Quality of Regulation in Brazil:
Electricity and Oil & Gas Sectors
Eduardo Machado
Technological Research Institute
New Dehli, March 27th 2010
1. Brazilian regulation in historical
perspective
From the entrepreneurial state
to the regulatory state
1930
1980-90
1996
2005
Entrepreneurial state
Transition to
an open
economy
Regulatory
State
3
Regulatory agencies were established
after the second half of the nineties…
1996
ANEEL
(Electricity)
1997
1999
2000
2002
ANATEL
(Telecom)
ANP
(Petroleum and
Natural Gas)
ANVISA
(Sanitary Control)
ANS
(Health Plans)
ANA
(Water Resources)
ANTT
(Ground
Transports)
ANTAQ
(Water
Transports)
4
Brazil had the wrong sequence in
some sectors…
Electricity
1995
Regulatory
agency
1996
Telecommunications
Railways
1997
1998
1997
2002
Ports
1999
2002
Sector
Privatization
5
2. Regulatory framework in
selected sectors
Agencies respond to different types of
market failure...
Property Information
Natural
Externalities
Asymmetry
Monopolies
Anticompetitive
Practices
Sector
Oil & Gas
X
XX
XXX
XXX
Electricity
XX
XX
XXX
X
Three groups of regulated infra-structure
markets
• Regulatory framework exists, there are
policy issues: telecommunications,
electricity and civil aviation.
• Regulatory framework exists but it is
inadequate: petroleum, railways, roads
and ports
• No regulatory framework: natural gas,
water and sanitation
State intervention and legal
uncertainty in selected sectors…
Degree of State Intervention
Sector
Generation
Transmission
Processing
Transport
Distribution
Commercialization
Level of
Legal
Uncertainty
Electricity
XX
XX
X
-
XX
Petroleum
XXX
XXX
XX
X
XX
Natural Gas
XX
XXX
XX
XX
XXX
9
Regulatory Change in Petroleum Industry
Electricity Sector Pre and Post Reform
3. Regulation Quality: Results
Diffferents studies show that...
SECTORIAL PERFORMANCE INDEX
0,4
0,3
0,2
0,1
0,0
2000
2001
2002
2003
ELECTRICITY
Source: Author s
2004
2005
2006
PETROLEUM
2007
2008
...reforms do not improve...
World Governance Indicators
Source: Kauffaman & Kraay (2009)
...quality of regulation!
Regulatory Governance Index
AGENCY AUTONOMY
DECISION DECISION
ACCOUNTABILITY
MAKING
TOOLS
RGI
RANK
ANP
0,6043
0,6841
0,7608
0,5962
0,6752
3
ANEEL
0,6896
0,8976
0,5160
0,5885
0,6980
2
Source: Correa et al. (2006)
4. Conclusion
Electricity has been a failure…
• Supply crisis in 2001 and 2009
• Recent model does not provide stability
• Centralizes decisions in the Executive Power
• More investments are required to avoid a possible
supply crisis
17
Petrobrás” does not allow enough
competition and entry…
•
State-owned company controls over 90% of the
exploration, transportation and distribution segments
•
Petrobrás’ price policy is not transparent
•
Lack of access to transportation and distribution networks
hinders new entry and investment
18
The natural gas sector lacks a
specific regulatory framework…
• Recent discovery increased the importance of
natural gas
• Need for a specific regulatory framework:
– Need for clear rules for access to transportation and
distribution networks
– Federal and subnational governments have to coordinate
19