GOB TAKES STEPS TO REDEFINE REGULATORS, STATUS

UNCLAS SECTION 01 OF 04 BRASILIA 003405 SIPDIS SENSITIVE STATE FOR WHA/BSC AND EB/ALEWIS DOE FOR GWARD STATE PASS TO DOT FOR MARAD/GHALL COMMERCE FOR 4332/WBASTIAN/JANDERSON/TSHIELDS 3134/010/DEVITO/ANDERSON/CREATORE E.O. 12958: N/A TAGS: ENRG EINV EFIN PGOV EWWT ECPS ECON BR SUBJECT: GOB TAKES STEPS TO REDEFINE REGULATORS, STATUS ¶1. (U) SUMMARY: A GoB draft bill aims to better demarcate the powers and responsibilities of Brazil,s nine federal regulatory agencies. The most material change would shift authority for awarding and monitoring concessions from the agencies to the corresponding GoB Ministries. The bill,s main thrust could be described as reinforcement of the social-oversight dimension of regulators, performance. Some regulatory contacts privately assert that the draft in its current outline would cripple their agencies, function, but we have also heard tentatively favorable first assessments, some of the most positive being from industry observers. The public-consultation phase has ended, and the proposed legislation will soon be ready for Brazilian congressional consideration. END SUMMARY. THE BILL,S NUTS AND BOLTS -------------- ¶2. (U) The GoB published proposed legislation to delineate the powers of Brazil,s federal regulatory agencies September ¶22. Those affected comprise the nine federal entities regulating energy, petroleum, telecommunications, land and sea transportation, sanitation, supplemental health, water, and the film industry. The most sweeping and contentious proposed change is the bill,s shift of the responsibility for auctioning or awarding concessions, for the subsequent monitoring of awarded contracts, and for licensing, from the regulators to the corresponding ministries. (The ministries can delegate those functions back to the agencies, however.) The draft bill also requires all new contracts to be reviewed by the Ministry of Planning. Public consultations consisting of internet and written feedback with a time deadline and optional public meetings or congressional hearings prior to publication would be mandated for every new regulation. Each agency will also be required to submit an annual report to its respective ministry, the Finance Ministry, and the Ministry of Planning. ¶3. (U) Under the new bill, the President of Brazil would appoint an ombudsman ("ouvidor") for two-year terms to oversee each agency. Some agencies already have ombudsmen, including the two largest, National Electrical Energy Agency (ANEEL) and National Telecommunications Agency (ANATEL). The agencies, presidents' and directors' terms would be reduced from the current five to four years, and these officials would each have management contracts with respective ministries reviewed annually. Some surmise these contracts would have dismissal consequences if goals are not met. Every agency is also mandated to form an alliance with a government-sponsored consumer watch institute to monitor competition within the industry. There is to be greater coordination between the state and federal regulators. The National Water Agency (ANA) would assume responsibility over sanitation regulation, and the audio-visual sector will be added to the portfolio of the National Film Agency (ACINE). ANATEL PRESIDENT SPEAKS TO CHAMBER -------------- ¶4. (U) At an October 1 public hearing set by the Science and Technology Committee in the Chamber of Deputies, National Telecommunications Agency (ANATEL) President Luiz Schymura outlined the precepts of the proposed bill. Embassy personnel in attendance noted that Schymura limited himself to the bare facts of the bill, explaining he would not reveal any personal opinions since the proposal is before the public for comment. Admitting that the proposal transforms the General Telecommunications Law that created his agency in June 1996, he said ANATEL was equally prepared to work under the current laws or the new framework. THE SPECTRUM OF OPINIONS IN THE PRESS -------------- ¶5. (U) Early reaction from legislators, regulators, and the public has run the gamut from praise to attack. Congressman Paulo Bernardo, member of President Lula,s Worker,s Party (PT) from the prosperous southern state of Santa Catarina, considers the proposal a more democratic way of distributing authority. Conversely, Congressman Alberto Goldman, a member of former President Cardoso,s Brazilian Social Democrat Party (PSDB),said the draft represents a retrogression by aiming to strip agencies of their licensing authority. In his opinion, if the licensing reverts to Ministries, prerogative, it will fall prey to political pressures. ¶6. (U) In like vein, ANEEL,S Director General Jose Mario Abdo has been quoted as saying that the bill,s proposed management contracts would obliterate the independence of the Agencies. He also believes that reducing the directors' mandates from five to four years diminishes their autonomy. On the other hand, the National Petroleum Agency's (ANP) Director General Sebastiao do Rego Barros, told Folha de Sao Paulo, September 24, "The autonomy of the agencies is not going to be reduced with this government project. The government has signaled that this is not their intention." ¶7. (U) Independent commentators, views likewise vary widely. The Brazilian Institute for Consumer Defense (IDEC) applauded the proposed changes. The IDEC,s studies showed that consumers have been dissatisfied with the performance of the principal agencies and believe changes to be imperative. But one of the harshest critics with regard to the switch over of authority to auction concessions is Attorney Adriano Pires, Director of the Brazilian Center for Infrastructure, a Rio think-tank. Pires points out that Minister of Mines and Energy Dilma Rousseff is the ex-officio president of the administrative council for Eletrobras and Petrobras (Brazil's state-owned energy and petroleum companies). As such, Pires notes, "The minister will be responsible for concessions and also advising the companies