analysis of the brazilian electric sector: the ascend...
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ANALYSIS OF THE BRAZILIAN
ELECTRIC SECTOR: THE ASCEND OF
THE PUBLIC MONOPOLY
Ricardo Moreira da Silva (KTH)
Claudio Ruy Portela de Vasconcelos (UFPB)
Raissa Dália Paulino (UFPB)
Daíse Lopes Porto (UFPB)
Maria de Lourdes Barreto Gomes (UFPB)
From the 80’s, the rate of world consumption of electricity has always
presented a growing trend higher than the rate of energy supply, so there
is a constant lack of production. In fact, the capacity to power generate
global from oil is ruunning out and their use is no longer appropriate,
because the emission of CO2 into nature and the consequent increase in
greenhouse. Other energy sources (such as nuclear and hydro power) do
not emit CO2, however have considerable environmental problem to be
managed and all sources have other problems, in the environmental, social
or economic areas. So there is great concern about the scarcity and
sustainable use of energy sources, necessitating good and effective energy
management. Brazil still has a power generation capacity of hydropower
and alternative (wind power, solar or in the production of biofuels), but
does not have the conditions are favourable. The problem is: (1) The
country has focused the energy sector for management of neoliberal
privatization of companies, imposing a regulation via ANEEL without
studying all the consequences and, (2) the cost of production sources such
alternatives is very high. Thus, this paper aims to describe and analyze the
functioning of the electrical Brazilian. The method used is to present the
electric sector in Brazil, then to understand the choices of public policies.
The final of the paper shows that in Brazil the current guidelines for public
policies do not allow the real integration and use of sustainable energy.
Palavras-chaves: Electrical Sector; Brazil; Public Monopoly
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1. Energetic Policies
The human being needs to consume electric energy, but it should be a condition sine qua non
generating and consuming electricity in a sustainable manner (following economic, social and
environmental criteria), but there are problems:
From the viewpoint of production systems, the generation of electric energy can be represented as
a simple configuration comprised of input, processing, output and feedback, with the
administrative management activities providing the link between the stages of the production
process of electrical energy.
A characteristic of the administrative management of any organization is that it has boundaries,
and it operates influencing and being influenced by factors external to the productive cell. It
should be noted also that administrative management involves several other parameters or
knowledge areas, as can be seen in figure 1 below:
Figure 1: elements influence the System of Electricity Production
Source: By the author, based on Mintzberg(1983)
By observing the figure shown, it can be concluded that an effective management model is hard
to be conceived, and even worst to be put on practice. There are several interconnected
subsystems with multiple interactions where the arrows (in low relief) represent those relations.
There are many aspects inherent to the production of electric energy that, independently of
country, can difficult its management, for example:
1. Electric energy cannot be stored after production. (Silva, 2005);
2. The non-storability interconnects, directly and at light speed, the generation, transmission,
distribution and consumption of electric energy;
ENERGY POLICY
SALES POLICY FINANCIAL MANAGEMENT
COSTS QUALITY
INTERNAL
INVESTIMENTS
ORGANIZATIONAL
POLICY CULTU
RE R&D
TRAINING
STRATEGIC PLANNING
Internal organization
OTHER
REGULATORY
POLICY
ENVIRONMENT
External organization
GLOBAL POLICY
GLOBAL
WARMING EXTERNAL
INVESTIMENTS GLOBALIZATIO
N
GLOBAL
ORGANS
NPOs
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3. Financial management and accountability are different from traditional practices, presenting
null capital circulation time, since energy is simultaneously produced and consumed, that is,
there is no warehouse. (Gonçalves, 2002);
All these factors difficult the adoption of a management strategy that works efficiently and
sustainably while the care with the environmental cause gains momentum, given the growth of
ecological conscience broadcasted by the media and the proliferation of Non-Profit Organizations
that make this aspect impossible to ignore. Therefore the complexity of the energy sector makes
it vulnerable, including ultimately, to energy outage.
Brazil has an energy generation capacity much superior to that of many countries including
Sweden, Germany, France and others, but also an inexperienced and inactive regulatory agency,
what makes even worst the regulatory uncertainty of the sector.
