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SAO PAULO, Aug 18 (Reuters) - Brazil's government on Tuesday offered a mechanism to partially compensate hydropower generators for losses related to below-capacity operations, as the country struggles to get out of a power crisis that has cost companies and consumers billions.
Brasilia published a provisional decree containing initial rules for hydropower generators to offset some of their recent losses with generation deficits. The decree is expected to end a legal battle that threatened to destabilize the country's regulated power market.
The decree still needs to be voted in Congress and could be modified.
The main feature of the proposed mechanism would allow hydropower generators to recoup losses by granting an extension on current hydropower concession contracts.
The government said companies could ask for extensions of up to 15 years on their contracts.
Complementary legislation would still be needed, particularly to define a method to calculate how much of an extension a company would be eligible for in relation to the size of its losses.
Shares of some of the companies involved, such as Companhia Paranaense de Energia, Companhia Energetica de Minas Gerais and Tractebel, were little changed after the decree's publication, indicating investors do not expect a final decision soon.
Brazil's Energy Ministry has restricted hydropower plant operations this year, keeping them below capacity in order to save water in reservoirs during the current dry season and reduce the risk of a future supply collapse.
As a result, hydro generators must buy power in the spot market to honor supply contracts with power distributors.
In recent weeks, several companies have gone to court to avoid or limit those payments, arguing it is not their fault if the government restricts operations to levels that are insufficient to meet their contract obligations. (Reporting by Marcelo Teixeira; Editing by Marguerita Choy)