April 25, 2019 / 10:24 PM / 25 days ago

RPT-Private investors raise bets in Brazil power sector as state firms fade

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By Luciano Costa

SAO PAULO, April 25 (Reuters) - International private companies have increased their investment in Brazil’s power sector over the last three years even as the country’s cash-strapped state-controlled companies have cut back, a Reuters survey of power companies shows.

Eight out of 11 large foreign private firms operating in Brazil boosted investments in the power sector from 2016 to 2018, some of them by more than 200 percent, the poll showed. Meanwhile, the three largest state-controlled firms - Eletrobras , Cemig and Copel - cut their annual spending by around 45 percent over the same period.

Expenditures by Eletrobras, or Centrais Elétricas Brasileiras SA, fell by almost half over the period, leading the company to lose its historical position as investment-leader in the sector.

France’s Engie topped the list of investors in Brazil’s power sector in 2017 with 5.5 billion reais ($1.39 billion). China’s State Grid topped the list in 2018 with 7.1 billion reais.

Investments by U.S. AES Corp, Isa Cteep and Taesa all increased in the same period.

“The private companies are well capitalized and have large competitive advantages. State companies, on the other hand, are going through a very different moment,” said power sector analyst Erico de Brito, from Excelência Energética consultancy.

Private companies are also taking advantage of a regular schedule of auctions for licenses to build everything from power plants to transmission lines, with long-term contracts at fixed return rates.

The new regulatory system means governments no longer need to inject public money to spur growth, said Nivalde de Castro, a power sector expert from Rio de Janeiro Federal University.

The current poor fiscal condition of state-owned companies is due to the local and federal government’s lack of cash but also the fact that past investments that did not always pay off.

Eletrobras and Cemig are going through robust divestment programs to get rid of projects they were unable to complete.

Both companies could soon be privatized. Minas Gerais’ state government said it wants to sell Cemig, while the federal government plans to dilute its controlling stake in Eletrobras through a capital increase plan. ($1 = 3.9544 reais)

Writing by Marcelo Teixeira Editing by Sonya Hepinstall

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