Bloomberg News

Brazil Said to Plan Tax, Rate Cuts to Lower Energy Cost 20%

July 18, 2012

Brazil’s government may cut fees levied on power companies and will demand tariffs reductions when renewing concessions that expire in 2015 to reduce energy costs by about 20 percent, two government officials familiar with the discussions said.

The moves are part of an effort to stimulate private investment in Brazil that will include a new set of rules to sell roads, port, airport and railroad concessions, said the officials, who asked not to be named because the measures are still being drafted. President Dilma Rousseff may announce the new measures next month, they said.

Manufacturers in China and the U.S., Brazil’s two main trading partners, pay less than half for energy than their Brazilian rivals, according to an August 2011 report by the Rio de Janeiro Industrial Federation. A lack of adequate infrastructure and high energy bills are two of the obstacles Brazil must overcome to increase competitiveness, said Marcio Loureiro, senior equity analyst at Votorantim Ctvm Ltda.

“Industrial plants that have idle capacity because their products are not competitive due to costs related to energy and logistics may be stimulated to increase output,” Loureiro said in a phone interview from Sao Paulo.

Fees charged by the Brazilian energy regulator account for 10.8 percent of the total revenue accrued by distributors in Brazil, according to data compiled by the Mines and Energy Ministry. Federal taxes account for another 5.1 percent of the revenue.

Loureiro estimates that prices charged by energy generators with concessions expiring in 2015 could be cut by as much as 30 percent if regulators determine that companies have already repaid the costs of building hydroelectric dams. State- controlled Centrais Eletricas Brasileiras SA, Cia Energetica de Minas Gerais and Cia Paranaense de Energia are among the generators that will need to renew concessions starting in 2015, Loureiro said.

The Mines and Energy Ministry declined to comment in an e- mailed statement. The Presidential Press Office didn’t respond to a Bloomberg e-mail and phone calls requesting comment.

To contact the reporter on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net.

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


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