BRAZIL Law and Practice Contributed by: Débora Yanasse, Bruno Salzano, Luisa Tortolano Barreto and Julia Braga, Tauil & Chequer Advogados in association with Mayer Brown
1. Structure and Ownership of the Power Industry 1.1 Law Governing the Structure and Ownership of the Power Industry Early Years The power industry in Brazil started at the turn of the 20th century with small, local private invest- ments serving specific companies or municipal lighting. Canadian Light and the American & For- eign Power Company (Amforp) later entered the market by acquiring these assets and developing new ones. The industry was therefore originally developed and owned by private companies. A major change occurred around 1930, during President Getúlio Vargas’s government. The Great Depression reduced international invest- ment and rising nationalism led the federal gov- ernment to pass new laws increasing oversight and tariff regulation, which reduced returns. Public companies such as Chesf, Cemig, CEEE and Eletrobras were created to compensate for the lack of private investment, marking a new phase of direct government intervention. This phase of public investment began to reverse with the transition from military dictatorship to a liberal democracy. The 1988 Federal Constitu- tion allowed power services to be performed directly by the federal government or indirectly through concessions, permissions or authorisa- tions. The Development of a Market-Driven Industry in the 1990s In the 1990s, as part of a broader privatisa- tion programme, the government took steps to increase private investment in the power sector and privatise three federal and 20 state-owned power generation and distribution companies.
In 1995, Law No 8,987 (the “Concessions Law”) set general rules for concessions and permis- sions for public services, and Law No 9,074 introduced independent power producers and free customers with open access to all distribu- tion and transmission facilities. In 1996, Law No 9,427 created the National Electricity Regulatory Agency ( Agência Nacional de Energia Elétrica or ANEEL), an independent federal agency regulating and supervising the power industry in accordance with the Ministry of Mines and Energy ( Ministério de Minas e Ener- gia or MME) policies. In 1998, Law No 9,648 completed the legal framework for a market-driven industry, estab- lishing free power contracting between conces- sions, permissions and authorisation holders, and initial rules for unbundling power compa- nies into generation, transmission, distribution and trading entities. This law also created the Power Wholesale Market ( Mercado Atacadista de Energia Elétrica or MAE), later replaced by the CCEE, as defined below, and the National Elec- tric System Operator ( Operador Nacional do Sis- tema Elétrico or ONS), a non-profit private entity that co-ordinates and regulates power genera- tion and transmission in the National Intercon- nected System ( Sistema Interligado Nacional or SIN) under ANEEL’s supervision. Power Shortage and Reforms After 2001 After a serious power shortage in 2001, the fed- eral government reformed the power industry to attract more private investment in power gen- eration, transmission and distribution, aiming to provide a stable power supply at reasonable prices. Law No 10,848/2004 created: • the free and regulated power contracting markets and the Electricity Trading Cham-
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