UPDATE 1-Brazil power regulator proposes rate hike; may stoke inflation

martes 11 de febrero de 2014 14:59 GYT

By Leonardo Goy and Alonso Soto

BRASILIA Feb 11 (Reuters) - Brazil's electricity regulator ANEEL on Tuesday proposed a 4.6 percent increase in rates paid by consumers to help cover power subsidies, a move that could add pressure to already-high inflation in Latin America's top economy.

ANEEL expects a deficit of 5.6 billion reais ($2.33 billion) this year in the so-called Energy Development Account, or CDE. That does not include the cost of using more expensive thermal energy to make up for a drop in hydroelectric output.

Last year, President Dilma Rousseff made a deal with power utilities to slash electricity prices in a bid to bolster Brazil's slow-moving economy and tame a surge in prices.

A year has passed and the economy remains fragile and inflation high, which has threatened Brazil's investment grade rating as investors worry about the country's fiscal health.

Finance Minister Guido Mantega has promised to pay for any extra energy costs to avoid an increase in consumer bills. That cost, which some media reports say could reach 5 billion reais, also threatens to derail government efforts to show markets it is becoming more fiscally responsible.

The government has budgeted 9 billion reais to pay for energy costs this year. Most of that amount would be loaned to power distributors to pay for thermal energy as a severe drought has lowered water reservoir levels at hydroelectric power plants.

Another inflationary risk stemming from the drought is a potential increase in the price of soy and corn, used to feed livestock. Producers say yields on recently planted soybeans could be affected by a month and a half of dry weather in much of Brazil.   Continuación...