Brazil Narrows Budget Gap With $4.5 Billion Hydropower Auction

  • China Three Gorges offers $632 million for biggest group
  • Companies bid for contracts to run 6 gigawatts of hydropower

Brazil raised 17 billion reais ($4.5 billion) from bidders including China Three Gorges Corp. in a government auction for more than 6 gigawatts of existing hydroelectric plants.

China Three Gorges offered 2.38 billion reais for 30-year contracts to operate the two largest power plants included in the auction Wednesday, according to Brazil’s energy regulator Aneel. It will also pay the government a concession fee of 13.8 billion reais.

The auction was initially scheduled for September and was postponed three times. The Senate authorizedthe rules for the event late Tuesday, removing the final roadblock for the government’s effort to narrow the widest budget deficit on record by selling the rights for 29 hydropower plants in five states. The concession fees were set in advance, and the participants also submitted bids to operate the dams.

“Seventeen billion reais to the government are guaranteed with the auction, as all slots had bids,” Aneel director Jose Jurhosa Jr. told journalists in Sao Paulo after the event. “I don’t see any risk on the payment already this year.”

Economic Recession

The auction was seen as a test of Brazil’s ability to attract investments amid an economic recession and uncertainty over President Dilma Rousseff’s political survival. The government will get 11 billion reais in concession fees in the current fiscal year and another 6 billion reais next year. Companies must pay the entire amount in advance and will recover their investment over the three-decade period.

“Our decision to invest in Brazil is a long-term decision and we advanced a lot on our plans with the auction today,” said Joao Meirelles, chief executive officer of China Three Gorges’s local unit. China Three Gorges also agreedthis year to buy assets from Brazil’s TPI - Triunfo Participacoes e Investimentos SA, a Sao Paulo-based operator of highways and other infrastructure.

The company’s bid for the so-called Slot E group of dams was just one real lower than the ceiling price set by the government. In Brazil’s energy auctions, regulators typically set a maximum price and participants bid down from there, with the lowest winning long-term contracts.

Five Groups

The group, known as Slot E, comprises the 1.5-gigawatt Jupia and the 3.4 gigawatt Ilha Solteira dams, previously managed by Cia Energetica de Sao Paulo.

Cemig Geracao & Transmissao SA won Slot D with a bid of 498.6 million reais. That was the biggest group with 18 dams, including the 396-megawatt Tres Marias plant. Celg Geracao & Transmissao SA won Slot A, a joint bid from Copel Geracao & Transmissao SA and Enel Green Power Brasil Participacoes Ltda. won Slot B and Slot C went to Celesc Geracao SA. The 29 dams are in the states of Goias, Minas Gerais, Parana, Santa Catarina and Sao Paulo.

There is some doubt about when the proceeds from the auction will be available. Acir Gurgacz, the senator responsible for the revenue report of the 2016 budget bill, said the funds won’t be booked until next year.

“I spoke this afternoon with Energy Minister Eduardo Braga and he said the 17 billion reais in revenue from the auction of hydroelectric dams will be effective only in 2016,” Gurgacz said after the vote Tuesday.

Aneel doesn’t agree. The government will probably get the payment on time for this year, according to Jurhosa. 

“The only risk is the failure of the companies in delivering documents for the dams auctioned on time,” he said.

Press officials for Minister Braga and the Finance Ministry weren’t immediately available to comment.

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