2 The Brazilian Electricity Sector (SEB) and their Policies – A history
The Brazilian Electricity Sector (SEB) contains a past institutionalized. Brazil is a country of
continental size and, for this reason; its electrical management has presented further difficulties
for the government since its beginning.
Furthermore, Brazil has some very populated regions, but it also has some sparsely populated
regions with or without energetic autonomy, where consummation centers do not correspond with
productions centers. Thus, the management on the production, transmission and distribution of
energy has some difficulties, since the beginning.
In ancient times, (30s), the management could be public or private. For example, in the interior of
Pernambuco State, the citizen Delmiro Gouveia built a small hydropower for the production and
consumption of a textile industrial unit (it was his own property) and also for the part of the city
that currently takes your name. This was a pointer because it was the first use of hydraulic on the
Brazil Northeast, where this time, the generation of electricity mainly was thermal.
In resume, The Brazilian Electric Sector SEB began through private initiative. In 60s; the
Brazilian government captures all companies make them State Companies and in the 90s, SEB
returned to the private sector, following a neoliberal orientation (copying the model of the
English Electrical Sector).
Without many details, the diagram below shows an overview of what happened to the SEB of the
beginning of the century until the present day.
Figure 2: Chronology of SEB ideology - Source: Compiled by author.
From the 90s, there is a change in the strategic vision of management. The table below shows that
the Brazilian Government attempted to return to the private sector, the control of electrical
companies, leaving the State only as regulator of the market.
Until 1960
Private Management
1990 to 2009
“Regulated” Private Management 1960 to 1990
State Management
Economic liberalism 1980 a 2009
New-liberalism 1945 a 1980
Keynes ideas
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1989
Only 26% of the funds received were for investment and 74% to pay the foreign debt. There is a maneuver in the accounts: Investments are considered expenses, then the government prohibits the SEB have expenses. In practice, the money received by the SEB was used for payment of interest on foreign debt.
1990 The Law no 8.031 created the National Program of No-nationalization – PND.
1992 The companies of the Eletrobrás Group were included in PND.
1993 On March, 4 the Law Eliseu Resende (8631/93) was adopted that changes the energy industry: Power and distribution companies will set their rates according to the costs of services.
1995
The president Fernando Henrique Cardoso endorses the Law of Public Concessions, opening to private initiative to operate services for power. In July, the private concessionaires represented only 1% of capacity; Escelsa was privatized.
1996
The government hires a consultant “Coopers & Lybrand” to propose a model of the electric system; In December, created ANEEL, to regulate and supervise the power, transmission, distribution and marketing of energy; The Light and CERJ was privatized.
1997
In August 18, it is recorded a peak in consumption. The system stayed with only 3.9% of reserves. It created the MAE (Wholesale Energy Market), which functions as a stock exchange, which involved power and sellers companies of energy. Nine companies were privatized: COELBA; CEDA (Centrais Elétricas Cachoeira Dourada); CEEE; CPFL; ENERSUL; CEMAT; ENERGIPE e a CONSERN.
1998
It created the National Operator of the Electric System, which would control the transmission of energy in the country. In February, the Light and CERJ are fined by ANEEL for failure in energy supply. Blackouts led protests and critical to the model of privatization. In March, the MP 1531 is reissued for the 16th time and increases the penalty for concessionaires’ poor service performance of 0.1% to 2%. On May 13, the Congress adopted the MP1531 where the free market started in 2007 (it not 2013 as proposed by Coopers & Lybrand). More five companies were privatized. COELCE, ELETROPAULO, CELPA, ELEKTRO e GERASUL.
1999 On March 1st, the Eletrobrás transfers to the ONS the operation and control of the Brazilian electric system; In July, the CESP - Paranapanema was privatized.
2000 FHC establishing the priority programs of thermoelectric to use natural gas. Enter into operation Angra 2. In February the CELPE was privatized.
2001 The SAELPA and CELB were privatized. Blackouts happen in Brazil southern and southeastern region- The rationing of electricity has been in the country.
2004 The Ministry of Mines and Energy transfer part of energy planning to Eletrobras (in the past, the responsibility of ANEEL).
