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Rio's Utility Faces A Live Wire Issue...As Privatization Starts Humming (Int'l Edition)

International -- Spotlight on Brazil


In the Rio das Pedras slum, tangled wires crisscross from makeshift utility poles into thousands of ramshackle homes. The illegal hookups, resembling a web of multicolored linguini, provide Rio de Janeiro's favelas, as the slums are known, with electricity. Light, the city's energy utility, has usually looked the other way as its juice is stolen by the poor.

But the future of these homemade connections is uncertain. On May 21, in Brazil's biggest privatization yet, the national government sold 55% of Light for $2.26 billion to a consortium led by AES of Arlington, Va., Houston Industries Energy in Houston, and Electricite de France (EDF). The hookups present the new owners with a delicate social and economic issue. Light loses 16% of the electricity it purchases because of inefficiency, technical problems, and stealing, costing the financially struggling company about $100 million in 1995. It is unknown exactly how much is stolen, but energy analysts say it probably amounts to more than half of the 16% loss.

NO SQUEEZE? Light's new owners know that if they disconnect slum dwellers or try to enforce payment, the result could be a public relations disaster. Some Brazilians, particularly the poor, are already suspicious of foreign companies that buy state enterprises. For now, the consortium says it will concentrate on reorganizing Light's billing system and on checking nonworking meters. "We're not trying to squeeze people out of their last dollar," says Henry Aszklar Jr., president of AES Brasil. Aszklar diplomatically downplays the importance of the stolen electricity. "In the favelas you have low-income people with just a few electrical items. You're not going to find massive energy losses there." In other statements, the new owners have said they will "study" the problem of the favelas.

In Argentina, both EDF and Houston Industries Energy Inc. bought parts of the formerly state-owned Buenos Aires electric utility in the early 1990s. Through software programs, they were able to determine the source of leaks and cut the losses by about half. But Rio's favelas, most of which are ruled by drug traffickers armed with submachine guns, are more dangerous than the villas miseria of Buenos Aires. Cutting off power to favelas could spark violent protests. "Who's going to go up into the favelas and say: `Hey, man, you're stealing my energy'?" asks Antonio Luis de Castro, an analyst with Citibank in Sao Paulo.

Ironically, many favela residents would not mind paying a few dollars a month for legal electricity. For thousands who have built tiny homes without the city's authorization, an electric bill can boost a legal residency claim and help in signing up for public services. And then there's the issue of safety. Rio das Pedras residents Maria and Monica Jales, watching young children run barefoot under a precarious hookup, agree there might be fewer accidents if Light connected the wires.

Rio de Janeiro, under the guidance of a state governor known as a born-again capitalist, is starting to reverse decades of economic decay. Governor Marcello Alencar and his son, state Planning Secretary Marco Aurelio Alencar, are selling assets including the state bank, subway, and gas utility. "In two years, the entire state infrastructure will be privately owned," says 40-year-old Marco Aurelio. The state figures it will receive $2.7 billion from the sales.

The idea of Rio becoming Brazil's most progressive state would have seemed ridiculous just last year. Governor Alencar had been closely identified with former Governor Leonel Brizola, a leftist populist blamed by Rio's business community for hastening the city's decline in the 1980s. When President Fernando Henrique Cardoso took office on Jan. 1, 1995, "it marked a division of waters" separating a statist past from a free-market future, says Marco Aurelio. Another likely motive for the governor's conversion is a $5 billion debt and a budget deficit that hit $171 million last year.

Even Brazil's beloved futebol, or soccer, will not be spared by the Alencars. Rio's historic Maracana stadium, a larger-than-life complex that at one time seated nearly 200,000 people but now, for safety reasons, seats 96,000, is likely to be privatized next year. In Rio, that's almost equivalent to selling off the cathedral.EDITED BY HARRY MAURER $by By Ian Katz in Rio de JaneiroReturn to top

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