The transfer of control of Amazonas Energia is becoming a thrilling soap opera, involving influential business groups, one of the most powerful Ministers in the Lula Government – and a squeezed regulatory agency in the middle.

At stake: the future of Amazonas Energia, a historically deficit and tragically indebted company that supplies energy to the most remote corners of the country, where the jungle reigns, roads are scarce, and logistical costs are prohibitive – not to mention the technical losses and energy theft that lead national rankings.

The saga began in June, when J&F Investimentos, the holding company of brothers Joesley and Wesley Batista, agreed to pay R$ 4.7 billion for the Eletrobras power plants that generate the energy distributed by Amazonas Energia – and expressed to ANEEL their desire to take over the concession.

Days later, the Government published a Provisional Measure that turned these power plants into “reserve energy” – effectively deleting the largest cost line of Amazonas Energia and passing the bill to consumers across Brazil. In addition, the MP provided regulatory security for other changes in the concession contract of Amazonas Energia.

It was a stroke of the pen that brought the company closer to financial balance and made the purchase of the power plants by J&F begin to make sense to outsiders.

Watching from the sidelines, two business groups did not like what they saw: BTG Pactual, which controls Eneva; and Termogás, owned by businessman Carlos Suarez, one of the largest gas investors in the country.

Both would certainly have looked more favorably on the Eletrobras power plants if they had known about the regulatory arbitration that was on the way.

Months later, however, J&F has still not been able to complete the transaction. Both the purchase of the power plants and the transfer of control of Amazonas Energia are in the midst of a shootout at ANEEL, the agency that must approve everything.

Worse: ANEEL currently has only four of the five directors it should have – leading to frequent ties between the half that supports J&F’s transaction and the half that wants to change the terms of the deal.

J&F’s pressure is for the regulatory agency to approve the purchase of Amazonas Energia on the exact terms proposed by Âmbar, the energy holding company of the Batista brothers.

The case – which is capturing the attention of the electricity sector, Faria Lima, and the political class – involves public pressure from Minister Alexandre Silveira, who wants to see the deal closed; appeals to the common Justice; threats of imprisonment of ANEEL directors; and ties that show a divided agency.

The drama – which some have already dubbed ‘ANEELflix’, given the almost daily twists and turns in the case – is testing the limits of the autonomy of Brazil’s regulatory agencies, which have been weakened by the Executive branch and captured by sectors of the Legislature in recent years.

“One day one group is on top; the next it changes completely. It’s a drama, almost a movie,” said a source closely following the process.

At the heart of the matter is the so-called flexibilization cost, that is, how much Amazonas Energia can pass on losses to the Brazilian consumer tariff.

Âmbar says it needs to pass on R$ 15.8 billion over the next 15 years – but is willing to accept R$ 14 billion. In a 3-1 vote (after two ties), ANEEL agreed to R$ 8 billion.

Âmbar says that if the agency does not change its mind, it will withdraw from taking over the concession, leaving the Lula Government with a bomb in hand: the need to intervene in Amazonas Energia, and this time without the technical (and financial) support of Eletrobras, now a private company. In this case, the bill would not fall exclusively on energy consumers, but on the taxpayer, as the Treasury would have to inject funds into the company.

Last Wednesday, when the deadlock still prevailed, the Judiciary summoned the agency – something unusual – giving it 48 hours to conclude the transfer of Amazonas to Âmbar. Even more strange: the summons required the transfer to be made on the terms proposed by the buyers, without room for a technical assessment by the agency.

The next day, ANEEL appealed the injunction, arguing that the decision was a “blatant affront to the separation of powers,” since it is up to the regulatory agency to decide on the merits of its administrative processes.

According to Infra Agency, which is providing the best coverage of the case, the appeal also stated that the technical analysis by ANEEL showed “numerous problems” in the transfer plan proposed by J&F.

“For example, it was asserted that the flexibilization trajectories formulated for non-technical losses, operational costs, and unrecoverable revenues are not the most suitable,” the document said. “The supposed controllers did not present efficiency gains-sharing mechanisms that could be implemented from the first five-year tariff cycle.”

There is a time sensitivity that makes the case even more complex: ANEEL needs to approve the transaction by October 10, the date the MP allowing the transfer of control expires.

In the first ANEEL vote, there was a tie, with two directors (Ricardo Tili, the rapporteur, and Fernando Mosna) voting to deny the transfer on J&F’s proposed terms and approve it only with flexibilizations of R$ 8 billion.

The other two directors (Director-General Sandoval Feitosa and Agnes Costa) voted to approve the transfer with flexibilizations of R$ 14 billion.

Âmbar accepted this second proposal, making a new offer with the R$ 14 billion, in addition to agreeing to a capital injection of R$ 6.5 billion in the operation and the settlement of the company’s debts.

Last Friday, the situation became even more chaotic.

Amazonas Energia filed a lawsuit requesting that Sandoval approve the transfer of control through a tie-breaking vote. The company also asked that, if the director does not comply with the new order, the “agents involved” be removed and arrested. Another request: that the Ministry of Mines and Energy appoint an intervener at ANEEL to comply with the orders.

Subsequently, Sandoval decided to change his vote, starting to follow the rapporteur’s understanding – that flexibilizations had to be limited to R$ 8 billion. For the first time, a majority was formed in the process.

But the decision, naturally, did not please Âmbar or the Government. On Tuesday, the Batista company stated that it would not proceed with the transaction on the terms decided by ANEEL. Yesterday, they sent a request for reconsideration of the decision.

The company said that flexibilizations of R$ 8 billion over 15 years are insufficient to restore the financial balance of the concession – and repeated that they could walk away from the table.

Alexandre Silveira went further: he said that the agency is working against the country and the Government.

“The issue of Brazil’s energy costs being its responsibility, in a way, reassures me, but at the same time worries me a lot. If it aligns with the Government’s public policies, it will make me happy. If it continues to be an agency that works against the country and the Government, and even sabotaging the Government, this issue of it standing up and taking responsibility for the tariff costs will worry me a lot,” said the Minister.

An industry executive points out that the discussion is extremely sensitive, and it is difficult to say who is right and who is wrong. “There are mistakes and successes on both sides,” he said, adding that the arguments on both sides have merit.

“Âmbar argues that if they accept the R$ 8 billion, in two years the situation will be the same as it is today, because the amount is not enough to cover the losses. ANEEL says that the consumer’s bill will rise greatly if they accept flexibilizations of R$ 14 billion, which is also true.”

J&F still faces a risk. The process of buying the power plants – which would turn them into ‘reserve energy’, making the Brazilian consumer pay for that energy – is tied 2-2 at ANEEL.

If Âmbar loses this process, the power plants that once belonged to Eletrobras would become a bomb: the Batistas would have a business in their hands whose client (Amazonas Energia) simply cannot pay the bill.


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