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'.

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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
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Senior Director
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