Eletrobras incorporates Furnas against government wishes

Photo: Fábio Rodrigues Pozzebom/Agência Brasil

Shareholders of the recently privatized Brazilian energy giant Eletrobras on Thursday approved the incorporation of its subsidiary Furnas into the holding company. The vote came just hours after Supreme Court Justice Alexandre de Moraes lifted two injunctions that had prevented the meeting from taking place, the vote was originally scheduled for the end of last year.

The administration of President Luiz Inácio Lula da Silva has questioned the reduction of the government’s voting power on Eletrobras’ board. The federal government has only one seat on the board, but holds 42 percent of the company’s shares.

This is because of the way Latin America’s largest energy company was privatized more than a year ago: through a BRL 30 billion (USD 6.2 billion) offering that included a capital injection led by Eletrobras itself and newly issued shares. In the end, Eletrobras became a corporation and the government’s stake was reduced in a process similar to privatization, but through market channels.

In addition to a seat on the board of directors, the government also holds the so-called “golden share,” meaning it has veto power over certain strategic decisions. However, the Lula government is not satisfied with this and has challenged its constitutionality before the Supreme Court.

Furnas is present in 15 states and the Federal District and operates a robust system that covers almost half of the energy consumed in the country, in addition to almost a third of all the energy generated by the Eletrobras group.

With the incorporation of Furnas, Eletrobras’ new holding structure aims to achieve greater efficiency. The unification of Eletrobras’ assets will contribute to a significant reduction in the administrative costs of its operations, with a reduction in taxes and duplication of positions in the organizational structure. Analysts estimate this efficiency gain at close to BRL 2 billion per year.

Politically, however, this incorporation smacks of more private control over a larger part of Brazil’s energy system. In December, another Supreme Court justice, Kassio Nunes Marques, gave the federal government and Eletrobras 90 days to try to resolve the impasse through mediation.

Fabiane Ziolla Menezes

Former editor-in-chief of LABS (Latin America Business Stories), Fabiane has more than 15 years of experience reporting on business, finance, innovation, and cities in Brazil. The latter recently took her back to the classroom and made her a Master in Urban Management from PUCPR. At TBR, she keeps an eye on economic policy, game-changing businesses, and people driving innovation in Latin America.