that could participate in the process. There is a conflict. If it isn't illegal, it's immoral." IMPACT VARIES BY AGENCY -------------- ¶8. (SBU) Emboff met with National Agency of Water Transportation (ANTAQ) Director General Carlos Nobrega October 7. ANTAQ is one of Brazil,s newest regulatory agencies, created September 4, 2001. Nobrega said the potential changes would not affect his agency at all. ANTAQ already has an ombudsman, has not ever been involved in awarding any concessions, and ANTAQ,s directors' current terms are already four years. ¶9. (SBU) Emboff also questioned Brasilia contacts at ANEEL and ANATEL. ANEEL'S Assistant Director Gilma Rocha echoed her Director General's sentiment that the provisions of the draft bill would end her agency's independence of action. She expressed particular concern with the potential loss of control of the energy-sector,s bidding and licensing process. The likelihood of fair competition would vanish with the state both owning a bidding entity (Eletrobras) and awarding the license, according to her. At ANATEL, regulatory attorney Marcelo Amorelli commented that his agency would be less affected than ANEEL, since the telecommunications industry is already privatized, thereby precluding conflict-of-interest hazards that could beset ANEEL, which regulates private and public companies. Amorelli,s primary concern is that the agency will lose focus on the public interest and concede to political whims. PRIVATE-SECTOR PERSPECTIVE -------------- ¶10. (SBU) Nortel Director Herva Adam judges that ANATEL has become increasingly political as it is. He opined to Emboff at a recent breakfast meeting that ANATEL and the other agencies have been on the defensive from the inception of the Lula administration, and that the latter,s election was a precursor to the end of regulatory independence under the new legislation. Herva predicted that Brazil would be less attractive to investors as a result. ¶11. (SBU) Far from all private-sector interests share Herva,s apocalyptic view. In a meeting with Sao Paulo Econoff, BCP Government Relations Manager Jose Carlos Meira Mattos praised the new draft legislation, asserting that it would introduce more democracy to the regulatory model for telecommunications and bring an end to the "ANATEL dictatorship." Mattos saw hardly any negative aspects to the new proposed legislation, admitting only that the GoB,s proposed changes would slow decision-making due to the increased bureaucracy involved. (Comment: BCP had a combative relationship with ANATEL. Mattos has claimed that ANATEL made unilateral policy decisions that severely damaged BCP,s business, specifically with regard to interconnection fees. End Comment.) ¶12. (SBU) Enron South America,s CEO, Orlando Gonzalez, holds similar rosy views of the new draft legislation. In a September 30 meeting with Sao Paulo Econoff, Gonzalez praised the draft bills, asserting that they would better establish the division of power between the government and the regulators. In his view, the new system corrects the imbalance that resulted from the decision-making vacuum supposedly created during the Cardoso administration when, as widely asserted by actors in the telecomm and energy sectors, the absence of clear and long-term public policies led ANATEL and ANEEL, in particular, to exercise a policy-making role that belongs properly in the legislative and executive branches. Also, unlike some other private-sector opinions we have heard (e.g. from the AMCHAM Regulatory Agency Task Force and analysts at Tendencias Consulatoria),which view the draft bill,s proposed management contracts as a particularly negative aspect, both Mattos and Gonzalez favored this requirement. Neither felt that such contracts would automatically politicize the actions of directors; rather, both opined that such contracts are essential to ensure accountability on the part of agency directors. ¶13. (SBU) Despite the generally favorable reactions of Sao Paulo Econoff,s interlocutors, some aspects of the new proposals did cause worry. Gesner Oliveira of Tendencias Consulatoria felt the reform zeroes in on the right problems, but proposes the wrong solutions. He was especially critical of the creation of monitoring and evaluation commissions directly subordinated to the GoB, seeing it as a mechanism for government intervention in agency decision-making processes. Oliveira also expressed concern about the ombudsman. He described the figure as "the executive branch in ombudsman clothes," alleging that its presence will restrict the agencies, liberty to "speak freely." Probably the major concern for private-sector interests is the proposed transfer of authority over concessions to the ministries. Regina Maria do Valle, a lawyer specializing in the field of telecommunications, sees this as one of the gravest errors in the new legislation. She noted that in the case of ANATEL, this change would give the Ministry authority over the disposition of the GoB,s Universalization of Telecommunications Fund (FUST) at the very time that the FUST is due to receive a further 2 billion Real (USD 700 million) infusion. JURY REMAINS OUT -------------- ¶14. (SBU) COMMENT: Some of Brazil,s still fledgling regulatory entities have acquired plenty of detractors, from foreign energy and telecomm investors right up to president Lula. In particular, ANEEL and ANATEL have been accused of having crept into a policy-making role. Hence the new GoB,s move to adjust and more exactly define their status, which some in turn characterize as an over-correction. Building a partition between regulatory responsibilities and policy-making powers is a needed goal. Striving for more open accountability of regulators also seems legitimate in theory. The most troublesome point of the GoB,s proposed changes is the potential conflict-of-interest involved in devolving authority for licenses and concessions back to Ministries, with all the political interference or opportunities for corruption that might entail. HRINAK