Hydropower auction in Brazil faces delay over legal concerns

The criticism, raised during ANEEL’s board meeting on July 29, led Mr. Mosna to request a review of the case, halting its analysis indefinitely. He argued that the ministry’s ordinance oversteps legal boundaries by setting parameters that contradict provisional presidential decree (MP) No. 1,300/2025, the legal basis for the auction.

At the center of the dispute is the difference between the Weighted Average Cost of Capital (WACC) established by the MP and the rate adopted in the ministry’s ordinance.

The MP 1,300 requires that compensation calculations follow ANEEL’s guidelines for concession extensions, as defined in Normative Resolution No. 1,035/2022, which sets the WACC at 9.63% per year. But Ordinance No. 112 sets a 10.94% annual rate in Article 7.

A higher WACC implies longer concession extensions, which Mr. Mosna said creates an economic distortion favoring generation companies and directly harming consumers, since power generation assets belong to the federal government.

“This ordinance is illegal, this concession extension based on a WACC of 10.94% is illegal,” he said. “I understand there’s an auction scheduled, but since the provisional decree is valid until September 17, I believe there’s still time to ensure the auction is carried out properly, legally, and rigorously. This call for bids should be suspended, maybe held on August 15 or September 1, still within the MP’s validity period, but with legal certainty and predictability to avoid the worst.”

It is up to the CCEE and MME to decide whether to postpone the auction. The CCEE did not respond to requests for comment. The MME, in turn, said the ordinance aligns with MP 1,300, was subject to public consultation, complies with legal criteria, and is backed by both technical and legal analysis.

“The MP aims to resolve and unlock up to R$1.1 billion in unpaid liabilities in the Short-Term Market, an issue pending for more than ten years,” the ministry said. “The MME highlights the importance of liquidity in the energy market to ensure investment and the sector’s sustainability while preventing further litigation.”

Financial bottlenecks

The auction seeks to solve one of the energy sector’s major financial bottlenecks. Under the plan, affected generators would purchase government bonds and, in return, receive concessions extensions (limited to seven years) as compensation.

Market players such as Engie, Abrage, Statkraft, and Abragel had already contacted ANEEL requesting clarification on the auction rules. Their concerns included the length of the extensions, the legal framework for energy sales during the extended term, and whether quota plants could freely allocate energy.

Mr. Mosna is expected to send a formal inquiry to the MME on these issues. The case’s rapporteur, director Agnes da Costa, submitted a vote addressing some concerns. She proposed allowing continued tariff discounts during the extended period and clarified that the extension would not alter the quota regime defined in existing concession contracts.

Ms. Costa also noted, citing a legal opinion from ANEEL’s Federal Attorney’s Office, that the seven-year limit applies only to extensions granted through the auction and does not affect any additional extensions provided by other laws or regulations.