Eduardo Machado Technological Research Institute New Dehli, March 27 th 2010 Quality of Regulation in Brazil: Electricity and Oil & Gas Sectors

1. Brazilian regulation in historical perspective

3 From the entrepreneurial state to the regulatory state Entrepreneurial state Transition to an open economy Regulatory State

4 Regulatory agencies were established after the second half of the nineties… ANEEL (Electricity) ANATEL (Telecom) ANP (Petroleum and Natural Gas) 2002 ANVISA (Sanitary Control) ANS (Health Plans) ANA (Water Resources) ANTT (Ground Transports) ANTAQ (Water Transports)

5 Brazil had the wrong sequence in some sectors… SectorPrivatization Regulatory agency Electricity Telecommunications1997 Railways Ports

2. Regulatory framework in selected sectors

Agencies respond to different types of market failure... Property Information Asymmetry Externalities Natural Monopolies Anticompetitive Practices Sector Oil & GasXXXXXX ElectricityXX XXXX

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

9 State intervention and legal uncertainty in selected sectors… XXXXX XXXXXNatural Gas XXX XXX Petroleum XX-X Electricity CommercializationDistribution Transmission Processing Transport Generation Level of Legal Uncertainty Degree of State Intervention Sector

Regulatory Change in Petroleum Industry

Electricity Sector Pre and Post Reform

3. Regulation Quality: Results

Diffferents studies show that... Source: Author s SECTORIAL PERFORMANCE INDEX

...reforms do not improve... Source: Kauffaman & Kraay (2009) World Governance Indicators

...quality of regulation! AGENCYAUTONOMY DECISION MAKING DECISION TOOLS ACCOUNTABILITYRGIRANK ANP0,60430,68410,76080,59620,67523 ANEEL0,68960,89760,51600,58850,69802 Regulatory Governance Index Source: Correa et al. (2006)

4. Conclusion

17 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

18 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

19 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