Are Enel’s days numbered as São Paulo electricity concessionaire?

Enel's concession in São Paulo is once again at risk of being revoked by the local authorities due to the impact of extreme weather events.

BNamericas consulted several experts regarding the likelihood of the Italian energy giant actually losing one of its key concessions in Latin America. 

What happened

For the third time in less than a year, more than 2mn consumers had their power supply interrupted due to a heavy storm with winds in excess of 100km/h. On October 14, some 400,000 households were still without electricity, according to Agencia Brasil.

The latest blackout comes ahead of the October 27 runoff in the São Paulo municipal elections, which has intensified the politicization of the problem. 

Candidate Guilherme Boulos from the leftist PSOL party accused the administration of reelection-seeking mayor Ricardo Nunes from centrist MDB of failing to properly maintain and prune the trees that fell on the electric power cables.

Nunes, for his part, accuses the federal government of not adequately supervising Enel's actions through sector regulator Aneel – and of paving the way for the renewal of its concession, which expires at the end of 2028. 

São Paulo state governor Tarcísio de Freitas of the right-wing Republicanos party, an ally of Nunes, has said that Enel must leave Brazil. 

In response, the head of the mines and energy minister (MME), Alexandre Silveira, said that nothing has been decided about the future of Enel's concession, pointing out that the company has until 2026 to express interest in its renewal. 

Stricter guidelines for extending distribution concessions were established by a federal decree in June, with its regulation currently under public consultation by Aneel. 

The crisis has worsened the already strained relationship between the government and Aneel. MME has accused the regulator of being too lenient towards Enel. 

The government is also advocating for modifying the law governing regulatory agencies so that the terms of their directors coincide with the mandate of the country’s president. 

Aneel’s board was appointed by former president Jair Bolsonaro, who has a bitter rivalry with President Luiz Inácio Lula da Silva.

What next 

Alexei Vivan, head of the Brazilian association of electricity companies (ABCE) and a partner at law firm CGM Advogados, sees no grounds for revoking Enel's concession. 

“These are situations for inspection by Aneel, a possible fine, compensation for electrical damage, but not for revoking the concession, which should happen when there are no economic, financial, technical or even management conditions to operate the concession,” he told BNamericas.

“Enel has the financial strength and technical and management capacity. These were extreme weather events, falling trees, aerial networks built to withstand winds of up to 80km/h.”

Guilherme Schmidt, a partner at Schmidt Valois Advogados, pointed out that the cancellation of a concession can only be approved after a technical and lengthy administrative process at Aneel, in which the concessionaire has ample rights of defense. 

If there is a process to extinguish the concession, it is likely that it will end close to the deadline of the concession contract, he told BNamericas.

“In addition, it’s necessary to assess how Enel's change could impact the service for consumers, as there are major challenges to changing the energy distribution structure in a city like São Paulo, which is complex,” Schmidt said. 

According to Schmidt, other measures could be considered as an alternative to canceling the concession, such as imposing penalties or not authorizing Enel to extend the concession beyond 2028.  

Given the repeated failures in providing distribution services and the extent of the affected areas, Paula Padilha, a partner at Vieira Rezende Advogados, believes an administrative process could be opened to terminate Enel's concession.

“The lack of proven adequacy in the provision of the public service can lead to intervention in the concession or its termination, which can occur through annulment or forfeiture,” she told BNamericas.  

The annulment of the concession contract means the State would take over the public service. Forfeiture is the contractual termination due to default by the concessionaire.