(Adds comments from sources, context)
By Luciano Costa
SAO PAULO, July 25 (Reuters) - Negotiations by Norte Energia consortium to sell Brazil's Belo Monte hydropower dam have cooled due to disagreements over price and regulatory issues, three sources close to the process told Reuters.
Belo Monte is already operational and is expected to reach full capacity by 2019, when about 35 billion reais ($11 billion) will have been invested in the project. Its 11,230 megawatts of power will make it Brazil's second-largest hydroelectric dam after Itaipu.
China's Zhejiang Electric Power Construction Co Ltd, one of the companies linked to negotiations which started in April regarding the sale of the project, did not respond to a request for comment. Shareholders in the consortium running Belo Monte declined to comment.
Two of the sources said partners in Belo Monte have decided to clear certain regulatory and judicial issues related to the project before resuming the talks, since they expect a clearer outlook to elevate the potential price for the asset.
"The idea is to solve some of the problems and then start a stronger sale process," one source, who asked not to be named since talks are private, told Reuters.
The massive dam on the Xingu River, a major tributary to the Amazon River, is owned by the Norte Energia consortium which includes utilities Eletrobras, Neoenergia SA, Cemig and Light SA, mining company Vale SA , and pension funds Petros and Funcef.
Some of the partners, such as Eletrobras and Cemig, are conducting divestiture programs to cut large debt loads. The pension funds are also interested in a sale after posting heavy losses in the recent years.
"For assets of this size, uncertainties and associated risks can be a deal-breaker. It is better to clean house and wait for a better outlook for a deal," a second source told Reuters.
One issue affecting Belo Monte is ongoing litigation involving Norte Energia and Brazil's power sector regulator Aneel, who is seeking to fine the project's owners for a missed deadline to start operations.
Under the rules governing Brazil's energy sector, generation companies that miss their start dates must buy the energy they failed to produce in the spot market to cover their contracts.
Another issue chilling investors' interest is that Belo Monte still needs to find buyers for some 30 percent of the energy it will produce - a challenge given the sluggish economic recovery in Brazil and oversupply in the electricity market.
$1 = 3.17 reais Reporting by Luciano Costa; Writing by Marcelo Teixeira; Editing by Bill Trott and Lisa Shumaker