http://www.youtube.com/watch?v=7t7kCW6YvxYhttp://tescatechnologies.traeinia.com/power!electronics!trainers.htmlPrivatisation and Electricity Sector Reforms inBrazil: Accounting PerspectiveCl"uio e $ra%&o Wanerley University of Sheffield, UK$n'ohn Cullen University of Sheffield, UK$n(athew )samenyiUniversity of Birmingham, UK*Privatisation and Electricity Sector Reforms inBrazil: Accounting PerspectiveAbstractPurpose + present an explore the re,orms in the -ra.ilian electricity sector that wereunertakena,ter theprivati.ationprogrammeby,ocusingontheevolutiono,the-ra.ilian regulatory accounting an the impact o, the macro policy an practice issueson its evelopment.Design/methodology/approach + archival research/ocument analysis. )his paper isbase largely on the regulator/s ocuments 0laws1 resolutions an technical notes21 aswell as in,ormation ,rom istribution companies an government organisations.indings + the tari,, review proceures an the regulatory accounting were neglecteuringthe,irst re,orm. )hisbrought arangeo,problemso, implementationanconsoliation o, the electricity sector moel. 3owever1 a,ter the introuction o, thesecon re,orm1regulatory accounting has playe an essential role in the regulatory,ramework.!riginality/revie"+ this is the ,irst stuy that escribes an explains the -ra.ilianelectricity sector re,orms by analysing the so!calle core issues in regulatoryaccounting an tari,, review process.#ey"ords + -ra.il1 electricity sector1 regulation1 regulatory accounting1 tari,,Paper type + 4eneral review$ntroduction)he -ra.ilian government implemente signi,icant changes in the country/s electricitysector inthe *556s1 incluing privatisation1 introuction o, competition anthecreation o, a regulatory system. )his process o, change was a conse7uence o, internalpressures ,romanewneo!liberal government1 aswell as pressures,romexternalorganisations1 such as the Worl -ank an the 8(9 08nternational (onetary 9un2.)he basic aim o, this re,orm was a esire to trans,orm the electricity inustry ,rom amonopoly into a competitive market so that the electricity coul be bought an sollike other commoities an proucts. )here,ore1 the main goals ,or this change in theelectricity sector were to in&ect competition into the generation an supply links o, thesector/s prouction chain an to reuce public ebt via privatisation o, state!owneutilities that ominate the pre!re,orm sector.)he privati.ation o, the electricity sector attracte great interest1 resulting inconsierable premiums over theavertiseprices. (ost o, theshares weresolthrough public auctions1 with minority stakes sol to employees or by public o,,ering0-:;66*? Carvalho1 >66*2. )heprivati.ationprocessstartein*55@antoate1 >A istribution companies were privatise ,or roughly B=C >> billion 0$rau&o1>6662. )his represents about 76Do, the -ra.ilian energy istribution market.>3owever1 the privatisation process in the electricity sector was severely criticise1 asthe re,orms uring the Caroso aministration 0*55@!>66>2 ,ollowe nearlyinepenent scheules1instea o, the Etext!book/ se7uence restructuring!regulation!privatisation 0$rau&o1 >6662. )he main problem in the -ra.ilian re,orm process wasthat the government/s main priority at the beginning was to generate revenue ,or the)reasury. $s a conse7uence1 the government pai little attention to marketevelopment an overall e,,iciency gains in the inustry. 8n aition1 the privatisationstarte even be,ore a regulatory structure was organise an establishe by law. )hissense o, ,ailure was exacerbate in >66* when -ra.il ,ace its worst electricity supplycrisis in ,i,ty years 0$lmeia an Finto1 >66@? Finto an Gootty1 >66@2. )his crisis wascausebyunerinvestment ingenerationantransmission1 aggravatebysevererought conitions.$s a result1 a rationing o, electricity consumption by >6D wasimpose ,rom 'une >66* to (arch >66> 0$rau&o1 >6662. 8n orer to eal with theseproblems1 the new aministration establishe a new moel in >66H. )his moel viewselectricity as a key public service that nees to be uphel by a strong state role1 aswell as elivering a pragmatic assessment o, the weaknesses o, the ,irst re,orms anthe nee to establish a regulatory system that elivers investment ,or reliable poweran thus avoi another electricity shortage.)he impact o, privatisation on the so!calle public services utilities has attracte theattention o, a number o, scholars. 