The role played by the BNDES in funding electricity investments in Brazil
Introduction Infrastructure investments - and electric power investments in particular - have always had an important impact on economic development, and are usually associated with positive externalities (Young 1928; Rosenstein-Rodan 1943; Hirschman 1958). In fact, electric power generation and distribution are strongly related to the expansion of economic activities (especially capital intensive manufacturing industries), as well as to households’ welfare. This perception is reinforced in developing countries, which have been making intensive efforts to support higher levels of economic growth and to improve social conditions (Hulten et al. 2006). In South America, Brazil presents the largest consumer electricity market; in early 2009 power generation installed capacity in the country reached around 103,000MW (Aneel 2009). The local generation mix is 75 percent hydroelectric (mostly large power plants, representing more than 72 percent of the total and requiring large amounts of investments); 22 percent thermal; and 2 percent nuclear, as shown in Table 8.1. In spite of the expected spillovers of electric power projects, financing support remains a key issue for such investments, as they are usually characterized by:
(a) a mismatch between their long-term maturity and the short-term returns required by private banks; (b) uncertainties about prices and revenues; and (c) the relatively low rates of private returns (Faria 2003). These aspects are especially relevant in countries facing restrictions associated with their underdeveloped financial systems. Brazil is one of these countries. Its capital and credit markets have been, for many reasons, historically marked by restrictions. As a result, retained profits, external funds and funds from public banks have financed several investments, and the industrialization process in the country is strongly associated with the role played by the National Development Bank (BNDES), a public bank aimed at providing long-term credit to both productive and infrastructure investments (Baer 2002: 293; Bonelli and Pinheiro 1994: 26). As expected, since its creation, in 1952, the BNDES has provided credit to several energy projects. Given this framework, the aim of this chapter is to evaluate the role played by the BNDES in supporting electricity investments in Brazil. It is argued that the bank was not restricted to providing funds for these projects at more stable and attractive conditions, but included also the coordination of public development policies aiming at sustaining an investment-friendly environment. To show this we focus on the following points: (a) the documental analysis of the actions performed by the BNDES; (b) data on electricity investments and power generation capacity; and (c) the systematization of the public polices focused on the electric power sector. The data and information collected this research include (a) the share of BNDES in total resources required to finance electric power projects; (b) models of contracts and risk sharing; and (c) changes observed in regulation patterns during the last half-century. Based on these inputs, the role played by the BNDES in financing electricity investments in Brazil is divided into two periods, as shown in the next section. These periods are analyzed in the third and fourth sections and the most important differences between them are presented. Synthesizing the most important conclusions, the fifth section argues that this kind of analysis provides support to policy formulation, as it extracts relevant lessons from history. In fact, the results obtained, in spite of being a case study – can be easily extended to development policies in general, as it takes into consideration the role of institutions in economic development. Thus, the analysis in historical perspective may help shape public policies, not only for the electricity sector but also for other areas.