July 24, 2014 / 9:54 PM / 5 years ago

Brazil likely to extend deadline for utilities to pay power bills -source

BRASILIA, July 24 (Reuters) - Brazil will likely extend the deadline for the country’s electricity distributors to pay for power purchased in May after an emergency loan to help the utilities cover soaring spot-market rates ran out, a government source told Reuters.

The utilities have already received a seven-week payment extension to July 31 from June 11 for the May power, preventing many utilities from defaulting on their power-purchase obligations. More time is needed, the source said, to allow the government to negotiate new credits for the utilities.

“It’s practically certain that the deadline will be extended to the beginning of August due to the complexity of the operation,” said the source who asked for anonymity because of a lack of authorization to speak to the press.

The deadline would be extended to give the government more time to complete negotiations for a 6.5 billion real ($2.93 billion) emergency loan lead by state-owned banks. The new credit would finance the payments until annual government-authorized energy tariff increases kick in. At present, the utilities are forced to sell the power at a loss.

The loan follows a 11.2 billion-real loan made earlier this year by 10 banks to Brazil’s spot-market energy clearing house, the CCEE. It ran out in May. The CCEE is using the loans to pay the distributors’ bills with generators and other sellers of spot power.

Electricity rates soared to record highs earlier this year due to a drought that reduced the country’s hydroelectric generation capacity. With less water power, the country needed to rely more on more expensive fossil fuels. The lack of power was exacerbated by the government’s failure in recent years to complete a series of promised long-term generation capacity auctions.

With power short many distributors had to buy power on the spot market or risk breaking their contracts with the government to supply consumers.

The government hopes the new loan will cover spot-market charges through the end of the year. While non-state banks took part in the first loan to utilities, the new loan is expected to be made entirely by banks owned by the Brazilian government such as Banco do Brasil SA, Caixa Economica Federal and state-development bank BNDES

$1 = 2.22 Brazilian reais Writing by Jeb Blount in Rio de Janeiro; Editing by Lisa Shumaker

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