Economy & Energy
No 32: August - September 2002  
 ISSN 1518-2932

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Brazil – Energy in 2001
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 Genserico Encarnação Júnior

            I use the title of a book by Celso Furtado to give a name to these typed lines. Lines that long for a time - Brazil and the project of a Nation - which has vanished in the air as it happens to everything that is solid.

That project was generated and nurtured having as background the doctrine of Raul Prebish from Cepal and it flourished more intensely after the Second World War and at the end of the Vargas dictatorship[1] and it unfortunately and coincidently vanished when democracy was restored in the country and not because of that, of course.

I believe that the causes of failure can be found in some deviations that occurred when the mentioned project was implemented and that, from my point of view, could have been corrected, due to the strong pressure from external interests and  to the ignorance and cooperation of the national elite, incidentally the class that was the most favored by the model then in force.

Today there is nothing left but nostalgia, two lost decades and a poor rich country drifting  with the tides of the international markets.

Several are the causes of the Project’s failure. Among them, its hypertrophy caused by the military dictatorship and the advantages given to the favored, a certain incompetence of the state machine and the final “iceberg” left by the liberal, privatizing and unrestricting governments of the two Fernandos with one Itamar in between[2] without any continuity at all.

Of the appointed causes, the one that has been more used is the so-called generalized incompetence of the state administration; a fallacy because, as we have mentioned above, could have been solved. A herd of cattle is not sold to eliminate the lice.

 The speech that glamorizes the neo-liberal model is full of fallacies or half-truths. Namely: the State is inefficient as an entrepreneur; the State should care about health, education and social matters; the market should be free and it is the best signaler concerning investments; the offer and demand law rules above anything in all markets; prices should vary according to the international market; the State should limit itself to regulate the markets and other lies that if true in some circumstances are not universal truths.

In the present article I will limit myself to an area that I know relatively well and in which I have worked for some time. The energy area: petroleum and electric energy.

The energy model established in Brazil after the Second World War and that is now collapsing, causing the just ended electric energy crisis, was very good. Its results are here. From my point of view, its greatest fault, paradoxically, was that it was not more integrated; it did not have enough solidarity. Paradoxically: because one of the most acid criticisms was precisely on the existing integration. If integration was valid for the energy sub-sectors it was not carried out for the energy sector as a whole, i. e., electric energy and petroleum integration. The biggest model failure was not inherent to it but caused by the successive Government administrations that have cut it short for a long time either by holding back tariffs during inflationary period or using its structure inadequately and the straightjacket concept regarding public deficit demanded by the International Monetary Fund.

            The late Brazilian economist Roberto Campos, advocate of free initiative, claimed that investments in the sector should come from the profits obtained by the entrepreneurs and not, as it was the case of Brazil, directly financed by the price structure. This is valid for the United States and other industrialized countries that have over capitalized companies. In our case, we were capitalizing the country and this procedure execrated by Campos was really valid.

            In developing countries, the State is the only capitalist that rivals the international private capital in some sectors such as energy. It is a strategic sector, what does not imply that it should be a state monopoly. Whenever the private sector is capable and responsible it should present itself. Perhaps the petroleum sector, due to its characteristics, could admit a complete monopoly that incidentally was not practiced here. Distribution and petrochemicals had private capital participation. Maybe another legislation mistake, if you excuse by radicalization. In the industrialized countries, in these sectors that are highly dependent on capital and technology, the State is also present either by big orders or as a military defender of its interests abroad. The case of the American petroleum is exemplary. You just add the fuel price, paid by the consumer, the expenses regarding the military apparatus to defend it, paid by the taxpayer, and you will obtain the real price of the petroleum products in the United States.

During the period when Petrobrás had the exclusive state monopoly of petroleum, according to what was verified by the World Bank itself when visiting this company, the national fuel supply was less expensive than importing it from the world market. Without mentioning the benefits from refining, transport structure, personnel training, technology development and incentives to petroleum exploration and production. And even when, at the beginning, we were highly dependent on the petroleum world market, we were not at the mercy of the international price fluctuations. Another lie of the liberal thinking: prices should vary according to the international fluctuations. The model provided a way for eliminating large fluctuations, when the external price went up it did not necessarily climbed that much internally; when it dropped there was no need to follow it and this opportunity could be used for capitalizing the sector. During some time, the national petroleum price occupied at the price structure a level that was substantially lower than the prices paid in petroleum imports. 

