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Government and Consumers to Cover R$12 Billion Hole in Energy Sector

03/14/2014 - 09h12

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JULIA BORBA
SOFIA FERNANDES
VALDO CRUZ
FROM BRASILIA

The government announced yesterday that Brazil's energy providers will need a bailout of more than R$12 billion (USD $5 billion) this year in order to balance their books.

This means tax increases in the coming months and price hikes from next year.

The Treasury will provide another R$4 billion (USD $1.7 billion), of which R$1.2 billion (USD $507 million) has already been laid aside to cover the extra costs of energy providers in January.

The funds announced yesterday are in addition to the R$9 billion (USD $3.8 billion) designated for the sector in this year's budget.

According to the finance minister Guido Mantega, these costs will be covered by tax rises. The government has already decided to raise taxes on imports (the extra revenue being estimated at R$1.5 billion) and on distributors of cosmetics.

It also plans to extend Refis, a program of refinancing tax debt of companies, which will now include debts accumulated until last year.

The remaining R$8 billion (USD $3.4 billion) will have to be raised by the energy companies, in the form of loans. The consumer will later come to assume these costs.

Mantega said that the electric energy sector's chamber of commerce will enable the raising of these funds on financial markets. The Treasury secretary Arno Augustin confirmed that there will be no subsidies - the companies will have to borrow at the market rate.

These costs will come to be reflected in consumers' energy bills, though the increases will be staggered. The government gave no details about when they would occur.

Energy providers have found themselves in financial difficulties as a result of the high cost of energy on the market, and the massive use of thermal energy.

The government has been helping the sector since last year, when the water levels of the reservoirs in Brazil's hydroelectric plants were lower than expected.

In 2013, the government lent almost R$10 billion (USD $4.2 billion) to the sector, a debt which will be paid by consumers until 2018. However, to avoid a knock-on effect on inflation, the first price hikes were postponed.

The government also revealed that it will organize an emergency auction of hydroelectric and thermoelectric energy later this year, in order to supply the market. Contracts will be medium and long term, in order to attract providers to participate in the bidding.

The auction is scheduled for April 25, with the energy becoming available from May. With the purchase of cheaper energy in the auction, the expectation is that the lowest monthly distribution costs fall, in order to attend to consumer demand.

The government also expects the entry of 5000 megawatts in 2015, at a lower rate, which will help compensate for this year's extra costs. This energy will be generated by the three companies which decided not to renew their concession agreements - Cesp, Cemig and Copel.

Translated by TOM GATEHOUSE

Read the article in the original language

Pedro Ladeira/Folhapress
The government announced that Brazil's energy providers will need a bailout of more than USD $5 billion this year
The government announced that Brazil's energy providers will need a bailout of more than USD $5 billion this year

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