¹ See Nancy Birdsall and John Nellis, ‘Privatization Reality Check: Distributional Effects in Developing Countries’, in Nancy Birdsall and John Nellis (eds.), Privatization Reality Check: The Distributional Impact of Privatization in Developing Countries (Washington DC, 2005), pp. 1–30.

² A volume edited by Alberto Chong and Florencio Lopez-de-Silanes, for example, concludes that efficiency and wages generally increased as a result of privatisation and that increases in prices and monopoly power should only be blamed on bad regulation: see Alberto Chong and Florencio Lopez-de-Silanes (eds.), Privatization in Latin America: Myths and Reality (Palo Alto, 2005). It criticises the Brazilian government for losing the opportunity to reduce the federal debt with the proceeds of privatisation. This completely ignores the fact that it was the high interest payments necessary to maintain the currency peg which were responsible for the increase in the national debt, and that applying privatisation proceeds to reducing the debt would have had a negligible effect in comparison.

³ See Ioannis Kessides, Reforming Infrastructure: Privatization, Regulation and Competition (Washington DC, 2004), and Sunita Kikeri and John Nellis, ‘An Assessment of Privatization’, World Bank Research Observer, vol. 19, no. 1 (2004), pp. 87–118.

⁴ See Stephan Haggard and Robert R. Kaufman, ‘Institutions and Economic Adjustment’, in Stephan Haggard and Robert R. Kaufman (eds.), The Politics of Economic Adjustment (Princeton, 1992), pp. 25–27, for a discussion of the orthodox paradox.

⁵ As commonly defined, the ‘critical case’ is one in which the constituent elements are such that if a result or explanation holds in that case, then it should hold in all other such cases. Conversely, if expected results or explanations do not hold in a case in which they should have, by virtue of the presence of the prerequisites, then the explanation can be said to have been falsified. In the case of privatisation, for example, the study of a case in a typical African country cannot be said to represent a critical case of privatisation in developing countries because too many of the underlying enabling governance structures are not present.

⁶ Judith Tendler, Electric Power in Brazil: Entrepreneurship in the Public Sector (Cambridge, 1968), was the first detailed study of the Brazilian electric power industry. In it she explains how the publicly owned generating companies were able to maintain a high level of technical excellence by being separated from the more mundane and politically exposed distribution sector. A monograph by Ashley Brown, ‘The Privatization of Brazil's Electricity Industry: Sector Reform or Restatement of the Government's Balance Sheet?’ (paper prepared for the Inter-American Development Bank, January 2002), indicates that inefficiency among Brazilian power companies was concentrated in the distribution sector. Most Brazilian analyses highlight financial and tariff policies for the deterioration of the power sector in Brazil after privatisation rather than technical problems: see, for example, Antonio Dias Leite, A Energia do Brasil (São Paulo, 2007), and Fabio Giambiagi and Ana Cláudia Além, Finanças publicas: teoria e prática no Brasil (Rio de Janeiro, 2001).

⁷ See Kliksberg, Bernardo, ‘Public Administration in Latin America: Promises, Frustrations and New Examinations’, International Review of Administrative Sciences, vol. 7, no. 2 (2005), pp. 309–26Google Scholar, especially the table on p. 309 (based on surveys done by Latinobarómetro) which indicates that at least 60 per cent of the population in all Latin American countries is less satisfied with public services after privatisation than before. See also Graham, Carol and Sukhtankar, Sandip, ‘Does Economic Crisis Reduce Support for Markets and Democracy in Latin America? Some Evidence from Surveys of Public Opinion and Well Being’, Journal of Latin American Studies, vol. 36, no. 2 (2004), pp. 349–77Google Scholar.

⁸ For a good overview of Brazilian economic reforms see Francisco Vidal Luna and Herbert Klein, Brazil since 1980 (Cambridge, 2006).

⁹ According to Armando Pinheiro and Fabio Giambiagi, ‘Os antecedentes macroeconomicos e a estrutura institucional do privatização no Brasil’, in Privatização no Brasil: o caso dos serviços de utilidade pública (Rio de Janeiro, 2000), Franco initially opposed privatisation but relented on the issue because of continuing inflation and restricted credit. He thus allowed greater foreign participation in privatisation and in the end privatised more firms than Collor's administration had.

¹⁰ Most notably Law 8643/93 which eliminated rate restrictions and cleaned up the power companies' books by having the Treasury assume US$ 26 billion of their debt.

¹¹ See BNDES, Cadernos de infra-estrutura: setor elétrico – perfil das concessionárias (Rio de Janeiro, 2001), vol. 2.