3owever1 these previous stuies ten to examinethe ,inancial!macro!level privatisation impacts by analysing the e,,ects o,privatisation on the per,ormance o, those privatise companies an on theimprovement or not o, services o,,ere to consumers0)samenyi1 et al.1 >66I2. $s aconse7uence1 research on privatisation an accounting is uner!evelope. )his paperaims to aress three main gaps in the privatisation literature. )he ,irst gap relates tothe,act that limitenumbers o, papers havebeenunertakenintheaccountingresearch ,iel in relation to privatisation1 especially in eveloping an less!evelopecountries. =econ1 thelimiteliterature onaccountinganprivatisationtens toanalyse the privatisation impact oncompanies/ accounting systems0see Conra1>66@b? 3o7ue an $lam1 >66H? 3o7ue an 3opper1 *55H? *557? (a&or an 3opper1>66H? )samenyi1 et al.1 >666? Binan)samenyi1 >66@2or theroleo, internalaccounting in the process o, organisational change 0see Cole an Cooper1 >666? Craigan $mernic1 >666? ;ent1 *55*? Jgen an $nerson1 *555? =haoul1 *5572.)here,ore1 ,ew stuies are relate to regulatory accounting an eregulation. )hir1theliteratureonregulatoryaccountingconcentratesonlyononeaspect o,theso!calle core issues1 such as regulatory asset etermination04rout1 et al.1 >66*?Gouer1 et al.1 *5562 an cost allocation 0-romwich an 3ong1 >666? Conra1 >66@a2an it also ten to ,ocus on evelope countries.)his stuy aims to aress these limitations by proviing evience on the impacts o,privatisation an structural re,orms in emerging economies using -ra.il/s electricitysector as acase.)his paper o,,ers anoverviewananalysis o, the changes inaccounting an regulation by taking into consieration the perspective o, theregulator. )here,ore1 this paper i,,ers ,rom the previous literature in accounting anprivatisation that mainly ,ocuses on the impact o, privatisation on privatisecompanies/accountingsystems. (oreover1 this stuyalsoi,,ers ,romthe otherstuies in regulatory accounting1 as it provies a complete overview o, the so!callecoreissuesinregulatoryaccounting1 whichare:separationo,activities? regulatoryasset base 0K$-2 etermination? epreciation policies? an relate!party transactionsAan trans,er pricing 0Farina1 et al.1 >66I2. )here,ore1 by analysing these issues thispaper is able to provie a broaer picture o, the interconnection between regulatoryaccounting an the regulator/s ob&ectives. )heob&ectiveo,thispaperistopresent anexplorethere,ormsinthe-ra.ilianelectricity sector that were unertaken a,ter the privati.ation programme. )his stuy,ocuses on the evolution o, the -ra.ilian regulatory accounting an the impact o, themacropolicyanpracticeissuesonitsevelopment.)hispaperhastworesearch7uestions: 0a2 howwas theevolutiono, regulatoryaccountingantari,, reviewprocess in -ra.il? $n 0b2 how i the regulator use regulatory accounting tools toestablish the -ra.ilian regulatory ,ramework? 8norer toanswer theseresearch7uestions1 this stuyaoptearchival researchapproach as the research metho. $ccoring to =mith 0>66A1 p. *H>21 archival researchisLbaseonhistorical ocuments1 texts1 &ournal articles1 corporateannual reports1companyisclosures1 etcM. ;uetothelacko, acaemic literature onregulatoryaccounting in -ra.il1 this paper is base largely on the regulator/s ocuments 0laws1resolutions an technical notes21 as well as in,ormation ,rom companies angovernment organisations. )here are a number o, acaemic works about the -ra.ilianre,orms an regulatory system1 but they only ten to escribe the regulatory,ramework an the regulatory accounting issues an tari,, review process areneglecte. 8n orer to make vali in,erences ,rom these ocuments this stuy aoptethe content analysis techni7ue escribe by =mith 0>66A21 in particular the Emeaningorientate/ analysis1 which,ocuses onanalysis o, the unerlying themes intheocument uner investigation.We believe that this paper makes two main contributions: ,irst1 it extens the literatureon accounting an privati.ation1 in particular in emerging economies. )his is the ,irststuy that escribes an explores the -ra.ilian electricity sector re,orms by analysingthe,ourcoreissuesinregulatoryaccountinganissueso,regulatoryaccounting.