December 12, 2016 / 7:15 PM / 9 months ago

AES Brazil chief slams power supply rules, seeks solution

SAO PAULO, Dec 12 (Reuters) - A sharp recession in Brazil has forced electricity distributors to buy power they cannot sell, adding to their struggles during the downturn, the most senior Brazilian executive for U.S. power company AES Corp said on Monday.

Julian Nebreda told investors that the company’s Eletropaulo unit, the country’s largest power distribution firm, could lose up to 110 million reais ($33 million) in 2016 due to rigid contracts.

“I can’t understand how they can force a power distribution company to buy more energy than it needs. What world is this?” said Nebreda, who held positions in Europe and Latin America before taking over as chief executive of AES Brasil in April.

He added that the firm is actively talking with Brazil’s electricity regulator Aneel to find a solution.

The situation described by Nebreda is not exclusive to Eletropaulo Metropolitana Eletricidade de São Paulo SA , as the company is formally know. Other power distribution firms in Brazil are facing the same problem due to the impact of Brazil’s deepest recession since the 1930s.

In the country’s regulated power market, distributors have to buy energy from generators at regular auctions, closing contracts to meet the expected demand for periods of up to 20 years.

However, the recession caused a sharp reversal in electricity usage after years of steady growth. For the last two years, demand fell in Brazil and distributors are paying generators for energy they are not selling.

The rules also bar distributors from selling excess supply in the open market. Companies are arguing for compensation or the option to trade the excess electricity on the open market.

Aneel has opened a public consultation to receive suggestions for modifying contracts, but there is no date set for a decision on the subject.

Eletropaulo, which supplies 20 million people in metropolitan Sao Paulo, said power demand fell 2.4 percent in the nine months to September.

The company had a net loss of 56 million reais in the period, compared to a profit of 66 million in 2015. Its shares gained 13 percent in the last 12 months in Sao Paulo, compared to a 31 percent gain for the exchange’s main index Ibovespa.

$1 = 3.35 reais Reporting by Marcelo Teixeira; Editing by Paul Simao

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