Seeing the light

12 September 2012 By Raul Gallegos

That’s what investors should ask about Brazilian President Rousseff’s plan to slash sky-high electric rates that are restraining economic growth. Power companies are being forced to shoulder most of the burden. Government can afford to pick up the tab on the next round of cuts.

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Brazilian President Dilma Rousseff on Sept. 11 announced cuts to electricity rates as part of a series of measures to stimulate economic growth. The government expects the measures to reduce energy prices on average 20.2 percent next year. The move follows Rousseff’s stated plan to cut rates by 16.2 percent for households and as much as 28 percent for businesses.

Rousseff’s plan will combine a reduction of federal levies imposed on the power sector with lower rates pushed through by regulatory means. She eliminated two charges - the CCC thermoelectric generation tax and the Reserva Global de Reversão tax - and reduced the Conta de Desenvolvimento Energetico levy by 75 percent. Finance Minister Guido Mantega said the decision will reduce Brazil’s 2013 inflation rate by between 0.5 and one percentage point compared to the 2012 rate.

As part of the policy, the Brazilian government renewed electricity generation and transmission concessions for Brazilian utilities in exchange for lower revenue and tariffs. Rousseff said more rate cuts could take place early next year following a review of the operations of utility companies.

Reuters reported that Brazil may miss its budget surplus goal of 3.1 percent of GDP for 2012, due to lower tax collection and the granting of more than $6 billion in tax breaks this year.

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