--Leading power generators have said they won't renew licenses,
scotching government plan to reduce prices by 20%
--Analysts say Tuesday deadline to get desired price drop may be
pushed back
--Brazil will have to offer higher payment as it is unlikely to
convince states to lower taxes
By Paulo Winterstein
SAO PAULO--Several key Brazil electric power utilities said they
won't renew electric-power-generation licenses by a Tuesday
deadline, meaning the government may fall short of its goal of
lowering prices by 20% next year.
The administration of Brazil President Dilma Rousseff wants to
bring down prices to help improve competitiveness of the broader
economy, but the power firms balked at the massive revenue cuts
they would have to accept in order to renew licenses that will
start to expire in 2015.
The government now faces the prospect of pushing back Tuesday's
deadline for agreeing to the new terms, or finding additional tax
cuts for the electric-power industry if it wants to meet its
goal.
The government has already sweetened the offer once, late last
week, but it wasn't enough to convince Cesp (CESP6.BR), Copel
(CPLE5.BR) and Celesc (CLSC4.BR) to sign up. That means 5% of total
generation capacity will continue operating at current price levels
next year.
The better terms did persuade directors of CTEEP, who changed
their minds and said they would after all accept renewal after the
new compensation was announced last Friday. A fifth company, Cemig
(CMIG4.BR), was trying to cut a last-minute deal.
"It wouldn't surprise me if the government delayed until at
least tomorrow the signing of contracts" to give it more time to
negotiate with Cemig and Cesp, both of which left the door open for
renewal should terms improve, said Pedro Galdi, head of research at
Sao Paulo brokerage SLW.
The licenses up for renewal represent about 20% of Brazil's
total installed capacity of more than 110 gigawatts.
The government controls Eletrobras (ELET6.BR), the country's
single largest power-generation company, and therefore secured the
renewal of a large portion of the power-generation
licenses--despite the hefty cost that Eletrobras will pay. Together
with some tax cuts to be implemented, the government said it
already guaranteed a 15% reduction in customer prices. With the
adherence of smaller utilities, Mr. Galdi said the price cut is
close to 17% or 18%.
Finance Minister Guido Mantega on Tuesday reaffirmed the
government's commitment to a 20% drop next year. Analysts said the
government may need to engineer additional tax cuts to get the full
reduction.
One possibility would be to reduce the state value-added tax,
ICMS, which could be part of a separate, simultaneous discussion
over leveling ICMS across the country. Those conversations,
however, are complex and contentious.
"I think it'll take a war of secession to resolve this problem,"
said Alexandre Furtado, an analyst at Lopes Filho brokerage.
"What's left is for the government to give in some more. Unless it
pushes back the deadline it's not going to get what it wants."
Write to Paulo Winterstein at
paulo.winterstein@dowjones.com