July 5, 2017 / 2:27 PM / a year ago

UPDATE 1-Brazil may allow Eletrobras to raise rates at dams impacted by 2012 rules -source

(Updates throughout with details, share price move, context)

By Luciano Costa and Rodrigo Viga Gaier

SAO PAULO, July 5 (Reuters) - Brazil may allow Centrais Elétricas Brasileiras to raise rates at dams affected by a 2012 sector overhaul and potentially sell them, a person close to the matter said on Wednesday, helping the state-run power utility cut debt and narrowing the government’s budget deficit.

Eletrobras, as the company is known, was forced to charge lower rates at several dams in exchange for the early renewal of their operating licenses as part of a plan by former President Dilma Rousseff to try to force down electricity prices. Current rates are often barely enough to cover operating costs.

The person, who is close to Energy Minister Fernando Coelho Filho and requested anonymity because discussions are private, said the government may allow some hydroelectric power dams owned by Eletrobras to sidestep those regulations, which are under review.

That would increase the value of those plants, potentially paving the way for a sale, the person said, citing the Xingó and Tucuruí dams as possible beneficiaries of the measures.

“Based on current discussions, the proceeds will be shared between the government, consumers and the electricity sector,” the person said.

A full sale of subsidiaries, including Chesf and Furnas, is not currently under discussion, the source added. Newspaper O Estado de S. Paulo reported on Wednesday that those units could potentially be privatized.

Those plans would integrate a wider free-market reform of the power industry, the latest in a series of regulatory revamps spearheaded by President Michel Temer as he seeks to improve the business climate and boost investment in Latin America’s largest economy.

They could also bolster public accounts at a time when a slower-than-expected economic recovery weighs on tax collecting, fueling doubts over the government’s fiscal target and raising the prospect of tax increases.

Common shares in Eletrobras jumped 4.2 percent to 13.18 reais in morning trading, the biggest gainer on Brazil’s benchmark Bovespa stock index.

Under Chief Executive Wilson Ferreira Jr., the state-owned company has sold assets and aggressively cut costs in a bid to soothe investor concerns over mounting debt. (Reporting by Luciano Costa and Rodrigo Viga Gaier; Writing by Ana Mano and Bruno Federowski)

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