¹² For the impact of the financial crises on the Plano Real, see Nazmi, Nader, ‘Global Finance, Sovereign Risk and Economic Performance of Brazil’, Quarterly Review of Economics and Finance, vol. 42, no. 5 (2002), pp. 865–74.CrossRefGoogle Scholar

¹³ The post-rationing General Accord of the Power Industry (Provisional Decree 14 of the Brazilian federal government) awarded R$ 7.3 billion to power companies to compensate them for the revenue losses stemming from rationing. DISCOS, not surprisingly, complained that this amount was too low.

¹⁴ See Ildo Sauer, Reconstrução do setor elétrico brasileiro (São Paulo, 2003), and Luiz Pinguelli, Diretrizes e linhas de ação para o setor elétrico brasileiro (Rio de Janeiro, 2002), for arguments critical of the way the Brazilian power privatisation was conducted.

¹⁵ José Claudio Linhares Pires, ‘As perspectivas do setor elétrico após o racionamento’ (BNDES Discussion Paper, no. 97, 2002).

¹⁶ In the former category see Aloysio Biondi, O Brasil privatizado: um balanço do desmonte do estado (São Paulo, 1999), and James Petras and Henry Veltmeyer, Cardoso's Brazil: A Land for Sale (Lanham, 1999); for the latter see Norman Gall, ‘Apagão politica energetica’, Braudel Papers, no. 31 (São Paulo, 2002).

¹⁷ Peter Greiner, ‘Soluções ao inves de mais confução’, Braudel Papers no. 31 (São Paulo, 2002).

¹⁸ See BNDES, ‘O risco de racionamento’ (Rio de Janeiro, 1996).

¹⁹ Coopers and Lybrand, ‘Projeto de restruturação do setor elétrico brasileiro. Relatorio consolidado Etapa IV-I’ (1997).

²⁰ A New York Times article, for example, quotes Cardoso as saying that the entry of private capital ‘means the difference between carrying out or not carrying out necessary investments’: see James Brooke, ‘Latin America's Privatization Path’, New York Times, 12 November 1994.

²¹ The consortium was called Guaraniana S.A. and consisted of Caixa de Previdencia dos Funcionários do Banco do Brasil (Previ), Banco do Brasil Investimentos, and Iberdrola.

²² This policy of providing BNDES financing to foreign investors was fairly controversial and severely criticised by some segments of policy and popular opinion in Brazil: see Cláudio Figueiredo Coelho Leal, ‘Ágios, envelopes e surpresas: uma visão geral de privatização das distribuidoras estaduais de energiaelétrica’, <www.bndes.gov.br/conhecimento/revista/rev1004.pdf>. Coelho Leal was Manager, Privatisation Services, at BNDES.

²³ BNDES, Cadernos de infra-estrutura: setor elétrico – perfil das concessionárias, Vol. 2.

²⁴ One strong indicator of the government's commitment to privatisation is that in the run-up to the rationing it instituted a Priority Programme of Thermoelectric Power (PPT) through which BNDES offered to finance 80 per cent of the project costs. The offer bypassed the state-owned GENCOS which still controlled over 70 per cent of the country's generating capacity.

²⁵ We should consider investment under privatisation merely as a transfer in the ownership of assets rather than true investment in the form of the creation of new productive assets.

²⁶ See Pinheiro, Armando Castelar and Giambiagi, Fabio, ‘Brazilian Privatization in the 1990s’, World Development, vol. 22, no. 5 (1994), pp. 737–53CrossRefGoogle Scholar.

²⁷ See Amann, Edmund and Baer, Werner, ‘The Illusion of Stability: The Brazilian Economy under Cardoso’, World Development, vol. 28, no. 10 (2000), pp. 1805–19.Google Scholar According to the authors, trade liberalisation via the reduction of tariffs also helped to control inflation as cheaper imports (given the overvalued real) either displaced domestic producers or prevented them from raising their prices. Their claims are backed and extended by Schambaugh, George E., ‘The Power of Money: Global Capital and Policy Choices in Developing Countries’, American Journal of Political Science, vol. 48, no. 2 (2004), pp. 281–95Google Scholar, who finds that fixed exchange rate regimes tend to overvalue and appreciate the domestic currency.

²⁸ The narrative of the administration's logic of privatisation is based on conversations with officials from BNDES, MME, ANEEL and members of the Brazilian Congress, as well as with private sector energy industry professionals in Brazil. The author conducted over 50 interviews from August 2002 to November 2003.

²⁹ A good review of the logic of this and other types of auction processes can be found in Paul Milgrom and Robert Weber, ‘A Theory of Auctions and Competitive Bidding’, Econometrica, vol. 50, no. 5 (1982), pp. 1089–1121. The authors also point out the limitations of auction theory in enabling the achievement of public goals in complex situations where collusion and information asymmetry are prevalent and especially where renegotiations are an option. Despite long recognition of such problems, the practice of auctions has not been able to overcome these limitations.