=econ1 thispaper makes apractical contributionbyproviinguse,ul lessons,oreveloping an less!evelope countries searching concrete policy proposals tore,orm their electricity sector. )his is possible1 because the -ra.ilian electricity sectorre,ormis auni7ueaninterestingcase. )his uni7ueenvironment challenges theregulationin-ra.il.$saconse7uence1 the-ra.ilianregulatoryaccountinghatocope with these problems in orer to be able to contribute to the regulatory ob&ectivesan the evelopment o, the sector.)he remainer o, the paper is organise into six main sections. 9irst1 an overview o,the -ra.ilian electricity sector is provie. $,ter this1 the electricity sector re,orms areescribe by taking into account the ,irst re,orm a,ter privatisation ,rom *55@ to >66Aan the secon re,orm a,ter the >66* crisis in >66H. )he thir section eals with the-ra.ilian tari,, review process. 8n this section1 the main ,eatures o, this review processare presente an analyse. )he next section is concerne with -ra.ilian regulatoryaccounting1 it escribesananalysestheevelopment o,regulatoryaccountingin-ra.il by taking into consieration the so!calle core issues in this area. $,ter that1 theiscussion section is presente. )he ,inal section provies concluing comments o,this stuy.H%he Brazilian Electricity Sector-ra.il is thelargest economyinGatin$merica1 the*6thlargest electrical powerconsumer in the worl an the largest consumer in Gatin $merica. )here,ore -ra.ilplays an important role in the worl energy theatre. -ra.il ha a power generationinstalle capacity o, about *661666 (W in >667. )he generation mix is about 7@Dhyro an >@D thermal sources. -ra.il has a hyroelectric potential o, >@5166I (W1but less than A6D o, this capacity is in operation. 8n aition1 there are about 6*.@million customers1 I@D are resiential users which represents 5@D o, the -ra.ilianhousehols 0$:6th century the -ra.ilian government playe aninsigni,icant role in the electricity sector. )his sector ,eature several privatecompanies that managethegeneration1 transmissionanistributiono, electricpower0(ota1 >66A2. Fublic investments were not signi,icant until the beginning o,the *5@6s1whenthepublic sectorstarteto constructits owngenerating plantstoguarantee the electrical energy supply. $,ter the military coup o, *56H1 several publiccompanies entere the energy sector1 consoliating the expansion o, the public sector0Carneiro1 >66A? )olmas7uim1 et al.1 >66>2.$pproximately@6Do, thegenerationantransmissioncompanies weresteailyincorporate by,eeral companies1 the other hal, bythe states. )he electricityistribution sector was ominate bystate governments0Geite1 >667? (emoria1>66*2. 8n*55@1 &ust be,ore the privati.ationprocess starte1 thestate electricityistribution companies supplie almost 56D o, -ra.ilian eman 0(emoria1 >6662.62 ha its own istribution company an some ha morethan one. $ ,ew o, these companies were totally vertically integrate1 with signi,icantgeneration an transmission networks 0(ota1 >66H2.8n the *556s1 the combination o, the ebt an ,iscal crisis an oubts abouthyperin,lationencouragethe-ra.iliangovernment toaopt aset o, neo!liberalpolicies1 one o, them was privatisation. )he neoliberal paraigm replace a previouseconomic paraigm that ha been in place in -ra.il since the *5A6s. )he previousparaigm was base more on inwar orientation an the greater intervention o, thestate in economic matters04wynne an Nay1 >66H2. )he pressure to privatise state!owne companies came not only ,rom -ra.ilian entities1 but also ,rom the emans o,-ra.il/s ma&or external creitors1 in particular the Worl -ank an the 8nternational(onetary 9un ! 8(9 0$mann an -aer1 >66@2. $s a conse7uence o, this re,orm1 the -ra.ilian electricity sector is now compose o, awie variety o, agents1 numbering more than *1>@6 0$rau&o1 et al.1 >66Ib2: generators?largeansmall? thermal powerplantsburning,ossil ,uels? inepenent proucers1mostly with gas!,ire power plants? transmission companies? large consumers? powertraers? anistributionutilities that tenthenetworkbusinessanservecaptiveconsumers. )he =ector inclues one very large government controlle holingcompany 0D o, transmission lines1 as well asthe government owne istribution companies 0J66I2. )he generation activity@in -ra.il has about *1666 organisations1 which ranges ,rom large hyro!plants to smallinepenent proucers 0$:66A. )he secon -ra.ilian electricity re,orm starte in >66H withthe introuction o, a long termmarket which replace the short termmarketintrouce