Cut in subsidies to make Brazil power costlier but more efficient

miércoles 20 de julio de 2016 16:45 GYT

By Luciano Costa

SAO PAULO, July 20 (Reuters) - Large private and foreign groups will displace Brazil's state-led power companies in upcoming energy auctions, causing consumer electricity bills to rise as the BNDES development bank cuts long-standing loan subsidies for the domestic industry.

Maria Silvia Bastos Marques, chief executive of state-owned BNDES, said recently the bank will curtail its role in the September transmission line and October power plant auctions.

Analysts say greater participation of foreign investors and lenders will make Brazil's already costly electricity rates even more dear for consumers, but add that fewer state-led investments will increase efficiency in the sector

The cuts in subsidies offered by the Rio de Janeiro-based bank have been widely seen as inevitable, given Brazil's budget crisis and recession.

China's State Grid, Europe's ENGIE and the United States' AES Corp are expected to be some of the large foreign companies to be active in the coming auctions, as subsidiaries for the government's cash-strapped energy holding company, Eletrobras, rein in ambitions.

BNDES, Brazil's largest provider of bank loans with terms of more than a year, has long been used by the federal government to direct economic growth and industrial development. BNDES subsidies have also helped local companies compete against foreign rivals, which frequently have access to cheaper credit.

Disbursements from BNDES for the electricity generation and distribution industries reached an all-time high of 22.3 billion reais ($6.85 billion) in 2015, rising from 8.8 billion reais in 2002.

Specialists told Reuters the type of investors in the energy industry, which has benefited from generous, below-market interest rates on loans, will change drastically in the short term.   Continuación...