Feb. 20 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's biggest company, wants to scrap agreements to pay $1.5 billion in rent for power plants built by El Paso Corp., MDU Resources Group Inc. and Enron Corp., seeking to stem losses caused by slack demand for energy.

State-controlled Petrobras had the three plants built to head off predicted power shortages in Brazil. Instead, an economic slowdown produced a nationwide glut of electricity. The plants are now idle, and Petrobras stands to lose $300 million annually over five years by renting the plants, said Ildo Sauer, who runs Petrobras's electricity business.

Reworking the rental contracts is important for Petrobras to avert future losses from the electricity business, which reduced Petrobras profit by about $1 billion in 2003, said Sauer.

``These three contracts are what are generating the losses,'' Sauer said in an interview at Petrobras's Rio de Janeiro headquarters. ``It was an absolutely immoral deal.''

The plants were among 10 Petrobras built at the urging of former President Fernando Henrique Cardoso's government. To fuel the plants, Petrobras expanded a $2 billion natural gas pipeline from Bolivia to Brazil, a decision that's also racking up losses.

Sauer said Petrobras could lose up to $100 million a year through 2019 on contracts require the company to buy the Bolivian gas whether it's used or not. Now, Sauer is leading efforts to renegotiate prices and the amount of gas it has to buy from Bolivia.

Petrobras began talks to reduce payments with the generator's owners, Houston-based El Paso, MDU of Bismarck, North Dakota, and Dusseldorf-based bank WestLB AB, a creditor of the plant Enron built before collapsing, Sauer said. The $1.5 billion of rent due over five years on the plants, whether it can sell the electricity or not, equals two times the plants' total value, Sauer said.

Spread Payments

Petrobras would like to spread the rental payments over 20 years instead of five, said Sauer. Another option may be for Petrobras to buy all or part of the plants.

MDU Resources, which owns 49 percent of Petrobras's 220 megawatt plant in Brazil's northeastern Ceara state, expects Petrobras to live up to the contract, MDU spokesman Art Thompson said.

``We've met all of our terms of the agreement and to date Petrobras met its terms,'' Thompson said in a telephone interview from his office in Bismarck.

El Paso, which owns a 970 megawatt plant north of Rio de Janeiro, won't comment until the talks conclude, said spokesman Mel Scott in Houston. WestLB spokesman Michael Wilde in Dusseldorf declined to comment.

Losses from an expansion into electricity plants fueled by Bolivian natural gas caused Petrobras profits to rise at the slowest pace in a year in the fourth-quarter.

Last year's write-offs covered potential losses from the business through yearend, and executives have said future losses depend on how much demand for electricity rises in Brazil.

To contact the reporter on this story: Michael Smith in Rio de Janeiro at mssmith2@bloomberg.net.

Last Updated: February 20, 2004 11:05 EST