1 Energy Restrictions to Growth:

At the end of World War II, Brazilian authorities perceived energy supply as a major constraint to economic growth. To remove this constraint, state-owned energy companies (Petrobras and Eletrobras) were created to develop an energy system that should be able to supply the demand emerging from industrialization and urbanization, operating under a monopolistic regulatory regime. This regulatory regime was set up to face the elastic energy demand in the country. In the 1980’s, this institutional arrangement was no longer able to match the growing demand of energy, especially in the power sector. Radical reforms were implemented to open the energy sector to private investors and to competition but power shortage restricted economic growth at the beginning of this decade. Reforms were introduced in the wholesale power market but the specter of a new shortage of energy supply is regularly haunting consumers, especially after the Brazilian imports of energy from neighbor countries (Paraguay and Bolivia) became a political issue. The recent discovery of large offshore oil fields, the large potential for hydropower and the leadership in the supply of ethanol offer an optimistic scenario for the Brazilian supply of energy. In addition, since the 1990´s, the energy demand elasticity has fallen to unity, easing energy restrictions to growth. However, to remove the specter of energy shortages it is crucial to put in place a regulatory regime that can be able to attract the substantial financial resources needed to develop the energy system