Near the end of the deadline for concessions, energy companies invest in new business

The contracts of the major concessions made in the 1990s are coming to an end. For the first time, energy companies are having to think about the future, taking into account the hypothesis that their core businesses will not be there in the coming years – and planning is not easy because of uncertainty. Thus, private generators have sought to diversify their investments in Brazil to reduce the weight of a possible change in their results. The closure of contracts begins to take place from 2028 and companies such as AES Tietê and Engie, who joined the country through the acquisition of state generators, have the concern on the radar. In the case of AES Tietê, the plants acquired in the privatization of Cesp represent 80% of its generating park. For Engie, who has been investing for longer in the expansion of its generation business, hydroelectric plants purchased in the privatization of Gerasul add up to 49% of the installed capacity. The issue also affects CTG Brazil's Chinese, which in 2016 took over Duke Energy's operations in the country, incorporating assets purchased by Cesp Americans in the 1990s – these plants total 27.5% of their park. Given the importance of these operations, private generators fear that contracts will not be extended or, if renewed, that the extension conditions will not be as favourable. Under the terms of contracts signed with the federal government, companies can file a renewal request up to 36 months before the concession deadline. The National Electric Energy Agency (ANEEL) will have 18 months to express to the Ministry of Mines and Energy (MME) whether or not it recommends the extension of the contract. The concession agreement provides that the renewal will be conditional on compliance with certain conditions of service provision, but without detailing what conditions would be followed. "ANEEL's criteria for renewal can be discretionary as well as they are not established and there are also no rules that regulate the conditions of renewal for ompanhia plants," says AES Tietê, in its reference form. The feeling of uncertainty is reinforced by the history on the subject in recent years. Eager to reduce energy tariffs, dilma rousseff's government proposed the renewal of concessions through the exchange of the energy sales regime, from independent producer (market prices) to quotas (values regulated by ANEEL). In the Temer government, which needed resources to strengthen the Treasury box, the decision was to rebid the assets, with the winner selected by the criterion of higher payment of bonuses granted to the Union. Now, in bolsonaro management, which has a pro-market line, the MME signals renewthe concession of plants under the management of state-owned enterprises, by payment of bonuses granting and sale of stock control. While they serve as a reference to the federal government's performance over time, the big issue is that all these processes involved only the concessions of state-owned enterprises. The assets of AES Tietê, Engie and CTG Brasil will be the first private contracts that will go through this process, generating doubts among the agents. For the energy specialist and partner of machado, meyer, sendacz and Opice Advogados, Ana Karina Esteves, the lack of definition and rules stimulates the legal debate on the subject. "There is a question whether the renewal of the contract is a possibility or a right if the prerequisites have been met. In addition, there is a large margin of discretion to the Granting Power, because the terms of the extension are not set," Ana said. The lawyer recalls that, in the case of jaguara, são simão, miranda and volta grande hydroelectric plants, Cemig argued that its contracts ensured the right to renewal, a thesis that was not accepted by the Union. The projects were bid to the market in September 2017. Diversification of investments In a recent interview with Estadão/Broadcast, The President of AES Tietê, Ítalo Freitas, declared that the generator still does not know what will happen with the concessions of its hydroelectric plants, which expire in 2029. Faced with legal-regulatory uncertainty, the company began investing in renewable energy sources. If cesp plants previously accounted for 100% of the generating park, this percentage fell to 80% after the development of wind and solar projects, with the prospect of this participation being reduced further in the coming years. According to the executive, AES Tietê aims at acquiring 800 MW in projects and has plans for the development (greenfield) of 2,600 MW in renewable sources – this volume is equivalent to the 2,700 MW of its water generating plant. "The expansion plan of AES Tietê is clear, and we know that the contracts close in 2029. The idea is to have a company as robust in the future as today not to be held hostage by hydroelectric plants," Freitas said. Of the 2,600 MW, 600 MW are already being made viable with the wind farms of the Tucano Complex (BA). In the same vein, President Engie Brasil, Maurício Bähr, revealed in an interview with Broadcast that the recent business carried out by the company in the country aims to reduce the weight of hydroelectric plants in the results. "Our hydroelectric concessions are starting to expire in 2028, and we have to find replacements to continue generating revenue here. It is in this logic that the acquisition of TAG, the transmission lines and the cemig plants comes in," he said. Today, Engie is the largest private generator in Brazil, with a generating park of 8,700 MW. To meet this strategic plan, Engie has been investing heavily in new projects and acquisitions. The concession of the Miranda and Jaguara plants cost the company R$ 3.5 billion as payment of the grant bonus. The acquisition of TAG, petrobras' pipeline company, demanded another R$ 34 billion. In December last year, Engie signed a deal to buy a Sterlite transmission project for R$ 410 million. "With these investments, we aim to ensure the sustainability of our business in the country," Bähr said. CTG Brasil, in turn, adopted a more optimistic tone on the subject. In the company's view, there are no legal and regulatory aspects that prevent an increase in the risks of non-renewal of concessions, and this possibility is inherent in the sector model. Despite this, the company works with the scenario of extending its contracts without bidding. "We understand that the concession has a good chance of being renewed, and that the model to be established should be the extension of concessions in the EMIE (independent energy producer) scheme with onerous concession," the generator said, in a statement. Since 2013 operating in the country, CTG Brasil has invested more than R$ 23 billion in the Brazilian electricity sector. Sought by the report, ANEEL reported that the issue should be answered by the MME.