The recurrence of extreme weather events and resulting power outages in the São Paulo metropolitan region have created an environment of justified popular revolt. Faced with millions of citizens in ignorance, the immediate political response was the promise of the “expiration” of the Enel concession contract.
The word rings strong, suggests an exemplary punishment and a definitive resolution. However, from a regulatory and legal perspective, betting everything on this process could be a trap that ironically delays real solutions until 2028.
It is necessary to understand the gap between the time of the policy and the time of the contract. The decision of Aneel (National Electric Energy Agency) to initiate punitive procedures and “task force” inspections responds to street protests, but comes up against a complex and anachronistic legal framework. Current energy distribution contracts, most of which were designed in the 1990s, were not designed to address the reality of today’s climate emergency. They lack modern resilience measures and, worse, offer ample opportunity for legal challenges.
Recent history shows us the likely road map. In previous episodes of supply disruptions, the concessionaire had been ordered to correct the violations within the regulatory deadlines. Technically, the specific requirements were met, although Aneel said this was done through “ad hoc” measures and structural defects remained.
However, this “even formal” compliance creates a legal shield. By trying to accelerate an expiration now, the public authorities are entering into swampy territory. The concessionaire has arguments to stop the process in court: from the allegation of force majeure due to the magnitude of the storms to the shared responsibility with the public authorities, which fail in the management of urban trees.
The harsh reality is that the expiration process in Brazil is slow. It is highly likely that the legal battle will last longer than the remainder of the current contract, which naturally expires in July 2028. In other words, we will devote institutional energy and political capital to a dispute that will not find a new operator before the end of the concession.
Just look at the example of federal road concessions carried out between 2012 and 2014. Almost all of them were subject to open confiscation procedures and only one of them led to the termination of the contract. In all other cases, even with the expiration processes underway, it was necessary to renegotiate the contract to unlock the investments, instead of waiting for the expiration to take effect.
It should be noted that the mere threat of forfeiture is generally considered an adverse event by financiers who tend to block all loans (even working capital) to the dealer in these situations. And this could lead to the suspension of the dealer’s investments. Therefore, it is possible that the continuation of an expiration process could even lead to a deterioration in the provision of services.
If a summary expulsion is legally improbable and if direct intervention by the State in the operation – which would be possible immediately, and which has been done in the past at Grupo Rede and CEMAR – is in this case unwanted by politicians (because it would transfer the risk of further cuts directly into the fold of the government), what remains? There remains the urgency of planning the next cycle.
We are dangerously late in modeling the new 2028 call for tenders. Instead of selling the illusion of an immediate change of operator, which judicialization would prevent, the emphasis should be placed on the construction of a modern contract. It is necessary to map the costs of network adaptation – such as burying cables in critical areas – and define who will foot this bill, because climate resilience comes with a high price that must be balanced between tariffs and subsidies.
Furthermore, if, by magic, the concession contract were quickly terminated, what would be put in its place?
The end of the confiscation process against Enel will be in vain if a new operator is not properly recruited for the concession. And it takes time: collecting information about the system, mapping its vulnerabilities, defining solutions and costs, producing documents for a new call for tenders (the amendments prepared by Aneel for contract extensions are not a good model), putting all this for public consultation, approval by the control bodies, in this case the TCU (Federal Court of Auditors), and finally carrying out the call for tenders. Errors or deficiencies in the conduct of this process will negatively affect the quality of service provided by the successor operator to Enel.
Insistence on exhalation as a short-term panacea serves as a social anesthetic, but does not solve the physical problem of the network. Without a detailed asset inventory and a new contract with clear disaster mitigation obligations, we run the risk of perpetuating infrastructure vulnerability, regardless of operator. The indignation is legitimate, but the solution requires less punitive voluntarism and more contractual engineering. Otherwise, we will continue to be at the mercy of the next storm, with or without court injunctions.
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