In the petroleum sub-sector, the strategy of investing in the downstream (mainly refining and transport) was chosen aiming at capitalizing the Company in a time when the perspectives regarding the upstream part (petroleum exploration and production) were not good as drilling was oriented towards the inshore basins. With technological development and offshore exploration, there was a tremendous success. And this success itself stimulated sleeping interests; incidentally, while they were busy dreaming about the One Thousand and One Nights, this fact was providential for the creation and establishment of Petrobrás. Namely, orienting its strategies towards the Arab petroleum and the Middle East. 

            The model had solidarity relative to the Brazilian population. The electric energy and fuel prices were the same all over the country. Everyone paid, with no privileges for the costal or producing regions. All shared even the fuel used for generating thermoelectricity in the far Northern region of the country. Why the market rationale should substitute this planning rationale?  This is not justified by the possibility of more efficiency and efficacy. Furthermore, it should be inspected and regulated by the public power, so defective as has been shown by the disregard of the regulating agents in the case of the bankruptcy of the American company Enron.

In the electric energy sub-sector, the improper tariff correction and a megalomaniac vision regarding its planning were the big defects that could be duly corrected. There was a law guaranteeing a10% annual revenue on the investments made. However, this was not credited to the companies in the form of tariffs, they were accounted for in an account of the National Treasury that when reaching US$ 25 billion they were transformed into “ex-post” subsidies to consumption already verified, damaging the adequate capitalization of the companies when they needed it. I believe that this strengthened the companies that were about to be privatized or even those already privatized since this could be compensated by taxes to be paid.

The petroleum sub-sector had also its Petroleum Account, pending on the National Treasury, of a lower value, that accounted for the price structure deviations relative to the import prices. It grew and diminished according to these deviations, attenuating the internalization of the international prices fluctuations. If correctly used, it would be an excellent instrument. But Petrobrás had to pay the bill, therefore contributing to the control (one should read makeup) of the inflation indexes. I don’t whether this account has been closed, if at all.

Returning to the electric energy area, another sin was the investment in the generation of energy to be sold with big discounts to the big consumers, like the aluminum industry, an arbitrary decision of the authoritarian government of that time.

            Actually, the biggest defect of the model, already mentioned, was its lack of integration between the electric energy and petroleum sectors. The latter was the rich part of the energy area; its surpluses should be transferred to the former.

After all, Brazil planned and executed a big project to become a nation, much beyond this energy sector example, that transformed an essentially agriculture country into a respectable industrial park that put it among the ten largest GDP if the world. The world changes, of course. We cannot remain a fossil and live always in the past. The future is always different and brings changes.

In these changes there was successes in the telecommunication area. On the other hand, it is disputable the opening regarding the steel industry and the mining sector (in this case, the privatization of the Vale do Rio Doce company). We acknowledge the pressure, the powerful globalization avalanche. But a minimum autonomy should prevail that would give us the dignity necessary to consider ourselves as a country that is its own master.  

To consider a sentimentalist those who defend the mentioned model is an easy argument that should not be accepted as such. I really believe that the most emphatic defense of that model renders their defenders quite reserved, they don’t want to be judged as old-fashioned and not modern people. The counter-argument would be to present the benefits of the new model that up to now produced higher tariffs and a serious energy crisis that according to an expert linked to the PT [3](make your discounts) has cost the country R$ 10 billion[4].

Avoiding silly sentimentalism, I long for the Brazil project time. It was all ours, so efficient, so full of hope. I long for the time when we used to say: “Keep cool because Brazil belongs to us!” This is not said anymore!

Genserico Encarnação Júnior

Itapoã, Vila Velha (ES), 20 de março de 2002.

[1] Getúlio Vargas was the self-appointed President of the Republic from 1930 until 1945.

[2]President  Fernando Collor (1990/1992) was impeached and substituted by Vice-President  Itamar Franco (1993/1995)   ). Fernando Henrique Cardoso (1995/ 2002) was re-elected after his first mandate.

[3] The Worker’s Party that’s opposing the Government.

[4] Then 1 US$ was worth approximately 2 R$.


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