Ceará sold its power utility through an IFC-run tender; the private operator rebuilt it

In the 1990s Ceará, one of Brazil's fastest-growing but poorest states, had a state power distributor — COELCE — that lacked the capital and incentives to expand and modernize. The state hired IFC as principal advisor for a sector modernization program whose centerpiece was privatization, and IFC organized an international tender to select a strategic investor for the company.

At the auction, the state sold 90 percent of COELCE's voting shares, representing 55.4 percent of total capital. The winning Distriluz consortium, led by Spain's Endesa, took over in April 1998 under a 30-year renewable concession. The government received about $880 million for the stake, 27 percent above the minimum price, and kept a minority interest.

The design mattered more than the price. Control passed to a private operator whose profit depended on selling more electricity and losing less of it, under an independent regulator and a long concession that justified heavy capital spending. Within four years COELCE was running a large post-privatization investment program — backed, for example, by a $50 million European Investment Bank loan — to expand low- and medium-voltage networks, reduce losses and improve quality across a concession area of 147,348 square kilometers and 184 municipalities.

The transformation paid off: customers grew from about 1.4 million at the time of the sale to 1.8 million by 2002, and PPIAF's assessment concluded that the privatization helped ensure Ceará's power needs were met and gave the state a competitive advantage in attracting private-sector development.

Tender sale plus long concession makes the buyer invest

A competitive international tender forced bidders to price the asset and commit to a strategy, producing a 27 percent premium over the floor.

A 30-year renewable concession gave the operator the horizon needed to justify heavy investment in networks.

Majority private control with performance-driven economics aligned the operator's profit with expanding service and cutting losses.

IFC's advisory role brought a technical, market-tested process to a politically charged privatization, which built credibility with bidders.

Funding alone cannot fix a state utility. Sell control by competitive tender, tie the buyer's profit to expanding service and cutting losses, and the buyer funds the transformation.

COELCE continued under Endesa's control with a large post-privatization investment program: the EIB's 2002 loan documented network expansion aimed at cutting losses and improving reliability, and the company's customer base grew from about 1.4 million at the sale to 1.8 million by 2002. PPIAF later featured the case in its PPP brief series as a successful World Bank Group-advised privatization that helped ensure Ceará's power needs were met and gave the state a competitive advantage in attracting private-sector development.