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Édison Freitas de Siqueira

On 17/05/2010 Citigroup brought to public its official opinion in which it denounced the lack of precision in the financial statements of Eletrobras. This fact weakens the intentions of capitalization by Eletrobras and Petrobras, major private companies publicly traded in Brazil, which have the same controlling partner.

Mr. Charles Prince, Citigroup's chairman, was also surely reported in New York on 5/3/2010, of the omission of Eletrobras accounting records by two North American investment funds that are creditors of Eletrobras. Therefore, the decision, announced by Citigroup, should be read as a warning that Citigroup is no longer an accomplice of Eletrobras, thus it has removed  the investment grade rating of the company, and has also recommended  invsestors to sell their shares of Eletrobras. After all the figures disclosed in the balance sheets and profit projections are not only suspecious but also impossible to understand, in the words of a senior analyst at Citigroup, Mr. Marcelo Britto. 

The problems of made up balance sheets by Eletrobrás concern to a systematic omission of liabilities that amount to billions of dollars, and and to the failure to distribute dividends to barely 99% of the company’s shareholders for more than 22 years. These facts led Citigroup to officially declare that the company suffers from suspicious "political interference", which is exacerbated by the conflict of interest "in the CVM.
Eletrobras, similarly to Petrobras, is a publicly traded private company  under the jurisdiction of corporate law and it can not be considered a state-owned enterprise, because its has private partners around the world, raises money through private stock exchanges outside Brazil and it is organized by statutes that qualify it as a publicly traded corporation.

The conflict of interest exists because those who oversee the mergers and acquisitions carried out in Brazil and abroad, with or without the participation of the aforementioned players, are the Central Bank and CVM. Acquisitions, stock sales, mergers, and the financing involving these players even when legitimate suffer from this vicious conflict of interests, to which Brazil is a paradise, because power to decide who most influences the market is unique and not transparent.

The manifestation of Citigroup makes it easier for these companies and their directors to be trialed in the United States, where Eletrobras trades and issues ADRs on the NYSE, in addition to sponsoring mergers and acquisitions with major North American groups. Just as Enron, Arthur Andersen, they may receive heavy penalties and millionaire fines.

What we are about to witness is one of the largest infrastructural disasters in Brazil for the simple lack of ethics in dealing with international laws that focus on the global business done in the "terrae brasilis".

These issues on Eletrobras are the proof of the greatest conflict of interest in the world securities market. The CVM, which should deter, monitor and publicize abuses of Eletrobras does not do that for decades. As Citigroup spoke out on the balance sheet omissions the greater public found out what is the company that is not properly overseen by CVM. The reason for this is simple: Eletrobras directors are chosen by the same person that chooses the directors of the CVM and the Central Bank of Brazil, ie the supervised chooses the supervisor. Same is true for the BNDES, Banco do Brazil, Caixa Economica Federal and the 34 largest private pension funds in Brazil, which are the most influential traders of Brazilian shares in the stock exchanges in São Paulo and New York.

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