VII - The Privatization Program

The National Privatization Program ("Programa Nacional de Desestatização" - PND), established in 1991 to help modernize the Brazilian government, gained renewed strength with the Real Plan. As shown in the following table, of all the revenues received during the Program's seven years of existence, close to 53% were collected after July 1994, namely, in three years.

Table 7

The sale of CVRD (the Vale do Rio Doce Company) virtually ends the privatization of industrial firms and initiates a new phase that focuses principally on privatizing infrastructure assets and on granting public service concessions.

Grafic 21

The first phase of the PND stressed basically the privatization of steel, petrochemical, fertilizer and mining companies. A total of 46 firms were shifted to the private sector, of which 20 were sold after July 1994.

The steel sector is an excellent example of the program's success. After being privatized, the sector increased its production and its productivity to the point that it came to account for a larger percentage of Brazil's exports.

The privatizations are already beginning to show concrete results: an increase in investments and a decline in prices.

In its second phase, the PND focuses on transferring infrastructure operations to private owners and on granting public service concessions. This phase began with the sale of the electric distribution firm ESCELSA in July 1995, followed in 1996 by concessions for the five principal networks of the Federal Railway (RFFSA) and for the electric distribution company of Rio de Janeiro (LIGHT). This phase will allow private investments in sectors that are crucial to the country's economic development.

The changes taking place in Brazil's transport system are a good example of the concrete results that are already visible. With the transfer of the five principal networks of the RFFSA to the private sector, investments are again occurring in the railway sector after having been stagnant for almost two decades. More than 2,100 kilometers of railroad are under construction. The investments underway in the Northern Railway (FERRONORTE) are of special note. Some R$400 million, out of a total program of R$2.5 billion, have already been invested in a project to extend it by 1,728 km. Taken together, the railroad investments during the next few years should surpass R$4 billion.

At the same time, concessions are being granted to operate ports and federal highways. One can already see significant reductions in the charges for port services. It is expected that, as the process continues, these charges will decline dramatically.

In the case of the federal highways, the outstanding concessions have been those granted in 1996 for the highway between Rio de Janeiro and São Paulo and the highway between Juiz de Fora and Rio de Janeiro. The investments planned for these two stretches of highway exceed R$1 billion. One can already note the improvements in road signals, maintenance, installation of emergency medical services, and other items.

The program of telecommunications concessions should begin effectively during 1998. Nevertheless, people can already sense the concrete benefits coming from the privatization process. For example, it has already been announced that the private sector will reduce the cost of cellular telephone services.