* Brazil gets rate cut of 16.7 pct, less than 20 pct target
* Utilities in Sao Paulo, Minas Gerais, Parana, reject offer
* Aim is to lower costs, boost efficiency
By Leonardo Goy
BRASILIA, Dec 4 Brazil will have to live with a
smaller-than-hoped-for drop in electricity prices next year
after several utilities rejected a government offer for early
renewal of their power concessions in exchange for charging
Average power rates in Latin America's biggest country, and
one of the world's most expensive electricity markets, will fall
by 16.7 percent after some of Brazil's utilities agreed to
accept the offer. The government had hoped rates would drop by
as much as 20 percent before some utilities declined to
At stake are efforts by President Dilma Rousseff to tackle
some of the high costs that make business and industry in Brazil
more expensive and less efficient than in many other major
economies. Like high labor costs, poor infrastructure, and red
tape, expensive electricity has long been considered a handicap
for Brazilian competitiveness.
Earlier this year, President Dilma Rousseff devised a plan
to tackle the energy problem: She would offer early renewals to
power companies on many existing energy concessions and ask them
to slash rates in return. The concessions, the right to operate
a power plant or distribution lines through 2017, are for
hydroelectric dams and transmission nationwide.
Though economists lauded the effort at a time when Brazil's
economy could use a boost, the plan raised hackles among
investors and managers of the utilities with existing
concessions. Opponents of the effort said the reductions would
slash revenue, profit and investment to a level that could
cripple the industry.
"We can't accept the difference," said Jose Anibal, energy
secretary for the state of Sao Paulo, which controls Companhia
Energetica de Sao Paulo, or Cesp, which rejected the
offer for some of its concessions. He was referring to a 5
billion real disagreement with the federal government over
compensation Cesp would have received as part of the plan.
Companhia Energetica de Minas Gerais, or Cemig,
and Companhia Paraense de Energia, or Copel, also
rejected the offer for some of the dams in their portfolios.
Like Cesp, those two companies are run by states, Minas Gerais
and Parana, respectively, that are governed by the chief
opposition to Rousseff's ruling Workers' Party.
That made some in the government criticize the rejections as
politically motivated. "They were extremely shortsighted in
those states," said Mauricio Tolmasquim, director of the EPE, a
federal energy research institute. "They are risking losing
assets that are fundamental for those companies."
When existing concessions expire, the dams revert to
government control and will be re-auctioned to the highest
Consumers and business groups have long pushed for lower
rates. In a statement late Tuesday, the Federation of Industries
of the State of Sao Paulo, one of Brazil's leading business
organizations, criticized the utilities that declined to renew
The group accused those companies of "not collaborating to
help Brazil become a more competitive country."
Private investors in utilities have shown little desire to
see rates fall. Shares of Eletrobras,
a federally controlled holding company that agreed to the early
renewals, have lost more than 60 percent in market value since
Rousseff first announced the plan.
The company, Latin America's largest utility, on Tuesday
said the new landscape will force it to revise investment
projects and that it will present a new business plan to its
board early next year. Among other changes, the company said it
would have to alter plans to expand and diversify through
operations in other countries, a move many shareholders
The government had an easier time getting transmission
companies to agree to its plan. Utilities opted to renew 100
percent of expiring electricity transmission contracts under the