³⁰ In the system of utilities regulation developed after privatisation in the United Kingdom X refers to an efficiency factor that regulated public utilities are supposed to achieve. Under the RPI-X system in Britain, also known as the price-cap system, the regulated rates charged by public service operators are capped and then adjusted according to the prevailing inflation rates measured by the Retail Prices Index (RPI), less the expected gains from efficiency that they are supposed to share with consumers. This system is supposed to provide incentives for operators to achieve efficiency gains and to share some of those gains with consumers.

³¹ FGV Consulting, ‘Modelo alternativo para a privatização de FURNAS’ (Rio de Janeiro, November 2000).

³² See Mendonça, Augusto F. and Dahl, Carol, ‘The Brazilian Electrical System Reform’, Energy Policy, vol. 27, no. 2 (1999), pp. 73–83CrossRefGoogle Scholar; and BNDES, Cadernos de infra-estrutura: setor elétrico – perfil das concessionárias, vol. 2.

³³ The IGP-M, which combines wholesale as well as retail price indices, is one of several inflation indices used in Brazil. It is calculated by the Fundação Getúlio Vargas, an independent private university and think-tank in Brazil.

³⁴ E. C. Capen, R. V. Clapp and W. M. Campbell, ‘Competitive Bidding in High Risk Situations’, Journal of Petroleum Technology, vol. 23 (1971), pp. 641–53, as cited in José Claudio Linhares Pires and Fábio Giambiagi, ‘Retorno dos novos investimentos privados em contexto de iIncerteza: uma proposta de mudança do mechanismo de concessão de rodovias no Brasil’ (BNDES Discussion Paper, no. 81, 2002).

³⁵ See J. Luis Guasch, Granting and Renegotiating Infrastructure Concessions: Doing It Right (Washington DC, 2004). One classic example of renegotiation is the case of the water concession in Buenos Aires. Shortly after the concession was awarded based on the minimum tariff that the investor would charge to provide services under a given set of contractual conditions, the contract was renegotiated at a tariff that significantly exceeded the next best offer: see Loftus, Alexander J. and McDonald, David A., ‘Of Liquid Dreams: A Political Ecology of Water Privatization in Buenos Aires’, Environment and Urbanization, vol. 13, no. 2 (2001), pp. 179–99CrossRefGoogle Scholar.

³⁶ The term ‘winner's curse’ was coined in Capen, Clapp and Campbell, ‘Competitive Bidding ’.

³⁷ See Mark Armstrong, Samuel Cowan and John Vickers, Regulatory Reform: Economic Analysis and the British Experience (Cambridge, 1994) for a detailed explanation of the circularity problem.

³⁸ Ministério de Minas e Energia, Comitê de Revitilização do Modelo do Setor Elétrico, Relatório de Progresso no. 2 (Brasilia, 2002).

³⁹ Such capacity payments were finally instituted after the energy rationing of 2001, and added to retail tariffs under the name of anti-rationing insurance: see Sauer, A reconstrução do setor elétrico brasileiro, p. 163.

⁴⁰ Gall, ‘Apagão politica energetica’; Greiner, ‘Soluções ao inves de mais confução’.

⁴¹ See Raymond Vernon, Sovereignty at Bay: The Multinational Spread of US Enterprises (New York, 1971).

⁴² Onis, Juan de, ‘Brazil's New Capitalism’, Foreign Affairs, vol. 79, no. 3 (2000), pp. 107–19.CrossRefGoogle Scholar

⁴³ Based on author interviews with ANEEL personnel. October 2002.

⁴⁴ See Raymond Colitt, ‘Power Supply Running Dry’, Financial Times, 20 July 2001; Geoff Dyer, ‘Energy Crisis puts Country in Political Spin’, Financial Times, 20 July 2001; and ‘Brazil Developers Dismiss Proposed $ 29.40/MWh Ceiling on Gas Generation’, Global Power Report, 28 May 1999.

⁴⁵ Yarrow, George, ‘A Theory of Privatization, or Why Bureaucrats are Still in Business’, World Development, vol. 27, no. 1 (1999), pp. 157–68.CrossRefGoogle Scholar

⁴⁶ Ministério de Minas e Energia, Comitê de Revitilização do Modelo do Setor Elétrico, Relatório de Progresso no. 2 (Brasilia, 2002).

