By Brazil Stock Guide – As the energy reform bill he authored sits on President Luiz Inácio Lula da Silva’s desk awaiting signature, Senator Eduardo Braga of Amazonas, a member of the MDB, is positioning himself at the center of two of Brazil’s most consequential regulatory battles: restructuring the country’s power sector and dismantling a vast network of unregulated online betting and payment platforms. For Braga, both arenas expose the same structural failure — a state that has lost the ability to supervise critical markets, allowing illegal operators to siphon billions while distorting competition and undermining public policy.

In a wide-ranging interview to Folha de S.Paulo, Braga said Brazil is currently overlooking as much as R$100 billion a year in illicit flows tied to unlicensed betting sites, payment intermediaries and shell operations moving money through the banking system undetected. He argues the pattern mirrors what he confronted while drafting the power-sector overhaul: entrenched interests, opaque incentives and regulatory blind spots that allowed dysfunction to harden across entire industries.

“If the state cannot enforce legality in sectors as essential as electricity and digital payments, it signals to the public that the informal route is the winning route,” he said.

Illegal Betting Flows

Braga describes the underground betting ecosystem as a fully formed shadow financial system. It relies on “bolsão accounts” — pooled digital wallets receiving thousands of identical PIX transfers in a single day — and networks of intermediaries that disperse funds instantly across dozens of accounts. These movements run through major banks and leading fintechs, yet are not flagged by the Central Bank, the Federal Revenue Service or the financial-intelligence unit COAF.

A Revenue Service study estimated the illegal flow at R$50 billion. Industry consultants told Braga the real number is likely closer to twice that amount. “This money moves in broad daylight, right through the formal banking system, and no institution is held accountable for reporting it,” he said.

Specialists he consulted say betting algorithms in Brazil deliver one winning outcome for every ten bets, far worse than ratios in other regulated markets. The result, he says, is a cycle of compulsive losses, indebtedness and social harm.

Braga’s report will require banks and large fintechs to monitor and report atypical patterns linked to bolsão accounts, as they already do for suspicious activity in traditional accounts. He argues urgency is critical because stricter Central Bank rules for fintechs will only take effect in April 2026. Until then, roughly 1,300 fintechs operate with minimal oversight, enabling the “digital gray zone” to flourish.

“The priority is not taxation — it is shutting down the illegal corridor,” he said.

Fintech Tax Divide

Braga rejects any proposal to treat fintechs like banks for tax purposes. The models, he says, are structurally incompatible. Fintechs issue small-ticket consumer credit, operate without branches, carry minimal fixed costs and do not handle loans backed by real guarantees. Banks, by contrast, are systemic institutions governed by Basel rules, large balance sheets, long-duration assets and heavy prudential supervision.

For that reason, Braga dismissed the idea of a “minimum effective tax rate” — promoted by former Central Bank president Roberto Campos Neto — arguing it wrongly assumes homogeneity across financial products. “You cannot treat a colt like a calf,” he said.

His plan follows international practice: gradual adjustments, differentiated by business model, designed to reward formalization rather than penalize it. And he insists tax hikes of the magnitude some policymakers want would be unnecessary if the illegal markets feeding the current distortions are shut down.

Energy System Strain

Braga turns to the energy bill he shepherded through Congress — now awaiting Lula’s signature. He says the power sector suffers from three overlapping crises: electrical imbalance, energy imbalance and a near-total absence of storage.

The roots, he argues, lie in the strategic move from reservoir-based hydropower to “run-of-river” dams. Without reservoirs, Brazil lost its natural storage system. When solar and wind output collapse at peak hours, the country must activate expensive thermal plants. When renewables surge, there is nowhere to store the excess, forcing operators to curtail production.

Brazil also faces a coordination problem. Distributed generation — including solar rooftops — added the equivalent of eight Tucuruí hydropower plants to the grid, but without central dispatch control. The grid operator ONS has no real-time authority over these injections, creating instability so severe that Belo Monte had to be shut down on Father’s Day last year.

Braga’s bill seeks to rebuild rational incentives: price signals for storage; compensation for hydropower units shut down due to electrical imbalance; and requirements encouraging utilities, transmission companies and consumers to install batteries at every level of the grid. He says some contentious provisions — notably a congressional amendment indemnifying generators who knowingly built projects without transmission capacity — were not part of his text and should be vetoed by Lula.

He warns the CDE subsidy account could exceed R$70 billion by 2027 — a cost borne almost entirely by the middle class, as wealthier households generate their own power and low-income families are shielded by social tariffs. His proposal, he argues, would reduce that figure to below R$15 billion within seven years.

Braga also criticizes the deterioration of Brazil’s state-run energy planning agency, EPE, which has lost its top engineers to the private sector and no longer produces robust system forecasts. “A country that cannot plan its energy system cannot plan its economy,” he said.

Oil and Refining Clash

Braga closes with an even more delicate issue now before Lula: whether to update Brazil’s oil royalty reference price. The technical adjustment has major implications for Petrobras, international oil majors and the country’s broader refining strategy.

He argues Brazil’s oil — especially volumes not tied to import-parity formulas — should serve domestic fuel self-sufficiency first. Today, he says, Petrobras often chooses to export crude at attractive prices while importing diesel and refined products at higher cost, rather than supplying domestic refineries. The result is a refinery park operating below potential and a growing space for small, poorly regulated refining units — including some tied to criminal investigations.

Updating the reference price would narrow the export-refining arbitrage that makes crude sales abroad more profitable than domestic processing. For Braga, this is not a revenue grab but a market correction that would attract investment, expand refining capacity and reduce dependence on imported diesel during global shocks.

Petrobras, along with Shell and BP, has urged Lula to veto the measure. Oil-producing states want it sanctioned. Braga says the technical foundation came from the Ministry of Finance — not from him. “This diagnosis came from the government’s own experts,” he said. “I simply translated it into policy.”

For him, the oil debate is about energy sovereignty and industrial strategy. “It makes no sense for Brazil to export crude and import diesel. It makes no sense to prioritize dividends while under-utilizing our refineries. And it makes no sense for the vacuum left by the state to be filled by irregular operators,” he said.

He concludes that the bill now before Lula does not solve everything, but “opens the right doors” for restoring coherence across electricity, petroleum and digital finance. “A country must control its flows — of energy, of petroleum and of digital money. Without that, we become hostages to improvisation.”