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Brazil - Privatization
Implicit in these motives for privatization is a difficult choice for the government. The first reason suggests that the greatest immediate revenue effect would be obtained from the sale of the most profitable firms, such as the CVRD (Rio Dôce Valley Company), Brazil's iron mining and exploring complex. The second consideration, however, suggests that long-term revenue benefits would be more likely from the sale of enterprises that have had a long history of low or negative returns, such as the RFFSA (Federal Railroad System, Inc.). Brazilian privatization experience and policies since the 1980s reflects the difficulty of deciding which firms to privatize first.
Policy changed significantly with the entrance of the Collor government in 1990, which made privatization one of the major planks of its economic platform. The National Privatization Program (Programa Nacional de Desestatização--PND), which was created by the National Economic Development Bank (Banco Nacional de Desenvolvimento Econômico--BNDE), expanded the scope of privatization to include a number of the enterprises formerly considered as "strategic" by earlier governments. During the Collor government between 1990 and 1992, fifteen state-owned enterprises were privatized, yielding about US$3.5 billion in total proceeds. The most important sale was that of the Minas Gerais Iron and Steel Mills, Inc. (Usinas Siderúrgicas de Minas Gerais S.A.--Usiminas) steel company in October 1991, which alone accounted for nearly twice the revenue of all previous privatizations and sold for US$2.3 billion. The Japanese holding company Nippon Usiminas acquired about 18 percent of the shares. During this period, most sales were exchanges of equity in state-owned enterprises for different types of public debt or "soft money," rather than for cash.
The rise in interest in the privatization of state-owned enterprises in Brazil that began in the 1980s reflects similar trends worldwide. Although much of the rhetoric used by the advocates of privatization emphasized economic efficiency and competitiveness, much of Brazil's privatization experience since 1990 is better understood as a response to the fiscal pressures on the public sector, which worsened significantly in the 1980s.
Privatization policy under the Cardoso administration, beginning in 1995, shifted focus to state-owned enterprises responsible for the major part of Brazil's economic infrastructure, among them enterprises in the energy, transportation, and communications sectors. The first major privatization was the sale of the Espírito Santo Power Plants, Inc. (Espírito Santo Centrais Elétricas S.A.--Escelsa), the federally owned power company serving the state of Espírito Santo, in July 1995. In a departure from earlier policy, the CVRD, one of Brazil's largest state enterprises, was included in the program by the new government. Although Brazil's largest state-owned enterprises, Petrobrás, remained outside the program because of constitutional restrictions, appraisals were begun of the RFFSA and of the remaining federally owned power companies.
The sale of state enterprises to private buyers, both domestic and foreign, offered an attractive means to reduce the fiscal pressures. First, the sale of an enterprise provided an immediate revenue gain for the government. Second, to the extent that the enterprise sold was operating at a loss, the future fiscal burden on the public sector was reduced. Finally, the conversion of a state enterprise into a profitable private one increased the future tax revenues of the government.
Under the Franco government (1992-94), privatization continued but with a greater emphasis on sales for cash. Eighteen state-owned enterprises were sold, yielding over US$5 billion. Among the most important enterprises sold in this period was the Brazilian Aeronautics Company (Empresa Brasileira Aeronáutica--Embraer), an aircraft manufacturer, which had been established in 1969 and controlled by the Ministry of Aeronautics. By 1994 only twenty-five state-owned enterprises had been sold, mostly in exchange for debt certificates and little hard cash. Other enterprises included several chemical, fertilizer, and mining companies, with the steel sector wholly privatized by the end of 1994.
Although some privatization occurred between 1980 and 1990, it was confined to cases in which the federal government had taken over firms in financial difficulties, and did not touch any of the major state-owned enterprises that had been established purposely by the federal government and by some state governments in the preceding three decades. In all, only thirty-eight enterprises were privatized by the federal government before 1990, and the total receipts of the government were only US$723 million.
You can read more regarding this subject on the following websites:
Water privatization in Brazil - Wikipedia
Brazil Country Studies index
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