Table 1: Timeline of SEB to 1985 to 2004 - Source: Silva (2005)
Another Brazil President was elected in 2003 and the new government (Lula) proposed a new
program for restructuring the electricity sector, but no change ideology the management, which
continues with regulatory vision.
Historically, the institutional arrangement of SEB – Brazilian Electric Sector – has aligned itself
to Brazilian economical moments and, according to Souza (2002) and Silva (2005), has passed
through four periods:
1960
to
1965
Institutional transition
and State intervention
There was a clear tendency for state intervention at the formulation
and execution levels of electrical energy politics, with noted
differences of opinion between the liberals and the interventionists.
1965
to
Institutionalization and
apogee The military government consolidated the interventionist politics,
with an institutional rearrangement, nationalized the department and
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1980 invested hugely in public work
1980
to
1995
Preparation for a
change in the
institutional
arrangement
This period was marked by the worldwide implantation of new-
liberalism and deficient SEB management.
1995
to
2009
Institutional
reorganization
The de-capitalization erosion of SEB was accelerated and there was
external pressure for the adoption of the Washington Consensus, the
privatization of the companies began according to the English model.
3 The Brazilian Electrical Sector (SEB) and your Policies – An analisy
So, this paper analyzes SEB under two points of view: Between 1960 and 1990 the State
interventionist management and after 1990 the Institutional Model adapted from the English
model.
Between 1960 e 1990 - State Institutional Arrangement
Although the Ministry of Mines and Energy and Eletrobrás were created as government bodies to
centralize the actions between 1960 and 1961, as far back as the 30’s, according to Pontes (1999,
p.44), “the country had chosen a monopolist and centralized administrative institutional
arrangement at the most important areas of economy and (…) a clear option for the state
intervention in the economy.” Among the lieutenants of the 30’s, and later, the militaries of the
60’s, there had been an interest in the nation security, and an idea of nationalist consciousness
that was taken to an extreme. In this context, SEB administrative politicy, that was in place
through the beginning of the 90’s, is based on the keynesian principles, whose scheme is
presented below:
Figure 5: SEB state scheme from 1960 to 1990 - Source: Silva (2005)
During this scheme, many state companies were in charge of the power, transmission,
distribution and commercialization, but they all had a single coordinator, centered in the company
Eletrobrás. In this environment, there was no competition and the client was unable to choose
from whom he wanted to get his service.
The Brazilian State determined everything through laws, decrees and edicts, using either the
legislative power or the Ministry of Mines and Energy and furnished the electrical energy to the
consumers through companies that belonged to Eletrobrás holdings.
The big advantage of this management model is that it left the electrical energy department,
strategic as it was, under the single coordination of the State. But the imperfections in grid could
not thereby be more easily corrected.
State Electrical Sector
Consum
er Distribution Transmission
Power
Concessionaires
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In addition to this, one can observe the following characteristics of the state arrangement:
a) Centralized Strategic Vision: The body was decentralized operating in various companies
(CHESF, Furnas, Eletronorte ELETROSUL and others in a regional and state level SAELPA,
CELPE, CEAL and others), but the central coordination of decisions remained in
ELETROBRÁS, ie human intellectual capital was a national decision. But since its creation in
1968, the Departamento Nacional de Águas e Energia Elétrica –DNAEE- the regulatory Agency
for water and electrical energy has been subordinate to Eletrobrás. The total accomplishment of
its functions could never be actualized since the company itself regulated and supervised the
holding companies.
b) Transmission, verticalization and system connection: The generation and transmission were
connected in same frequency (60Hz) and usually belonged to the same State company. Even
though there were losses in the energy transportation, there were no reasons for serious worries
since the system gained idleness capacity in the 80’s. Its central coordination, for example, made
it possible to supply the northern part of the country through the CHESF system in case of a
drought or the maintenance of the gates in Tucuruí.
c) Quality and productivity: There is not a program about it; the goal was to attend to demands
without accidents only. The training offered to the employees was always directed at the
accomplishment of tasks and specialization. The indices were only measured according to errors
in the system and work accidents. It had always been a characteristic of state companies to
develop austere O&M programs, with a high degree of bureaucracy.
