The Investment in the Brazilian Power Sector: Reform and Crisis

Abstract

Brazil is presently going through its worse electricity supply crisis in fifty years. This happens after seven year efforts of market-oriented reforms, and inevitably raises the issue of whether the design and rhythm of the reform have been correct. The roots of the present crisis lie in a long period of underinvestment dating from the eighties; sector reforms were aimed at correcting this situation, but have been unsuccessful thus far. This article discusses the causes of this failure and attempts a way out of the present problems. The present crisis requires an emergency answer, but also a long term policy. I argue that such a policy must be based upon the acknowledgement that electricity demand in Brazil will tend to grow fast for the foreseeable future and that sector reform must be based upon dynamic rather than static efficiency. Furthermore, the large Brazilian hydropower system requires special treatment if we are to have investment in hydro and in thermal plants.