⁴⁷ While a more detailed analysis of the weaknesses of power markets is beyond the scope of this paper, see the following sources: Branston, J. R., ‘A Counterfactual Price Analysis of British Electricity Privatisation’, Utilities Policy, vol. 9, no. 1 (2000), pp. 31–46Google Scholar; Chi-Keung Woo, ‘What Went Wrong in California's Electricity Market’, Energy, vol. 26, no. 8 (2001), pp. 747–58; Banks, Ferdinand E., ‘Economics of Electricity Deregulation and Privatization: An Introductory Survey’, Energy, vol. 21, no. 4 (1996), pp. 249–61Google Scholar; Paul Joskow, ‘California's Electricity Crisis’ (NBER Working Paper, no. 8842, 2001); David Newbery, ‘The Regulator's Review of the English Electricity Pool’, Utilities Policy, vol. 7, no. 3 (1998), pp. 129–41.

⁴⁸ See Mattei Dogan and Dominique Pelassy, How to Compare Nations: Strategies in Comparative Politics (London, 1990), as cited in Flyvjberg, Brent, ‘Five Misunderstandings about Case Study Research’, Qualitative Enquiry, vol. 12, no. 2 (2006), pp. 219–45Google Scholar.

⁴⁹ Flyvjberg, ‘Five Misunderstandings’, p. 227.

⁵⁰ See, for example, in the electricity industry, Nagayama, Hiroaki, ‘Effects of Regulatory Reforms in the Electricity Supply Industry on Electricity Prices in Developing Countries’, Energy Policy, vol. 35, no. 6 (2007), pp. 3440–62CrossRefGoogle Scholar.

⁵¹ David McKenzie and Dilip Mookherjee, ‘Paradox and Perception: Evidence from Four Latin American Countries’, in Birdsall and Nellis (eds.), Privatization Reality Check, pp. 33–84.

⁵² Newbery, David M. and Pollitt, Michael G., ‘The Restructuring and Privatisation of Britain's CEGB – Was it Worth It?’, Journal of Industrial Economics, vol. 45, no. 3 (1997), pp. 269–303CrossRefGoogle Scholar; José A. Delfino and Ariel A. Casarin, ‘The Reform of the Utilities Sector in Argentina’ (WIDER Discussion Paper, no. 74, 2001); Loftus and McDonald, ‘Of Liquid Dreams’; George Yarrow, ‘British Electricity Prices since Privatisation’ (Regulatory Policy Research Centre, Research Report, Hertford College. Oxford 1992).

⁵³ See Cecelia Briceño-Garmendia, Antonio Estache and Nemat Shafik, ‘Infrastructure Services in Developing Countries: Access, Quality, Costs and Policy Reform’ (World Bank Policy Research, Working Paper no. 346, 2004).

⁵⁴ BNDES, ‘O apoio do BNDES ao setor elétrico’ (Informe Infra-Estrutura, no. 52, 2001). A report by National Economic Research Associates, commissioned by Duke Energy Internacional of Brazil, states that very little of the private investment in power generation in Brazil was based on purely commercial considerations, but rather on guarantees provided by the public sector: see Michael Rosenzweig, Sarah Voll and Carlos Pabon, ‘Barreiras á realização de investimentos no setor de geração exclusivamente pela inicativa privada no Brasil’ (NERA, Relatório Final, 2001).

⁵⁵ See Ravi Ramamurti, ‘Why are Developing Countries Privatizing?’, Journal of International Business Studies, vol. 23, no. 2 (1992), pp. 225–49.

⁵⁶ See Megginson, William and Netter, Jeffrey, ‘From State to Market: A Survey of Empirical Studies on Privatization’, Journal of Economic Literature, vol. 39, no. 2 (2001), pp. 321–89CrossRefGoogle Scholar.

⁵⁷ Newbery and Pollitt, ‘The Restructuring and Privatisation of Britain's CEGB’.

⁵⁸ See Elliot Armijo, Leslie and Faucher, Phillipe, ‘We Have a Consensus: Explaining Political Support for Market Reforms in Latin America, Latin American Politics and Society, vol. 44, no. 2 (2002), pp. 1–40Google Scholar, in which the authors argue that reforms were supported by both the elite and the masses. Similarly, Volker Schneider, Simon Fink and Marc Tenbucken, ‘Buying Out the State: A Comparative Perspective on the Privatization of Infrastructures’, Comparative Political Studies, vol. 38, no. 6 (2007), pp. 704–27, find that veto players and corporatist interest groups were insignificant barriers to privatisation. Biglaiser, Glen and Brown, David S., ‘The Determinants of Economic Liberalization in Latin America’, Political Research Quarterly, vol. 58, no. 4 (2005), pp. 671–80Google Scholar, conclude that opposed domestic political factors and institutions did not systematically prejudice reform.