d) Water management: The possibility of efficient water management was a direct consequence
of the system connection. Brazil has continental dimensions, for it is possible to have too much
rain in one region and another missing. Through a centralized administration is commanded to
stop producing a especial Power plant, to spend the gross energy (water) in another. So,
anywhere in the country where there were "excess" production, the energy was used (through
transmission lines) in another region, which had in short supply.
e) Workers: Apparently the companies were not worried about the diminishing the costs of
workers. The study of Barbosa (2003, p.55) shows that “employment at the electric department
during the period before the privatization does not present a linear dynamic”.
f) Politics of costs, prices and investments: The positive aspects of State interference were not
only technical, but the population was benefiting as the pricing policy. The resale of energy was
based only by cost: According to Gonçalves (2002, p.116), “The amount collected should only be
capable of covering all costs of operation and maintenance, plus the depreciation of the
equipment and the corresponding amount for the remuneration of the invested capital”. The goal
was not obtaining profit, but getting only a sufficient sum to keep functioning. This has also
favored a social distribution of energy between the concessionaires, because the richest
companies helped the management of the poorest regions of the country.
g) Social aspects and physical security of the population: SEB adopted a vision of the welfare
state, concerned with social issues. The tariffs were smaller in comparison to current ones.
Additionally, the energy supplied in some given locations were compromised with respect to
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physical security. As an example, the illumination of shantytowns like Rocinha (Rio de Janeiro)
could not only take financial interests into account (MOREIRA, 2004).
h) Restrictions to the state institutional arrangement: While there are advantages to Brazil to
adopt the State arrangement for the electricity sector, there was a detritions administration, which
later ended the ability of investment by the state. At this point in history, no matter whether there
was a natural depletion of the model or if there was outside interference with this purpose or if
there were the two things combined, but by Abreu (1999), Cisneiros (1995), Gonçalves(2002),
among others, it has been proven that SEB lost its ability to self-finance. It was the end of the
State Institutional arrangement.
After 1995- Institutional Model adapted from the English model
In Latin America, "Chile and Argentina were the first to restructure their electric companies, to
be followed by Peru, Bolivia, Colombia, Venezuela and Brazil."
Brazil adopted the same English institutional arrangement from Thatcher’s era. Parts of the
company were transferred back to the private sector, but the government was not careful enough
to make the adaptations on the micro-actions level.
In England, the Central Electricity Generating Board - CEGB was created in 1957, as well as
twelve regional companies (RECs) responsible for the distribution and furnishing of the electrical
energy produced by companies that eventually became private in 1983, according to Rosa (1995).
In Brazil’s case, all distribution companies became private (KLINGELHOEFER, 1995), with the
exception of those that were not largely profitable, as well as Itaipu Binacional (for politic
reasons) and the nuclear ones (for national security reasons) (ROSA, 1995).
In this institutional arrangement, legally, the system should operate at high productivity rates,
without exploitation of the labor force and not exorbitant profits stemming because the high
productivity. In this case, the regulatory state agency (ANEEL) must regulate the entire sector.
In Brazil, this system does not work well, since there is no real competition, and private capital
seeks to maximize profit through resale of energy. In this case, the regulation via decree or
ordinance has action at the level of strategic planning, but cannot effectively reach the end of the
supply chain.
In fact, which State or city has only a distribution concessionaire, than the consumer (ie the
Brazilian) can buy electricity only by specific company; there is not competition. The consumer
is captive. He does not alternative.
The “English” institutional arrangement applies of Brazil presents some of the following
characteristics:
a) No-Centralized Strategic Vision: The Law 8.987/95 open the marketing for private investment,
but in fact, the concessionaires (together in trust) do not want occurred. For example, until 1997
only two projects were register in BNDES (Bank of investment). All concessionaires were
prepared to be privatized, but nuclear power plants and Itaipu were not politically motivated.
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The Regulatory Agency in England (Office of Electricity Regulation - OFFER) was created to
supervise prices and stimulate competition, than in Brazil created the Agência Nacional de
Energia Elétrica –ANEEL because same order.
