On November 10th, 2020, the Brazilian Economy Minister, Mr. Paulo Guedes, affirmed that Centrais Elétricas Brasileiras S.A. - Eletrobras will be privatized by December 2021. Eletrobras, a mixed-capital company controlled by the Federal Government, is the largest power company in Latin America and, in Brazil, is responsible for 30% of the power generation capacity and 45% of the power transmission capacity.1 Currently, the Federal Government holds 42.57% of Eletrobras' common shares with voting rights.2

The privatization process is proposed pursuant to the Bill of Law No. 5,877/2019,3 and is flagged as high priority in the government's agenda. It will be implemented by a follow-on public offering that will dilute the Federal Government's equity stake to less than 10%. If such goal is not reached in the follow-on public offering, then there will be a secondary public offering of the common shares owned by the Federal Government or by another shareholder directly or indirectly controlled by the Federal Government.

Prior to the transactions described above, Eletrobras will carry out a corporate restructuring to spin-off Eletrobras Termonuclear S.A. - Eletronuclear and Itaipu Binacional, Eletrobras' subsidiaries that may not be privatized pursuant to applicable laws, which will thus remain under the Federal Government's direct or indirect control, as indicated in the attached Eletrobras.Structure

Also, the Bill of Law No. 5,877/2019 provides that the company's by-laws will be amended to prevent any shareholder of holding more than 10% of the common shares and also any block voting agreements among shareholders representing more than 10% of the voting shares of the company. The objective is that Eletrobras becomes a corporation with pulverized control. Such Bill of Law does not create any golden shares for the Federal Government, but it is still subject to further amendments in the Brazilian Congress.

Finally, we also highlight that the Bill of Law No. 5,877/2019 allows the Federal Government to grant 30-year renewals for the hydro power generation concession contracts of Eletrobras, extinguishing the "quota regime" of these contracts created by Law No. 12,783/2013, where these generators had to sell energy at a regulated price, and implementing an independent power production regime, where these generators will be allowed to freely sell the energy in both regulated and free markets. On the other hand, the Federal Government will calculate the additional value added to these concessions as a result of these proposed changes and Eletrobras or their subsidiaries will have to pay 1/3 of such value to the Energy Development Account (Conta de Desenvolvimento Energético, or CDE) to be reverted to the final customers' tariffs and 2/3 to the Federal Government as bonus for the concession renewal.


1 Available on https://eletrobras.com/en/SobreaEletrobras/Annual-Report-2019.pdf.

2 Available on https://eletrobras.com/pt/ri/Documents/Capital%20Social%20-%20Setembro%202020.pdf.

3 Available on https://www.camara.leg.br/proposicoesWeb/prop_mostrarintegra?codteor=1830817&filename=PL+5877/2019.

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