Brazil Utility Measures Respect All Contracts, Minister Says

Brazil’s government isn’t breaking any contracts in its plan to demand energy rate cuts as the main condition to renew power utilities’ expiring licenses, Mining and Energy Minister Edison Lobao said.

President Dilma Rousseff and Lobao on Sept. 11 announced measures to force power utilities to cut rates by as much as 28 percent to stoke economic growth while taming inflation. The measures include revised conditions for the renewal of licenses due from 2015 to 2017.

“We are giving them an option, while reinvigorating their business for 30 more years,” the minister said during an interview yesterday in Brasilia. “But we’re not imposing anything. Those who are not satisfied can comply with the current law and return the asset to the federal government.”

Expiring concessions are mostly part of the state-run power utility Centrais Eletricas Brasileiras SA (ELET6), or Eletrobras, and won’t affect the private initiative, according to Lobao.

“I honestly don’t understand all the crying,” Lobao said. “We are not taking anything from anyone.”

The government will compensate companies that haven’t paid off required investments under existing licenses. The 21 billion reais ($10.4 billion) set aside for such a purpose is more than enough, the minister said.

Cia. Energetica de Minas Gerais, Brazil’s largest power company by market value, declined 20 percent to close at 25.29 reais in Sao Paulo on Sept. 12 after earlier falling as much as 23 percent, the biggest intraday drop since September 1998. Cia. Energetica de Sao Paulo, or Cesp, plummeted 28 percent the same day, the most since it started trading in August 2006.

Lower utility rates for households and businesses will shave 0.5 percentage point to 1 percentage point off inflation starting next year, Finance Minister Guido Mantega told reporters in Brasilia on Sept 11.

-- Editors: Charles Siler, Iain Wilson

To contact the reporters on this story: Maria Luiza Rabello in Brasilia Newsroom at mrabello@bloomberg.net

To contact the editor responsible for this story: Helder Marinho in Sao Paulo at hmarinho@bloomberg.net

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