Nov. 18 (Bloomberg) -- Brazil will auction concessions to build and run 1,002 kilometers (623 miles) of power lines as the country seeks to ensure its supply of electricity keeps pace with growing demand.

The government expects the winners of today's auction will spend about 1.1 billion reais ($400 million) over the next two years to build two transmission lines and three power substations, which will serve a national power market growing by 4.5 percent a year. The auction will start at 10 a.m. New York time at the Sao Paulo stock exchange.

``This auction is very important for the electricity sector because it will strengthen the grid,'' Oswaldo Telles Filho, a power industry equity analyst for Banif Investment Bank, said in an interview in Sao Paulo. ``There has been a great interest for that type of investment because return rates have been very attractive.''

The sale is part of a government plan to attract new capital to the electricity industry after lower interest rates helped boost economic growth to 5.7 percent in the second quarter, the fastest pace since 1996. The country needs $5 billion a year investment in the industry to avoid repetition of the shortages that hit the country in 2001 and 2002, the government says. Power consumption could outstrip supply by 2007 unless generation and transmission capacity is increased, according to government estimates.

Seventeen companies, including a unit of Centrais Eletricas Brasileiras SA, the country's biggest power generator, have qualified for the bidding along with Spanish companies such as Abengoa SA and Elecnor SA, the country's electricity regulator said. Brazil this year sold concessions to build and run 12 power lines with 2,862 kilometers of extension, the country's regulator said on its Web site.

Rate of Return

Annual rates of return on power lines are more than 11 percent above inflation, Telles said. Investors have been flocking to such investments because power transmission companies receive a flat fee for the usage of their lines regardless the amount of electricity they carry, Telles said.

That makes investment in power lines less risky than building new power plants, whose electricity prices depends on market conditions, Telles said.

Brazilians had to cut electricity consumption by as much as 20 percent in the two years after a drought reduced the power generating capacity of several hydroelectric plants in the country's northeast, mid-west and southeast.

Power plants in the south of country were unable to transfer some of their excess electricity because of lack of power lines at that time, Rolla said.

To contact the reporter on this story: Romina Nicaretta in Sao Paulo at at Rnicaretta@bloomberg.net

Last Updated: November 18, 2004 06:13 EST