Utility Regulation Oversight in Brazil: the role of TCU

1. INTOSAI Working Group on the Audit of Privatisation 11th meeting, Sófia, June 2004. Utility Regulation Oversight in Brazil: the role of TCU Brazilian Court of Audit (TCU) -> Brazilian SAI www.tcu.gov.br

2. Utility Regulation Oversight in BrazilPresentationContents • Privatisation oversight • Regulatory agencies oversight • Results of TCU actions • Projects in progress • Economic regulation and social inequality - the access to electricity audit

3. Privatisation in Brazil • From 1991 to date: • 69 federal state owned enterprises were privatised; • new concessions were granted in the sectors of energy, telecommunications, road and railways.

4. Privatisation´s result Total70.885 US$ millions

5. PrivatisationOversight by TCU (Norm TCU nº 27/1998) • Previous and concomitant control: • TCU takes part at least twice in any process: • before the auction, to analyse privatisation rules and the minimum sale´s price; • after the privatisation, to verify the signed contracts and government revenues. • Anytime, if irregularities are found, TCU can command a caution measure in order to set the process right.

6. Privatisation oversight by TCUMain results • Minimum sale´s price review for several companies (EDN, IRB, BANESPA, BEG) • increment over US$ 700 millions • Prospects pre-qualification review • More competitiveness • Changes in the sale´s rules • Greater transparency

7. Utility Regulation in BrazilThe regulatory agencies Electricity 1996 ANEEL Telecommunication 1997 ANATEL Oil and gas 1997 ANP Transport 2001 ANTAQ & ANTT

8. Utility Regulation Oversight by TCUStructure and acting • Specialized unit: SEFID (since 1998) • staff: 22 auditors • Control practices: • Concomitant control of new concessions (since 1995) • Performance audit in the agencies (since 1999) • Audit, evaluation and review of regulatory processes (since 2000) • Concomitant control of the periodic tariff review in electricity distribution sector (since 2002)

9. Regulators´control in Brazil Main results • Improvement on the minimum price calculation method • telephone, cable tv and hydroelectric power station concessions; • Roads toll reduction: • inclusion of undue taxes, overestimation of investments and not consideration of additional revenue; • Better treatment of environment issues in the oil and gas sector; • Identification of unclear definition of the duties of ministries and regulatory agencies.

10. Utility Regulation Oversight in Brazil Projects in progress • We have two improvement projects going on: • Modernisation of public services regulation control. Supported by IDB (2002 - 2006) • CERDS - Oversight Improvement with focus in the Social Inequality Reduction. Supported by DFID/UK (2002-2006)

11. Utility Regulation Oversight in Brazil Projects in progress • Modernisation of public services regulation control. • Mapping and development of control´s practices • CECR - Centre for the Study of Utility Regulation Oversight • Corporative education • Institutional communication plan

12. Oversight improvement with focus in the social inequality reduction • Main audits • Universalisation in the access to electricity • Universalisation in the access to Telecommunications (ongoing) • Interstate passengers road transport (ongoing)

13. Audit about universalisation in the access to electricity 2003

14. Universalisation in the access to electricity Audit issues • Audit issue 1Who is not connected to the electricity distribution network in Brazil? • Audit issue 2Are the criteria used to choose the beneficiaries suitable?

15. Audit issue 1Who is not connected to the electricity distribution network in Brazil? Brazil is a south American country

16. Audit issue 1Who is not connected to the electricity distribution network in Brazil? Brazil is a federation of 27 states.

17. Audit issue 1Who is not connected to the electricity distribution network in Brazil? There are 5.561 municipal districts in Brazil The states are divided in municipal districts

18. Audit issue 1Who is not connected to the electricity distribution network in Brazil? 25 to 100 % of population is not connected 10 to 25 % of population is not connected The electrical exclusion have been analysed for each municipal district. 0 to 10 % of population is not connected

19. Audit issue 2Are the criteria used to choose the beneficiaries suitable? • Policy objective: • subsidise low income households. • Policy implementation premise: • households with low electricity consumption imply low income households. • TCU investigated if: • Household electricity consumption is correlated with household per capita income.

20. 1600 1440 1280 1120 960 800 640 480 320 160 0 0 1 2 3 4 5 6 7 8 9 10 Audit issue 2Are the criteria used to choose the beneficiaries suitable? Consumption (Kwh) Income per capita (living wage)

21. 1600 1440 1280 1120 960 800 640 480 320 160 0 0 1 2 3 4 5 6 7 8 9 10 Audit issue 2Are the criteria used to choose the beneficiaries suitable? Households that deserve subsidy (income criterion) Consumption (Kwh) Income per capita (living wage)

22. 1600 1440 1280 1120 960 800 640 480 320 160 0 Audit issue 2Are the criteria used to choose the beneficiaries suitable? Households that deserve subsidy (income criterion) Households that receive subsidy (consumption criterion) Consumption (Kwh) Income per capita (living wage)

23. 1600 1440 1280 1120 960 800 640 480 320 160 0 Audit issue 2Are the criteria used to choose the beneficiaries suitable? Households that deserve subsidy (income criterion) Households that receive subsidy (consumption criterion) Consumption (Kwh) Households that receive reduced subsidy (social program database criterion) Income per capita (living wage)

24. 1600 1440 1280 1120 960 800 640 480 320 160 0 Audit issue 2Are the criteria used to choose the beneficiaries suitable? Households that deserve but don´t receive subsidy (low efficacy) Households that receive and deserve subsidy(correct) Consumption (Kwh) Households that receive but don´t deserve subsidy (inefficiency) Income per capita (living wage)

25. Universalisation in the access to electricityConclusion • The criteria defined in the Brazilian law are not suitable, because: • high income consumers that have a low consumption receive subsidy (inefficiency); • an expressive amount of low income consumers don´t receive subsidy (low effectiveness); • low income consumers subsidise high income consumers (regressivity).

26. Universalisation in the access to electricity Main recommendations • use supplementary criteria to fit the households that must receive subsidy; • implement subsidy in a national extent • due to regional inequalities, there is a risk of overcharging households in the poorest States.

27. Projects in progressExpected impacts • Improvement on the utility regulation oversight, including regulatory agencies and other areas of government, • systemic view of the regulatory activity, • interaction with consumer councils, • increase of transparency, • improvement on the regulatory activity. • improvement on the delivery of public services.

28. Thanks!! Marcelo Sobreiro Maciel email: macielms@tcu.gov.br Brazilian Court of Audit (TCU) -> Brazilian SAI www.tcu.gov.br email: sefid@tcu.gov.br

29. INTOSAI Working Group on the Audit of Privatisation 11th meeting, Sófia, June 2004. Brazilian Court of Audit (TCU) -> Brazilian SAI www.tcu.gov.br email: sefid@tcu.gov.br