SAO PAULO--Brazil's electric utilities plunged Monday as
investors saw that the government's renewal of expiring licenses
resulted in lower prices than expected and offered little chance of
improvement.
The government has agreed to renew licenses that start expiring
in 2015, but only in exchange for lower power prices. By writing
down the value of past investments, the government expects to lower
electric prices paid by final consumers by 20% starting next
year.
To that end, the Mines and Energy Ministry said late Thursday
that it would pay about 20 billion Brazilian reais ($9.8 billion)
to utilities, part of its reimbursement for investments that won't
be fully amortized by then. It also set the new prices that
generators and transmission companies can charge for their
services.
The value of reimbursements was lower than expected by investors
and companies. Centrais Eletricas Brasileiras, the mammoth
government-owned utility known as Eletrobras (EBR, ELET6.BR), for
example, was expecting to receive BRL30 billion for unamortized
generation and transmission investments, but will receive less than
half of that, according to the Ministry.
The reduction in prices was also more than expected, with an
average reduction of 70% in transmission and generation prices.
The values are still subject to congressional approval, but "we
are convinced that President Dilma [Rousseff] is strongly committed
to the measures proposed," Banco Itau analyst Marcos Severine
wrote. With the instrument of a presidential veto in Ms. Rousseff's
hand to head off moderation by the congress, however, "this means
that there is very little room for changes in the
concession-renewal package."
One possibility for companies is to "fight" the license-renewal
plan like Cia Energetica de Minas Gerais (CIG, CMIG4.BR) did, Mr.
Severine wrote. Cemig said it wasn't renewing some licenses because
it wasn't economically advantageous to keep them.
While investors were hoping for a softening of the originally
announced price reductions, Thursday's announcement damped
expectations of an improvement.
"There is room for improvements over the next 10 days, but
limited and with uncertainty," UBS analyst Lilyanna Yang wrote. "We
expect most companies are likely to reject the deal unless terms
improve."
Eletrobras plunged 8.4% to BRL15.39, while Cemig dropped 2.8% to
BRL24.22.
Cia Energetica de Sao Paulo (CESDY, CESP6.BR) plunged 9.2% to
BRL16.56, leading declines on the broader Ibovespa index of
most-traded stocks. Ms. Yang noted that the company saw one of the
lowest generation rates, and was compensated for BRL1 billion of
investments, or one-fifth of what it had asked.
Cia. De Transmissao de Energia Eletrica Paulista, or CTEEP
(TRPL4.BR) and Aes Corp. unit Eletropaulo (EPUMY, ELPL4.BR) fell
more than 3% each, rounding out the top five declines on the
Ibovespa.
Write to Paulo Winterstein at paulo.winterstein@dowjones.com
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