Sept. 14 (Bloomberg) -- Brazil’s bid to force power utilities to cut rates in exchange for license renewals is relying on existing rules and doesn’t leave any room for disputes, Energy Minister Edison Lobao said as some companies weigh contesting the measures.
“Those who are not satisfied can comply with the current law and return the asset to the federal government,” Lobao said in an interview at his office in Brasilia yesterday. “We are giving them an option.”
President Dilma Rousseff and Lobao this week announced the plan to cut electricity rates by as much as 28 percent in a bid to stoke economic growth. Cia. Energetica de Minas Gerais, Brazil’s largest power company by market value, is among companies considering challenging the decision, Chief Financial Officer Luiz Rolla told analysts a day after the plan was disclosed.
The country’s concession contracts for energy generation and distribution allow the government to renew licenses at its discretion but don’t oblige it to, while some utilities expected the right for an automatic renewal without the need to negotiate a revision of rates, Lobao said.
Centrais Eletricas Brasileiras SA, the Brazilian state-run power utility known as Eletrobras, is the one that will be most affected, he said.
The government will compensate companies whose investments under existing licenses haven’t fully paid off. The 21 billion reais ($10.4 billion) being set aside for the compensations are more than enough, the minister said. Should the utilities contest the values of compensations, they can take their claims to the electricity regulator Aneel, Lobao said.
“I honestly don’t understand all the crying,” said Lobao, showing a copy of concession rules. “We are not taking anything from anyone.”
Brazilian utility stocks plummeted in Sao Paulo on Sept. 12, the day after the announcement of the measures, on the outlook for declining profits. Cia. Energetica de Minas Gerais, known as Cemig, sank 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.
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