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