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Brazil: Energy overhaul plans are unveiled

Overview

The Temer administration took advantage of the holiday week in Brasilia to prepare for its final legislative offensive in the energy sector before the yearend recess. But the administration’s ambitious agenda – which includes not only passing a watered-down pension reform and key fiscal bills but also passing biofuels regulations and approving legislation to move ahead with the Eletrobras privatization – will hinge on President Temer’s ability to appease increasingly cantankerous members of his fractured allied base.

Key judgments

  • Dry weather has once again hit Brazil’s hydro-dependent power sector, highlighting the need for the regulatory overhaul.
  • But although the administration has made progress with the planned privatization of more Eletrobras power distribution subsidiaries, the model for the sale of the state-run firm itself has yet to be finalized, which could delay the auction until after the 2018 general election.
  • While the new biofuels framework (RenovaBio) is uncontroversial and would stimulate investment by expanding blend mandates among other changes, it is not a top government priority.
  • The surprise resignation of Cities Minister Bruno Araújo has opened the door for a partial cabinet shuffle, but Temer’s latest steps still imply that pension reform is less vital to him than the 2018 elections.
  • Although new business-friendly labour reform legislation went into effect last Saturday, the new labour reform bill sent by Temer to the Congress this week could further exacerbate legal uncertainty.

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