Search

 

Cablegate: Central Bank Sees No Federal Leverage On Parana

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

UNCLAS BRASILIA 000808

SIPDIS

SENSITIVE

STATE PASS OPIC FOR MRUBIO, BMCGUIRE, MABBEY
STATE FOR EB/IFD/OIA
COMMERCE FOR 3134/USFCS/010/WH
COMMERCE FOR 4332/ITA/MAC/WH/OLAC

E.O. 12958: N/A
TAGS: EINV ECON PGOV BR
SUBJECT: CENTRAL BANK SEES NO FEDERAL LEVERAGE ON PARANA
GOVERNOR IN OPIC-RELATED INVESTMENT

REF: PLOWMAN-OPIC EMAILS

Sensitive but Unclassified, please protect accordingly.

1. (SBU) Econoff raised with Central Bank Deputy Governor
for International Affairs Alexandre Schwartsman on February
19 the difficulties that an OPIC-financed investment fund,
the Global Environmental Emerging Markets Fund II (GEEMF) is
experiencing with its $18 million investment in the state of
Parana sanitation utility, Sanepar. Econoff explained that
the OPIC-financed investment, made through two
intermediaries (Opportunity Daleth and the Domino group),
formed part of the purchase of a minority stake in Sanepar
during its partial privatization. The rights of the private
shareholders brought into the company were secured through a
shareholders agreement that was subsequently de facto
abrogated by state governor Requiao, who had in addition
removed from the Sanepar board the directors named by the
private investors.

2. (SBU) Schwartsman was very sympathetic and gave us to
understand that the GoB sees Requiao's actions as
indefensible. He went on to say, however, that the Federal
Government has limited means of dealing with Requiao's de
facto abrogation of the shareholders agreement. Schwartsman
clearly understood the potential for this to become a
central-government to central-government issue should OPIC
become subrogated to the U.S. private investor. He
also perceived the danger of decreased investor confidence
for purposes of promoting investment through Public-Private-
Partnerships (PPPs), currently under consideration by the
Brazilian Congress. Schwartsman recommended that the
private investors pursue action through the CVM (SEC-
equivalent) and/or local courts, but, when asked, did not
know if Brazilian law allows for the central government to
file an "amicus" brief supporting the investor's case. He
did not think Brazil's Fiscal Responsibility Law provided
any federal leverage, because Requiao's actions diluting the
private shareholders' stake in Sanepar do not affect the
State of Parana's net debt levels.

3. (SBU) Schwartsman drew a parallel to another infamous
case of a few years ago, that of the electrical company of
the state of Minas Gerais (CEMIG). Then-governor Itamar
Franco removed the board members representing the private
investors (which included U.S. company AES) who had bought
in during a partial privatization, as Requiao has now done
with Sanepar. Even though the federal government of the
time disagreed vehemently with the actions of the state
government, it was unable legally to intervene. Despite his
pessimism about finding a concrete option to help,
Schwartsman undertook to follow up within the Central Bank
and with colleagues in the Finance Ministry. Econoff left
with him an OPIC white paper on the case.

4. (SBU) In a March 25 follow-up meeting, Schwartsman
relayed that he and his Ministry of Finance colleagues had
concluded that the federal government has no way to act in
the Sanepar case, as the facts currently stand. He said all
his colleagues were aware of the potential damage to
Brazil's ability to attract investment. When pressed,
Schwartsman clarified that he and his colleagues had not
considered how the CVM might be brought into play in its
regulatory role. He suggested, since the Central Bank has
little or no enforcement power outside of its banking
supervision role, that post follow up with Finance Ministry
Executive Director Bernardo Appy.

5. (SBU) Comment. While post will follow up with the
Finance Ministry, the CEMIG precedent is illustrative of the
limits that the federal government faces in dealing with
governors whose actions, however egregiously a breach of
shareholders' agreements, do not apparently represent a
violation of federal law in the view of the GoB.

HRINAK

© Scoop Media

 
 
 
World Headlines

 

Syria: Economic Decline, Rising Hunger And Surging Humanitarian Needs

Syria’s fragile economy has “suffered multiple shocks” over the past 18 months, with its currency plummeting and joblessness swelling as people struggle to cover their basic needs, the UN Emergency Relief Coordinator told the Security Council ... More>>

OECD: Final Quarter Of 2020 Shows Continued Recovery In G20 International Merchandise Trade

G20 international merchandise trade continued to rebound in the fourth quarter of 2020 ( exports up 7.2% and imports up 6.8%), following the sharp falls seen in the first half of 2020, as lockdown measures affected trade globally. Although growth ... More>>

UN Report: Civilian Casualties Surged After Peace Talks Began In Afghanistan

Monitoring by the UN Assistance Mission in Afghanistan, UNAMA, and the UN Human Rights Office has revealed that despite a drop in civilians killed and injured overall in 2020 there was a rise in civilian casualties following the start of peace negotiations ... More>>

Focus On: UN SDGs


2021: Critical Year To ‘reset Our Relationship With Nature’ – UN Chief

During this time of “crisis and fragility”, the UN chief told the United Nations Environment Assembly on Monday that human well-being and prosperity can be vastly improved by prioritizing nature-based solutions. Painting a picture of the turmoil ... More>>


Paris Agreement: UN Secretary-General António Guterres To Mark U.S. Reentry With Envoy For Climate John Kerry

Watch live at webtv.un.org UN Secretary-General António Guterres will join U.S. Special Presidential Envoy for Climate John F. Kerry at an event marking the United States’ reentry into the Paris Agreement this Friday. The discussion with the Secretary-General ... More>>

WeBeliev: Scoop In Conversation With Abhishek Sinha, Founder Of WeBeliev, An NZ Crowdfunding Platform

WeBeliev supports 17 SDGs, launching sector specific campaigns every month Q. What is WeBeliev and why did you start it? A. WeBeliev is a Singapore-registered crowdfunding platform aimed at fundraising for all the 17 Sustainable Development Goals (SDGs) ... More>>