Eletrobras to take over bankrupt Brazil power utility

SAO PAULO Tue Nov 13, 2012 4:00pm EST

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SAO PAULO (Reuters) - Brazilian state-led power company Eletrobras (ELET6.SA) said on Tuesday that it plans to take over Cia de Eletricidade do Amapa (CEA) to help restructure the bankrupt northern Brazilian utility and recover debts.

The companies and the government of Amapa, which controls CEA, agreed to sign shareholder and management agreements aimed at restoring CEA to financial health, Rio de Janeiro-based Eletrobras said in a statement on Tuesday.

Amapa authorities will receive financing from Brazil's federal government to pay off CEA's debts to Eletrobras and other suppliers.

The statement did not state how much Eletrobras, Latin America's largest utility, expects to pay for a majority stake in CEA.

Brazil's electrical power industry has seen a wave of interventions this year, particularly in remote and sparsely populated regions where utilities have difficulty generating revenue needed to cover costs and extend service.

Eletrobras Chief Executive Officer Jose da Costa Neto said in October that it would be in his company's interest to take over CEA and Cia Energetica de Roraima, an Amazon-region utility owned by Brazil's northernmost state of Roraima, if state governments took over the utilities' debts.

Eletrobras used a similar model to take over utility Celg in the central state of Goias in April.

Eletrobras preferred shares rose 1.54 percent on Tuesday after falling as much as 6.1 percent in early trading on Sao Paulo's BM&FBovespa exchange.

The stock has lost nearly 18 percent since September 10 when a presidential decree allowed power generators to renew expiring hydro dam concessions in exchange for cuts in power rates.

"Eletrobras' margin for transmission and generation before the decree was about half of the average for the private sector," said Alexandre Montes, an analyst with Lopes Filho e Associados in Rio de Janeiro. "With the decree I don't know what will happen to Eletrobras but it will probably need a rescue from the government. It's not sustainable."

Besides cutting Eletrobras' revenue, the renewal plan also involves an estimated 14 billion reais ($6.83 billion) that the government will give the company to cover the cost of investments it made but has been unable to fully recoup under the terms of the concession contract.

The payment is less than half of what Eletrobras originally expected to receive.

The government of Sao Paulo state, which controls Cia Energetica de Sao Paulo, one of Brazil's largest electricity generation utilities, said operating hydrodams under the concession renewal conditions of the September decree will be "very difficult."

Sao Paulo hopes to negotiate new renewal terms to ensure future investment levels in electricity systems, said Jose Anibal, the state's energy secretary on Tuesday.

For more details on the renewal of power utility concessions, see: [ID:nL1E8KBALP] [ID:nL1E8KC5SE]

($1 = 2.0506 Brazilian reais)

(Reporting by Vivian Pereira; Writing by Peter Murphy; Editing by Jeb Blount, Lisa Von Ahn and Bob Burgdorfer)

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