in the ,irst re,orm.The First Reform)he ,irst re,orm can be ivie into > main phases 0$rau&o1 et al.1 >66Ib2: the ,irstphase when privati.ation an re,orm ,ollowe nearly inepenent paths between *55@an >666 an the secon phase ,rom >666 to >66A which was marke by correctionana&ustments tothere,ormmechanisms1 ancopingwiththe>66*crisis anrationing.6The First Phase, 1995-2000)he-ra.ilianelectricitysector re,ormstartein*55@withthreeistinct sets o,actions 0$rau&o1 et al.1 >66Ib2: 9irst1 the basic legislation was moi,ie with the aimo, altering the concession regime1 ,orcing utilities to give up concessions1 anmanating open access ,or large consumers an inepenent power proucers. )heob&ective o, these measures was to stimulate investments in new power plant1 as wellastheexpansiono,thenetworksystem. =econ1 astuytorestructurethepowersector was launche 0K6672.$ttheeno,*5561 theregulatoryagency,ortheelectricitysector0$:2. )helaw516HI/5Icreateanational systemoperator 0J:=21 anawholesalemarket0($66>1becauseo,legal isputeamongsomeutilities0-a&ay1 >6662. )henational systemoperator 0J:=2 aims to improve the operation o, the national interconnecte powersystem an guarantee that all the agents have access to the transmission network.$s aconse7uence o, this ,irst re,orm1 alargenumber o, state companies wereprivatise. $ wholesale power market was establishe uner which large consumers0over *6 (W an above A (W a,ter >6662 were allowe to contract electricity withgenerating companies1 incluing 8nepenent Fower Froucers 08FFs21 in a wholesalepower market. $ regime o, regulate thir party access to the gri was establishe ,orthe transport o, contracte power. $ new institutional ,ramework to oversee the newsystemwas create1 with the establishment o, the regulator $:66* until 9ebruary >66>. Fower consumption was reuce by >6D. 66@2. )hesemeasures ha a sustaine e,,ect an eman i not recover to pre!crisis levels until>66H.)here,ore1 the >66* crisis re7uire measures ranging ,romrationing to specialcontracts ,or merchant plants an a number o, exceptions to regulation in orer toencourage new investment in new generation plants. $ number o, a hoc contractswere signe1 leaing to con,licts a,ter the rationing ene 0J66I2. 8n aition1the unexpecte reuction o, electricity eman ha signi,icant ,inancial impacts onthe electricity sector1 in particular1 the istribution companies1 which were negativelya,,ectebyreuctions inemananrevenues0$lmeia anFinto1 >66@2. )hereuction in eman also ha an important impact on the FF) programme since theeconomic an regulatory uncertainties prouce a very i,,icult environment toencourage new pro&ects.The Second Reform)he new regulatory ,ramework in the -ra.ilian electricity sector was propose by the(inistry o, (ines an 66H 0Gaws *61IH7 an *61IHI ,rom >66H an ecree number @1*6A2. $s aresult o, this re,orm1 electricity policychange consierablyinorer to attractinvestment ,or sustaine evelopment o, the sector. )his new policy ha ,ive explicitpurposes: 0*2 to buil a stable regulatory environment? 0>2 to ensure enough electricitysupply by reucing the perceptions o, high risks in this inustry1 while proviing a ,airreturn to investors? 0A2 to promote reasonable tari,, at lowest possible costs? 0H2 torespect contracts? an 0@2 reintrouce planning in orer to cope with eman growth0$rau&o1 et al.1 >66Ib? -a&ay1 >6662.)oachievetheseob&ectives1 mechanisms wereintroucetoenhancesecurityo,supply incluing: 0a2 a re7uirement that istribution companies contract ,or *66D o,their ,orecast eman over a ,ive year time perio? 0b2 builing realistic ,orecasts ,orguarantee energy plants? 0c2 contracting hyropower an thermal plants in a mix thatbalancesreliablesupplyancost? an02permanent control over thesecurityo,supply1 in orer to etect imbalances between supply an eman an to take actionstorestore securityo, supplyat least cost toconsumers0$rau&o1 et al.1 >66Ib2.)here,ore1 the secon re,orm rein,orce the role o, the government in the electricitysector1 as the ,eeral government reclaime ,unctions o, planning an policy!making.)wo,eatures areapparent inthenewarrangements: ,irst1 morecentralisationo,5ecision!makingansecon1 moreweight ,orgovernment policythaninthe,irstre,orm.Ke,lecting these varie ob&ectives1 the new moel is a hybri one. )wo environmentswere create in the wholesale market: Kegulate Contracting