GDF says Brazil needs clearer rules on future concessions

Tue Oct 16, 2012 4:47pm EDT

* CEO sees need for long-term visibility for investors

* Rate cuts on renewed licenses has shaken up industry plans

* Executive says no guarantee on January start for Jirau dam

SAO PAULO, Oct 16 (Reuters) - Brazil needs to lay out clear rules on renewing future electric utility licenses, the chief executive of GDF Suez said on Tuesday, after the government stunned the sector in September by slashing rates some companies could charge consumers.

Last month, Brazilian electric companies lost as much as a quarter of their market value in a day as President Dilma Rousseff unveiled the plan to lower some of the world's highest energy bills. Analysts said the shakeup would lower costs for some industrial companies but hammer profitability of the utilities sector.

"Brazil's government has to set clear rules in the future with long-term visibility for investors," Chief Executive Gerard Mestrallet told reporters in Sao Paulo.

Lower electric rates may also spur more energy use, increasing the demand for new generation capacity and the need to attract investment in the industry, said Mauricio Bahr, the company's top executive in Brazil.

A senior regional analyst for Fitch Ratings warned in an interview last month that Brazil's aggressive plans for the energy industry may sap appetite for concessions in that sector and others.

GDF's own generation contracts were not affected by the current renegotiations, in which the government is focusing on licenses that expire from 2015 to 2017.

Mestrallet was in Brazil to inaugurate the Estreito hydroelectric dam in the north-eastern state of Maranhao, a 1,087 megawatt power plant, in which GDF holds a 40 percent stake. The dam will generate enough energy to power the homes of 4 million Brazilians, Mestrallet said.

Bahr said the company also aims to start generation at Brazil's Jirau hydroelectric dam in the first quarter of 2013, adding that the prior January launch date was "not guaranteed."

Work at Jirau, in which GDF recently raised its stake to 60 percent, has been held up by labor protests and environmental red tape, like many major hydro dams in Brazil, which raises costs and reduced the return on investment.

The dam on the Madeira River, one of the Amazon's main tributaries, will have a generation capacity of 3,750 megawatts, making it the second-largest electric generation project underway in Brazil. (Reporting by Brad Haynes; Editing by David Gregorio)

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