Provisional Measure No. 735 ("Measure"), published on June 23, may open path for sale of companies in the power industry.

State-Owned Companies with Concessions extended after 1995

The Measure applies to SOCs that hold generation, distribution and transmission concessions, whose terms have already been extended once, about 20 years ago, pursuant to Law No. 9,074/1995. If the government elects not to seek a second term extension, as provided for in Law No. 12,783/2013, it may sell the equity control of such companies, along with the grant of a new concession for a 30-year term.

The equity sale/new grant must be carried out by means of a public tender procedure. The awarding criteria may be "lowest service fee", "highest bid for the grant", or a combination of both. To accelerate and simplify the tender process, the Measure allows the price bids to be analyzed and submitted before the qualification documents. Only the winning bidder will have its qualification documents eventually opened and analyzed.

The concession contracts to be awarded will contain quality standards and fixed fees as determined by ANEEL (the Brazilian electricity regulator). There is a specific regulation in place for the cases of distribution concessions, as set forth by Decree No. 8,461/2015. One of the concerns regarding the 2015 regulation was that the new controlling shareholder would have limited time to cause the concessionaire to meet the quality standards, which could cause breaches and subject the concession to termination. The Measure seems to have taken this concern into consideration: during the first 5 years of the new concession, it allows the parties to postpone compliance with the concession′s obligations, "in order to adjust the obligations to the date in which the company was taken over by the new controlling shareholder". Details about the postponement will be defined on a case-be-case basis, in each public tender request for proposals.

Distressed Companies

Companies holding concessions, permissions or authorizations for generation, transmission and distribution of electricity, whose contracts are subject to termination due to breach, may now submit a "transfer of corporate control plan", as an alternative to termination. The plan must demonstrate "the feasibility" of the transfer of control and its benefit to ensure the quality of the public service rendered.

Law No. 12,767 of 2012 permitted companies under financial distress (subject ANEEL′s management intervention) to submit a "plan for recovery and correction of failures and violations", which could contemplate a "transfer of corporate control". Nevertheless, the Measure has a broader extension, since it allows companies not under ANEEL's intervention to submit a "plan for transfer of corporate control". Such measure may accelerate the sale of companies under financial distress. Said possibility is open both to state-owned and privately-owned companies. The specific procedure will be regulated by ANEEL.

Effects of the Measure

Provisional Measure No. 735 is effective as of June 23, 2016; however, it must be approved by the National Congress within 60 days (such 60-day term may be extended only once), or otherwise it will cease to be effective. During the approval process, the Congress may change the current text of the Measure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.