The government creates and supports ANEEL, but about the political strength to act, Santos
(2003, p.33) shows that regulatory agency in Brazil, do not have legitimacy and not have
capacity, than they become "weak and discredited".
b) Transmission and no-verticalization: The Sistema Nacional de Transmissão de Energia
Elétrica - SINTREL was created and additionally, a transportation tariff was included in Brazilian
consumers’ bill.
c) Quality and productivity: According to Klingelhoefer (1995) there was a high elevation of
productivity indices in England, but also a generalized complaint regarding the service quality,
including blackouts. The same could be seen in Brazil.
In Brazil, it was stipulated that variations of up to 10% in the voltage or frequency are acceptable.
The only other two quality indicators are: Equivalent Duration of Interruption per Consumer Unit
(DEC) and the Frequency of the consumer unit (FEC) (Ganin, 2003), which show how
concessionaires provide energy.
To get an idea what that means, technically energy must be received in homes at a frequency of
60 Hz and voltage of 220V (phase-neutral), but the system can display a 54Hz frequency and
voltage 242V (harming the life of the equipment electrical), officially will be a energy quality,
provided there is no disruption in supply and if there, will not take much to restore
d) Water management. This is a problem of English model in Brazil. Since 71% of the energy
produced in Brazil has hydro power plant, water is the primary resource, and according to the
constitution, belongs to the State. Even if the government could no-verticalize all of the electrical
energy production chain, the private power plant would still be directly connected to the State.
Different about thinking 20 years ago, water is limited, has hidden costs and your used only in
Power plant is not permit.
e) Workers: “In England, 50% of the workers were dismissed”. (Klingelhoefer, 1995) In Brazil,
SEB reduced a large portion of the labor force. There were several programs layoffs across the
sector. 70% of employees ITAIPU were dismissed in 1994, 50% of employees CHESF were
dismissed between 1995 and 2000 and there is evidence that "there is not preparation for change
of employment." (Silva, 2005). The demand and supply of energy grow, but increases the number
of outsourcing and sub-employment within the sector.
From 2000 until 2008, there was a stabilization in the number of employees in the SEB.
f) Tariffs and investments: In England, there was no increase in investments and the domestic
tariff never been so much increased as they had after the privatization. In Brazil, with rare
exceptions, there were no investments in the generation and transmission areas.
With rare exceptions, such as in Hydro power plan Machadinho and Ita in Rio Grande do Sul,
some thermo power plants in Araxa in CERJ, and the continuation of Hydro power plans
Primavera and Corumbá owned by Furnas.
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An interesting case occurred in the distribution sector. In Minas Gerais and Paraiba the largest
investment was not in transformers or capacitors that improve the quality of energy supplied, but
on cable multiplex. This act brings no improvement in energy quality, but only prevents the
electric cat. So, the private investment by the distributor was seeking care for financial income,
with ever improving quality of power supply.
g) Social aspects and physical security of the population: was finished the vision of a welfare
state concerned with social issues. Now, it is no longer accepted governmental actions (State is
minimal). In fact, ANEEL is present in Brazil to regulate energy use with social or physical
security goals, but it does not get a good performance for it.
h) Restrictions to the “English” institutional arrangement in Brazil: The institutional arrangement
planned by SEB included the separation of power generation, transmission, distribution and
commercialization and all the companies would be selling, but there is not happening. Every
system is based on competition, but the public consumer is captive, and there is no possibility to
choose your supplier.
Even with all the effort and expectations from the Brazilian government the implantation of the
English arrangement did not proceed exactly as planning. There was no privatization of the all
supply chain and no-verticalization either:
• Distribution was not all privatized. Some companies were not profitable and the private
market not bought them. In addition, there were reactions from the people, jurists, politicians and
others against the privatization of some companies, such as COPEL, in Paraná State and CEMIG
in Minas Gerais State;
• In the transmission, SINTREL was created and there was an internal reluctance about the
transmission sector selling, for it, it was more studies for privatization;
• Power, with the exception of ELETROSUL, was not sold.
The current government of President Luiz Inacio Lula da Silva, (to date), chooses not to be more
privatization. In this sense, the government considered an adaptation to the English institutional
arrangement put (through the Ministry of Mines and Energy) the "New Restructuring Electricity
Sector", not changing the ideology deployed. In fact:
(1) Approves the privatization has occurred;
(2) Provides a hope that there is no more privatization plans
(3) Resumption of growth in companies that were not sold and;
(4) It does not leave with ANEEL planning SEB and returns again it to
ELETROBRÁS.
