Cesp Shares Drop on Concern It Will Lose Dam Rights

Cia. Energetica de Sao Paulo, Brazil's third-largest generation utility, fell to the lowest this year after Sao Paulo state said the new owner of the company may lose the right to operate several hydropower dams by 2015.

Preferred shares of Sao Paulo-based Cesp fell 1.57, or 3.4 percent, to 44.90 reais, after sinking as low as 41.20 reais.

Cesp's rights to operate four power dams expire over the next eight years and the federal government may choose not to renew the concessions, Armando Shalders, Cesp's head of administration, said in an interview with Bloomberg News after a hearing on a plan to auction a controlling stake in the company.

``It seems like the market expected that the concessions would be renewed,'' Daniella Marques, who manages 2 billion reais in assets and doesn't own CESP shares at Mercatto Gestao de Recursos in Rio de Janeiro.

Sao Paulo state plans to sell its 94 percent voting stake in the generator, which operates six hydropower dams, between Feb. 20 and March 31, state and company officials said today during the public hearing at the Sao Paulo stock exchange. The sale is expected to earn the state government as much as 7.5 billion reais ($4.3 billion), UBS Pactual, the Brazilian unit of UBS AG, said earlier this month.

Under concession contracts, ownership of the dams return to the federal government when they expire. The government has no obligation to make any compensation unless investment by concession owners has yet to be amortized, Shalders said after the hearing.

Rights to operate Porto Primavera dam, which expire in May, probably will be renewed, he said.

In the two months before today's public hearing the stock had gained 37 percent. Cesp has gained 91 percent in the last 12 months, the second-best performance on the Sao Paulo stock exchange and more than double the gain in the Bovespa index of the exchange's 64 most-traded stocks.

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

To contact the editor responsible for this story: Chris Nagi at at chrisnagi@bloomberg.net. Tony Cox in Houston at acox3@bloomberg.net.

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