UPDATE 3-Brazil aims to help energy sector without stoking prices

jueves 13 de marzo de 2014 19:41 GYT

By Alonso Soto and Leonardo Goy

BRASILIA, March 13 (Reuters) - Brazil unveiled measures on Thursday to help electricity distributors struggling with high power costs caused by drought, a move aimed at combating inflation by delaying increases in electricity rates until next year.

The government said it will provide an extra 4 billion reais ($1.7 billion) and allow the country's electricity clearing house to seek up to 8 billion reais in private financing to support the distributors. The companies are paying for costly thermal power to cover a drop in hydroelectricity output.

Gradual electricity rate hikes will be allowed next year, cushioning the immediate impact of price volatility on consumers and avoiding inflationary pressures in an election year in which President Dilma Rousseff will seek a second term.

Policymakers said the new measures will have no impact on Brazil's fiscal accounts at a time when investors are worried that its deteriorating finances could lead to a credit rating downgrade.

Still, some analysts believe the measures are a short-term fix that may not be enough to contain prices in coming years and solve recurring problems buffeting Brazil's electricity sector.

"The measures may ease inflation in the short term but repress inflation in the medium to long term," said Andre Perfeito, chief economist with Gradual Investimentos in Sao Paulo. "We need to see how the market reacts tomorrow. Inflation expectations may not drop."

Brazil's power generation depends mostly on hydroelectric dams. Low levels in many reservoirs have raised the threat of energy rationing this year, prompting the government to activate costlier backup thermal plants.   Continuación...