Former Brazil president and current presidential candidate Luiz Inacio Lula da Silva attends the "Lula abraca Minas" (Lula embraces Minas) event in Belo Horizonte, Minas Gerais state, Brazil, May 9, 2022.
Former Brazil president and current presidential candidate Luiz Inacio Lula da Silva attends the "Lula abraca Minas" (Lula embraces Minas) event in Belo Horizonte, Minas Gerais state, Brazil, May 9, 2022. Reuters / WASHINGTON ALVES

Former Brazilian President Luiz Inacio Lula da Silva, the leftist frontrunner ahead of an October election, is looking at ways to reverse President Jair Bolsonaro's planned privatization of state-run electricity company Eletrobras, his advisers say.

Latin America's largest utility, known formally as Centrais Eletricas Brasileiras SA, will be the highest-profile - and perhaps final - major state asset sale for Bolsonaro's government, which has disappointed free-market advocates' hopes for more aggressive privatizations.

Lula's aides said the transaction shifting majority control of the power company to private investors, scheduled for Thursday, will be short-lived if he has his way. But many legal and financial experts said the privatization deal has many built-in safeguards that will make it hard to unwind once it goes through.

Lula, a fierce opponent of privatizations, has consistently criticized the Eletrobras sale, saying it threatens Brazil's security and will leave the nation's resources vulnerable to foreign exploitation. He has even warned investors against buying the company's shares.

"For the businessmen that have some sense, it's important to count to 10 before doing the crazy thing of buying Eletrobras at the price of a banana," he said in a recent radio interview.

A court challenge would be central, and any such effort could include a massive repurchase of Eletrobras shares, the advisers told Reuters. The senior figures in Lula's Workers Party (PT) stressed that any strategy will respect existing contracts and legislation; they are not planning an expropriation like those that swept Latin America in the 1970s.

"It's possible to reverse," Guido Mantega, a finance minister from 2006 to 2014 under two PT governments, said of the Eletrobras privatization. "I have no doubt there are ways, even if, in the end, you have to buy back the shares."

The first step, Mantega said, will be looking for "defects and irregularities" to take before the courts. Judges on Brazil's federal audit court, known as the TCU, have already questioned the pricing of Eletrobras shares, he pointed out.

Still, the privatization plan includes provisions aimed at preventing such a move. The PT and other opposition parties have already tried fighting the Eletrobras privatization in the courts, with limited success.

Workers Party Senator Jean Paul Prates, another adviser to Lula's campaign, said the party would focus on a series of "loose ends" in the process, starting perhaps with the lack of studies on how the privatization would affect electricity rates.

Neither Eletrobras nor Brazil's Mines and Energy Ministry responded to requests for comment.


Reversing the privatization might be possible in theory but will be tough in practice, said Joao Reis, a litigator with the firm of Machado Meyer.

"I also think it would be complicated to have a political decision to return Eletrobras to the status of a publicly administered entity," he said.

Another obstacle: "Poison pills" in the privatization structure would force any investor, public or private, to pay an exorbitant premium to build a stake beyond certain thresholds.

"It would get very expensive, almost unviable economically," said Fabio Coelho, president of Brazilian capital markets investors' association AMEC. "If someone wanted to buy more than 50% of the company, there would be a premium of 200%."

The government currently holds 72% of common shares in Eletrobras, including stakes held by state development bank BNDES and national development fund FND, according to Refinitiv data. The sale of new shares on Thursday is aimed at reducing that overall public-sector stake to 45% after the privatization.

Unlike with some big state asset sales in the past, no single investor, foreign or domestic, will be able to take control of the company through the process, which will set a 10% ceiling on individual stakes.