From all this, we can affirm that the institutional arrangement of the Brazilian Electric Sector had
a private market essence protected by State, ie, a bad copy of English model.
The power generation delivers energy to a pool of sales (MAE), where some trading companies
are responsible for selling energy, another agent of the electricity sector (concessionaires,
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cooperative of energy consumers or big consumer independent) by the auction price. In this case,
the regulatory agency (ANEEL) does not regulate the sale.
Aside big consumer independent (who buys for personal use), concessionaire or cooperative
resells the eletricity to the captive consumer for a price top limit set by ANEEL. All costs are
passed on to the final consumer.
Thus, the captive consumers pay the amount of energy purchased for the concessionaire or
cooperative + governmental tax + a technical service, all together to the company determined and
regulated by the government.
In this model of management there is no real incentive to generation through sustainable sources.
There is a small fund, via PROINFA to encourage so-called clean energy.
4. Final Considerations
Since the implementation of the “half” English arrangement for SEB in 2005, the government has
studied an adaptation of the current system through the Ministry of Mines and Energy. The result,
called “New Re-organization of Brazilian Electric Department”, follows the ideology, with some
slight modifications:
(a) It confirms officially the privatizations that have already occurred.
(b) It removes the chance of further privatizations, when plans to invest again on the
improvement of companies that have not yet been sold are actualized.
(c) It gives the planning back to Eletrobrás.
It is possible to affirm that SEB’s current institutional arrangement is a badly implemented copy
of the one used in England. Brazil has lived through two visions of management: one State
institutional arrangement that was present from 1960 to 1990, and the current one, which has
almost market vision. But which is the best model for Brazil?
Hope (2003) affirms that there is no best model or institutional arrangement in a absolute way,
but only models and arrangements that can be well implemented or not, and work properly or not.
Further studies are necessary in Brazil, searching for a more flexible institutional arrangement
than the state offers: an institutional arrangement that allows for the entrance of private resources,
and contemplates social aspects, forgotten by the private arrangement.
Some countries (Spain, Chile, Argentina, etc.) have also changed the institutional arrangement of
their electric departments. Others (France and Germany) have maintained their state institutional
arrangement and are models of competency.
In the Swedish case, for example, according to Swedish Energy Agency(2007), there are two
companies that own 80% of the generation: Vattenfall with 50%, and Sydkraft with 30%.
Distribution (municipal majority) is under the charge of 150 different companies. Consumers can
change their distributors, and the transmission network includes the whole national network
operated by the state company Kraftnatt. As far as competition, Sweden exports energy to all
Scandinavian countries and considers Sweden itself as only a region.
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It is important to stress that, even surrounded by a big number of companies making up the
energy market, the Swedish Energy Agency is the regulatory body responsible for investigating
the formation of little distribution cartels.
It is important to remember that a state institutional arrangement offers interesting particularities
for a state-nation. The single management, even with the operational part de-centralized, favors a
global vision, connecting the different existing systems.
In Brazil there are no major problems regarding water management, but there is the necessity to
use this natural resource perfectly. The water and electrical energy management must be under
the same coordination. Private companies controlling water supplying are not acceptable.
Besides, SEB’s state management works better for the necessary social aspects of energy.
Thus it was possible to see that Brazil tried to copy the model of management of the electricity
sector in England, only not made the necessary adjustments so that the current management
model, nor is the full English, or another planned. It is a hybrid model with features liberal, but
with State intervention via ANEEL (Regulatory Agency without posture of impartiality).
The Brazil works on optical monopoly, regionalization track and regulation of the producer and
"protection" of the captive, who has no choice. We can conclude that public policy energy used
in Brazil, do not favor the inclusion of the use of clean sources of energy production.
What should we learn? What if the model used is guided by the neo-liberalism, one must adopt
systems of real competition, giving consumers the chance to choose. In Brazil who chooses the
energy traders are dealers who resell to 190 million captive consumers.
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