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Cablegate: Gob Takes Steps to Redefine Regulators, Status

This record is a partial extract of the original cable. The full text of the original cable is not available.

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

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