at Getúlio Vargas Refinery. However, it was Rio’s accident last January that
captured the nation’s attention and led the government to impose hefty fines to the giant
oil company. Altogether, Petrobrás has been linked to six oil spills into Guanabara Bay
over the last three years. According to ecologists, the environmental damage is such that
it will take at least 10 years for the area to recover.

Amid accusations and finger-pointing, Petrobrás has attributed the January leak to
human error, an allegation categorically denied by the United Oil Workers Federation
(FUP), which represents 35,000 oil workers at the company. FUP maintains that the
underwater oil pipe that caused the accident in January was equally responsible for
spewing 200 thousand gallons of oil into the Bay’s protected mangrove swamps in March of
1997. At the time, FUP’s repeated appeals to government entities to look into the safety
conditions of Duque de Caxias Refinery, where the accident occurred, went unheard.

The Regional Counsel of Engineering, Architecture and Agronomy of Rio de Janeiro State
(CREA-RJ) seems to agree with FUP. An investigation conducted by CREA-RJ has concluded
that the 400 thousand-gallon oil leakage into Guanabara Bay was not caused by human error.
Instead, the report points to lapses in Petrobrás’ operational procedures as well as to
inadequate management and maintenance conditions. In addition, the report charges the
environmental agency Ibama and the National Oil Agency with omission and ineptitude for
lack of satisfactory inspection procedures. According to Philippe Reichstul, Petrobrás’
CEO, the company is investing $150 million in environmental technologies and hopes to
reach a level of excellence by 2003.

Marta Alvim is a Brazilian journalist, freelance translator and
interpreter. You can reach her at

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