April 8 (Bloomberg) -- Brazil's Energy Ministry ordered a reduction of natural gas deliveries to power generators and distributors after a pipeline that supplies half the nation's needs was damaged by rains in Bolivia.

Petroleo Brasileiro SA, Brazil's state-controlled oil company, will cut supplies to distribution companies by as 12 percent and to generators by 72 percent, the ministry said in a statement late yesterday. Petrobras will scale back use of gas at refineries 51 percent to stave off shortages, the ministry said.

The rationing may curtail natural gas deliveries to companies such as Tractabel Energia SA and Cia. Paranaense de Energia and threaten supplies in states including Sao Paulo, Brazil's largest with a population of 40 million. Both Bolivia, which gets half its tax revenue from gas exports, and Brazil have an interest in resolving the problem fast, said Luiz Caetano, an energy analyst at Banif Investment Bank in Sao Paulo.

``The situation is very delicate, very serious,'' Caetano said. ``A quick solution is likely because both sides are dependent on the gas.''

Flooding, Landslides

This past week flooding and landslides in Bolivia uncovered an 800-meter (2,625-foot) stretch of the Bolivia-Brazil Natural Gas Pipeline, Rio de Janeiro-based Petrobras, the operator, said in a statement.

As a result of the damage, pipeline activity has fallen by about 7 million cubic meters a day, 14 percent of Brazil's daily use, reducing deliveries from the Bolivia pipeline to about 19 million cubic meters a day from 26 million, Petrobras said.

Roadblocks set up by groups protesting Bolivia's policies for distributing energy royalties have been taken down, allowing repair crews and equipment, which had been held back by the demonstrations, to join workers at the site of the pipeline damage today, according to Petrobras' press office.

The Brazilian oil company is in negotiations with the Bolivian government, whose President Evo Morales wants multinational oil companies to pay more for resources or cede control of assets to the state. Petrobras has invested $1.5 billion in Bolivia, is country's largest company, operates both its refineries and supplies nearly all of Bolivia's gasoline and diesel fuel.

Rationing

The rationing plan adopted by Brazil is similar to one outlined in June 2005 when protests against foreign oil companies in the region around Santa Cruz, where most of Bolivia's gas is produced, threatened to shut the pipeline.

``The longer this drags on, the more the Bolivians get hurt,'' Caetano said.

Andres Solis, Bolivia's energy minister, promised full support for Petrobras' efforts to overcome difficulties in fixing the pipeline, in a conference call with Brazilian Energy Minister Silas Rondeau, the Brazilian ministry statement said.

A spokeswoman for Petrobras' president Jose Sergio Gabrielli declined to comment. A call to the Energy Ministry in Brasilia wasn't answered. A call to the Bolivian presidential palace press office in La Paz wasn't answered.

Any declines in gas-fired electricity generation will be made up by increases in hydroelectric generation, the ministry statement said. The ministry said it is taking steps to reduce the effect of the shortfall on residential and business consumers of gas supplied by distributors in the main Brazilian states.

Reduction of gas use by Petrobras will also help make up the shortfall. Brazil gets most of the rest of its natural gas from the Campos Basin off Brazil's coast near Rio de Janeiro. Gas from the Campos Basin can be redirected to Sao Paulo and other parts of Brazil's industrialized southeast and south through interconnected pipelines, according to Petrobras' Web site.

To contact the reporter on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net

Last Updated: April 8, 2006 19:11 EDT