Eletrobras Leads Brazil Stock Gains on Compensation Rise

Centrais Eletricas Brasileiras SA (ELET6) rose the most in 13 years, leading gains by Brazilian power companies, after the government increased compensation by 50 percent for utilities that agree to cut electricity rates.

The government offered an additional 9.87 billion reais ($4.7 billion) to utilities that accept President Dilma Rousseff’s plan to renew licenses with lower rates, on top of 20 billion reais announced Nov. 1. Eletrobras, as the state-run company is known, rose 24 percent to 9.65 reais in Sao Paulo, the biggest gain since January 1999.

The higher offer is designed to compensate for transmission investments and encourage companies to accept the renewals, Deputy Energy Minister Marcio Zimmermann said yesterday. The MSCI Brazil Utilities Index has tumbled 22 percent since Sept. 10, the day before Rousseff said she wanted to cut power costs by as much as 28 percent to aid manufacturers.

“The government was in a way forced to do this,” Felipe Rocha, an analyst at brokerage Omar Camargo, said in a telephone interview from Curitiba, Brazil. “The government kept saying it wouldn’t change the program, and companies kept saying they would not renew the concessions. Somebody had to give in, and the government partially did.”

Eletrobras, which was initially offered about half the 30 billion reais compensation it expected, plummeted 59 percent from Sept. 10 through yesterday.

Leading Gains

In a regulatory filling, the company said that not renewing licenses would have “tragic effects” and that renewing would guarantee “30 more years of relevant participation” in Brazil power market. The state-controlled company will host a shareholders meeting on Dec. 3.

Cia. de Transmissao de Energia Eletrica Paulista, known as Cteep, rose 4.5 percent to 31.25 reais, the second-biggest gain in the Bovespa index after Eletrobras. The company was one of the most impacted by the changes, according to Beatriz Nantes, an analyst at Empiricus Research.

“Their board already recommended not renewing,” Nantes said by telephone from Sao Paulo. “They weren’t happy, and I don’t know if they will back down.”

By compensating for transmission assets built before 2000, the new proposal gives companies further incentive to accept concession renewals, the Energy Ministry said in its website.

Interconexion Electrica SA (ISA), Cteep’s Medellin, Colombia- based parent, gained as much as 8 percent in in Bogota. Companies have until Dec. 4 to decide whether to renew concessions under the government’s terms.

’Huge Demonstration’

“We’re providing a huge demonstration of flexibility with this incentive,” Treasury Secretary Arno Augustin told reporters in Brasilia yesterday. “The measure will benefit all companies with transmission services.”

Rousseff is forcing utilities to cut rates in exchange for the renewal of licenses for an additional 30 years. Lower costs will help contain inflation that has exceeded the midpoint of policy makers’ target for more than two years.

Cia. Energetica de Minas Gerais, or Cemig, opted not to renew concessions for three hydroelectric dams because the company expected to be granted an automatic renewal under old rules, Chief Executive Officer Djalma Morais said Nov. 26. Shares gained 2.72 percent to 25.67 reais.

To contact the reporters on this story: Maria Luiza Rabello in Brasilia at mrabello@bloomberg.net; Mario Sergio Lima in Brasilia at mlima11@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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