Recovery plan will be essential for Light’s future

The deadline for applying for renewal of the concession by Light, which is interested in maintaining the contract, ends on June 4 of this year. It will be up to the federal government to authorize the extension or decide to rebid the concession.

But, with about two weeks to go before the deadline for submitting an application, Light is facing major financial difficulties. Its financial commitments to creditors (present and future) amount to R$11 billion.

Unable to honor these commitments, the Light group, which controls the distributor as well as other energy companies, filed for judicial recovery on the 12th. The request was accepted by the 3rd Corporate Court of Rio de Janeiro.

For experts heard by Brazil Agencythe court-supervised reorganization plan, which must be submitted within 60 days and which will be analyzed by creditors and the courts within six months to one year, is essential for the government to decide whether or not to extend Light’s concession.

“If the recovery plan has good adherence, at least by a relevant part of the creditors, containing a concrete proposal for restructuring the debt in a short period of time, as has been announced by the CEO of Light, I think that this will be taken into account by the government in decision-making regarding the process of renewing the concession”, says Gustavo De Marchi, a lawyer specializing in regulation of the electricity sector, from Fundação Getulio Vargas (FGV).

For Henrique de Oliveira Henriques, professor of the graduate program in Electric Energy at the Fluminense Federal University (UFF), the federal government will need to analyze whether the plan to be presented by Light will be “feasible”.

“Aneel (National Electric Energy Agency) will want to know about the debt problem, whether it will be able to renegotiate, to increase deadlines, etc. In terms of concessions, what matters to the federal government is: ‘Light, do you have the capacity to maintain the concession, to operate?’”, says Henriques.

On May 8, the Minister of Mines and Energy, Alexandre Silveira, stated, in an interview with CNN, that the government could not allow companies without “management efficiency” to continue participating in the renewal process and cited Light as one of those examples.

Henriques stated that only a technical and financial audit could verify whether Light is capable of maintaining its concession and offering a quality service in the coming years. “That can only be answered through an audit. What we do know is that she has a large debt and that, because of this debt and the difficulty she has with cash to honor her commitments, she asked for this judicial recovery in order to be able to negotiate these conditions”.

The UFF professor points out that Light faces a serious problem in Rio de Janeiro, as well as other energy distributors in the state: the theft of energy, especially in communities controlled by armed criminal factions.

“This problem in the state of Rio is exacerbated. It spends a lot to combat these thefts, which is why the tariff no longer remunerates these costs. Brazil has more than 60 distributors and some are experiencing difficulties”.

For De Marchi, the government needs to take this problem into account in order to redesign a new concession contract, whether in renewal or in a possible re-bid. “Even if you are looking for a solution for the concessionaire, you cannot disregard an adequate treatment for the concession model. What needs to be done is that each contract reflects the reality of its concession area. This is fundamental, seeking an adequate design mainly for those (concessions) that have critical areas, as is the case of Light”.

According to him, if the contract does not reflect this issue of areas with large energy theft, there is a risk that no company will be interested in taking over the concession. “A concession that is eventually healthy today may go through a degradation process tomorrow, and the contract must have instruments to deal with this possibility”, explains De Marchi. “The concessionaire has its limitations in combating (theft). If she doesn’t get a community or area, how could you be responsible for that?”

According to Light, energy theft reached 58.36% in homes and businesses (low voltage) in the first quarter of this year.

In the interview with CNN, Alexandre Silveira acknowledged the specific problem of energy loss in Rio de Janeiro, but stated that, even so, “Light has not been presenting the Ministry of Mines and Energy with adequate answers regarding its administrative efficiency”. According to him, companies that are not in economic or technical conditions to continue providing services to the public will not participate in the concession renewal process.

The minister also said that the government will have “extremely vigilant eyes” and will check with a “magnifying glass” the companies that are experiencing management difficulty, as, according to him, is the case of Light. By means of a note, Aneel informed that it is up to the Ministry of Mines and Energy to define the criteria for renewal or re-bidding.

In the request for judicial reorganization, Light claims that the situation it is in is the result of issues such as the theft of energy at an uncontrollable level, an increase in defaults, investments that did not give the expected return, refunds to consumers of tax credits earned after the exclusion of ICMS on the PIS/Cofins calculation base and the covid-19 pandemic.

According to lawyer Pablo Cerdeira, partner of the office that represents Light in the judicial recovery process, the concessionaire’s services are not affected by the lawsuit and will be maintained.

“Who is in judicial recovery is the Light holding, the company that controls the concessionaires. The concessionaires themselves are not under judicial recovery. They continue with their services normally, including paying all the expenses they have, ”she says. “One of the conditions for Light to have this time to renegotiate with creditors is that it continues to provide quality public services, with all the obligations of the sector”.