Fitch: Brazilian Gov. Support Due to Low Hydrology Increases Power Sector's Risk in the Medium Term

  Fitch: Brazilian Gov. Support Due to Low Hydrology Increases Power Sector's   Risk in the Medium Term  Business Wire  RIO DE JANEIRO & SAO PAULO -- March 17, 2014  The new measures announced by the Brazilian government to assist electric distributors (Discos) is a sign of intensifying regulatory risk in Brazil's power sector and is one more unorthodox measure adopted to help the sector cope with a difficult situation, according to Fitch Ratings.  While it is positive for the sector companies' cash needs, this new measure is another sign of increasing government interventionism in the sector that will lead to increased liabilities for the government and tariff pressure for Discos in the coming years.  The announced cash inject of as much as BRL21 billion to ailing discos expected for 2014 is aimed at preventing discos from liquidity pressures and recovering incremental costs from their annual tariff pass-through mechanisms. Since the end of 2012, the Brazilian government has been trying to lower electricity costs after announcing a target tariff decrease for end user of 20% or more. This was followed by a very low hydrology early in 2013, and then at the beginning of 2014, which given the country's high reliance in hydroelectric capacity, has the opposite effect from that intended by the government.  The Brazilian government expects to fund the assistance package with loans totaling BRL8 billion via the Camara de Comercializacao de Energia Eletrica (CCEE), an additional BRL4 billion cash injection from the Conta de Desenvolvimento Energetico (CDE), which is funded by the National Treasury, and was already funded with BRL 9 billion for 2014, and with an energy auction on April to allow the Disco's to have its exposure to the spot market reduced. This year's expected cash injection of BRL21 billion is significantly higher than the BRL9 billion that had already been budgeted.  In 2014, the Brazilian power sector will be in a difficult position as the levels of the country's main hydro reservoirs are similar to levels observed during the energy rationing of 2001. This is compounded by the fact that the end of the rainy season is approaching in April. As of March 16, 2014, the reservoirs in the Southeast and Midwest of the country, which represent 70% of the country's water supply, were at water levels of 35.86%. This is significantly lower than the 43.18% recorded in December 2013 and very close to the 34.53% level recorded in March 2001.  As of January 2014, Light, CPFL, Eletropaulo, Cemig and Copel were the distribution companies facing the most negative financial exposure to rising spot prices. As of that date, the companies had energy payables of BRL127 million, BRL106 million, BRL83 million, BRL75 million and BRL74 million, respectively. In February 2014, Fitch projects that these payables will have at least doubled for each company, as the monthly average spot price (PLD) of BRL822.83/MWh is more than double the BRL383.67/MWh rate in January.  Fitch currently rates the following discos or related holding companies:  Eletropaulo  --Long-Term Foreign Currency IDR (Issuer Default Rating) 'BB+'; Outlook Negative  --Long-Term Local Currency IDR 'BB+'; Outlook Negative  --Long-Term National Rating 'AA(bra)'; Outlook Negative  Cemig  --Long-Term National Rating 'AA(bra)'; Outlook Negative  Cemig D  --Long-Term National Rating 'AA(bra)'; Outlook Negative  CPFL Energia  --Long-Term National Rating 'AA+(bra)'; Outlook Stable  CPFL Paulista  --Long-Term National Rating 'AA+(bra)'; Outlook Stable  CPFL Piratininga  --Long-Term National Rating 'AA+(bra)'; Outlook Stable  RGE  --Long-Term National Rating 'AA+(bra)'; Outlook Stable  Copel  --Long-Term National Rating 'AA+(bra)'; Outlook Stable  Light  --Long-Term National Rating 'AA-(bra)'; Outlook Negative  Light Sesa:  --Long-Term National Rating 'AA-(bra)'; Outlook Negative  Energisa  --Long-Term Foreign Currency IDR 'BB'; Outlook Negative  --Long-Term Local Currency IDR 'BB'; Outlook Negative  --Long-Term National Rating 'A+(bra)'; Outlook Negative  Energisa Paraiba - Distribuidora de Energia S/A (Energisa Paraiba)  --Long-Term Foreign Currency IDR 'BB+'; Outlook Negative  --Long-Term Local Currency IDR 'BB+'; Outlook Negative  --Long-Term National Rating 'AA-(bra)'; Outlook Negative  Energisa Sergipe - Distribuidora de Energia S/A (Energisa Sergipe)  --Long-Term Foreign Currency IDR 'BB+'; Outlook Negative  --Long-Term Local Currency IDR 'BB+'; Outlook Negative  --Long-Term National Rating 'AA-(bra)'; Outlook Negative;  Energisa Minas Gerais - Distribuidora de Energia S/A (Energisa Minas Gerais)  --Long-Term Foreign Currency IDR 'BB+'; Outlook Negative  --Long-Term Local Currency IDR 'BB+'; Outlook Negative  --Long-Term National Rating 'AA-(bra)'; Outlook Negative  Cemar  --Long-Term National Rating 'AA-(bra)'; Outlook Stable  Celpa  --Long-Term Foreign Currency IDR 'B-'; Outlook Stable  --Long-Term Local Currency IDR 'B-'; Outlook Stable  --Long-Term National Rating 'BB+(bra)'; Outlook Stable  Additional information is available at 'www.fitchratings.com'.  ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.  Contact:  Fitch Ratings Wellington Senter, +55 21 4503 2606 Analyst Fitch Ratings Brasil Ltda. Praca XV de Novembro, 20 - Room 401 B - Downtown Rio de Janeiro - RJ CEP: 20010-010 or Adriane Silva, +55 11 4504 2205 Senior Analyst or Mauro Storino, +55 21 4503 2625 Senior Director or Ricardo Carvalho, +55 21 4503 2627 Senior Director or Media Relations: Elizabeth Fogerty, New York, +1 212-908-0526 elizabeth.fogerty@fitchratings.com