June 23, 2016 / 6:31 PM / 2 years ago

UPDATE 1-Brazil takes new steps on Eletrobras as company prepares to downsize

(Adds details, information on upcoming Eletrobras assembly)

BRASILIA, June 23 (Reuters) - Brazil announced further steps on Thursday to reshape Centrais Elétricas Brasileiras SA, formalizing a cash injection and cutting some of the state-controlled power holding company’s functions as a downsizing takes shape.

Shares of the company known as Eletrobras, Brazil’s largest power group, surged almost 9 percent on Thursday after closing 6.8 percent higher the day before on news of the cash infusion and the appointment of a new chief executive officer.

Eletrobras, which has stakes in 43 power plants and 87 power transmission companies in Brazil, has not posted an annual profit since 2012 and is grappling with a debt load nearing 40 billion reais ($11.95 billion).

Brazil’s government on Thursday issued a decree formalizing the transfer of up to 3.5 billion reais ($1.05 billion) in federal funds to Eletrobras by 2017. The decree is effective immediately but requires Congress’ approval.

Eletrobras will use the money to pay some of the debts at its regional power distribution companies in a step to prepare them for privatization.

The company will hold a shareholders meeting next month to approve the sale of the seven power distribution companies by 2017 to divest money-losing businesses and to focus on its main power generation operations.

On Thursday the government also stripped Eletrobras of the management of the RGR fund for rural electrification and the CDE power subsidy funds starting next year, in a push to reduce the company’s functions in a heavily regulated power market. CCEE, Brazil’s power trading chamber, will manage those funds.

The news came the day after Brazil’s Energy Ministry had confirmed that Wilson Ferreira Jr., the leader of one of the country’s largest private electricity companies, would run Eletrobras.

Ferreira, who is now CEO of CPFL Energia SA, will replace José da Costa Neto as Eletrobras CEO.

“He is a person capable of putting things in order, if he is given full authority,” said power sector expert Dorel Ramos of the University of Sao Paulo.

$1 = 3.3454 Brazilian reais Reporting by Luciano Costa and Marcelo Teixeira; Editing by Daniel Flynn and Lisa Von Ahn

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