Leticia Augusto & Ricardo Brito

SAO PAULO/BRASILIA – Brazilian officials warned Wednesday that the TCU federal court of audit may delay a decision on privatization. The move could stall plans for completion of the process in time for the election.

TCU auditors had been reviewing the plan to displace state control over Eletrobras or Centrais Eletricas Brasileiras SA. This is Latin America’s largest utility for many months. To raise at least 25 billion Brazilian reais (5.4 billion), the company proposes a share sales to increase its capital and dilute the government’s holding to become a minority shareholder.

An anonymous court source said that Judge Vital do Rego is expected to request another 60-days to examine the plan more, effectively disrupting this year’s timeline for privatizing the company.

This would mean that President Jair Bolsonaro will be defeated in his re-election bid. He has not delivered the ambition privatizations promised when he took office. According to the same source, Economy Minister Paulo Guedes had made repeated efforts to get the TCU to support the Eletrobras sale.

To stop privatization, leftist Workers Party politicians filed injunctions at the TCU and federal courts this week.

Eletrobras shares rose and fell on prospects of privatization. On Wednesday, they gained approximately 4% in Sao Paulo Trading.

It is difficult to privatize. According to an expert banker, the ideal time frame for the stock offer closes around mid-May. This would mean that the deal must be launched by the end this month.

The banker, who spoke on condition of anonymity, said there was no way to offer the shares without defining the minimum share price – one of the key points in the TCU review.

Reuters received information from government officials that a request to extend the time period would be “killing” this year’s process. This is because investors are likely to avoid the coming election, which has its own restrictions regarding investments in campaign seasons.

According to one official, “If it’s delayed, the chances of raising 25 billion reais are very low.”

Judge Vital do Rego has been critical of the sale right from the beginning, raising questions about electricity rates and renewal fees for hydropower concessions. In December, Vital do Rego asked for more time to examine the plan.

The TCU cleared one hurdle to this operation in February by approving 25.3 billion Brazilian reais hydropower concession fees Eletrobras would have to pay the government upon its privatization.

The company must approve the 2021 financials at its April 22 meeting and then publish a Form 20F to the Securities and Exchange Commission on April 25, before it is allowed to issue a prospectus.

($1 = 4.6588 reais)