(Adds source's comments, context, power sector expert's opinion)
By Rodrigo Viga Gaier
RIO DE JANEIRO, Oct 21 (Reuters) - Brazil's state-run utility Eletrobras expects to raise up to 5 billion reais ($1.26 billion) with the sale of its stake in regional distribution company Celg Distribuição (Celg D), a source familiar with the negotiations said on Wednesday.
Centrais Eletricas Brasileiras SA, as the company is known, has said it plans to sell stakes in several power distribution units and Celg D is considered a prized asset among them due to its location in the agriculturally rich center-west state of Goias.
"I believe this deal will bring between 3 billion and 5 billion reais (to Eletrobras). Eletrobras estimated that amount considering the net present value of Celg's future cash flow," said the source, who asked not to be named.
Eletrobras holds 51 percent of Celg D, while the state of Goias owns the remaining 49 percent. The power distributor has about 2 billion reais ($506 million) in debt.
Celg D serves a total population of 6.6 million people in the state, and also provides electricity for many food processing companies and irrigation projects.
The source said the estimate takes into consideration Brazil's current economic downturn and tighter credit conditions, which could impact investors' appetite.
Eletrobras declined to comment.
The company said earlier in October it still would like to sell Celg this year. It would be the first sale of the company's power distribution assets in Brazil.
Eletrobras also plans to put up for sale its shares in distributors in the states of Alagoas, Piauí, Rondônia, Acre, Amazonas and Roraima.
"There is a lot of interest for Celg. It is the crown jewel among the distributors up for sale," said Nivalde de Castro, a professor at Gesel power sector research group in the Federal University of Rio de Janeiro (UFRJ).
China's State Grid, a frequent participant in tenders of assets in Brazil's power sector, has said it is interested in Celg D.
$1 = 3.95 reais Writing by Marcelo Teixeira; Editing by Chizu Nomiyama and Alan Crosby