* Taxes lowered for electricity producers and distributors
* Costs cut by 16 to 28 pct for homes and businesses
* Cheaper energy should boost competitiveness of industry
* Concessions renewed for one-fifth of generating capacity
By Alonso Soto and Leonardo Goy
BRASILIA, Sept 11 Brazil announced a major cut
in electricity taxes on Tuesday that will lower high energy
costs for industries and residential consumers, the latest
attempt by President Dilma Rousseff to re-energize her country's
once-booming emerging economy.
Energy Minister Edison Lobão said the tax cuts for
electricity producers and distributors -- first reported by
Reuters in May -- will "drastically" lower production costs and
reduce power rates by up to 28 percent for industries and 16
percent for households.
"This is the biggest reduction in electricity rates that the
country has ever seen," Rousseff said after signing the measures
before an audience of business leaders.
"Reduced energy costs ... will improve Brazil's
international standing, slow inflation and encourage
investment," said Rousseff, a former energy minister. "It will
benefit both the businessman and the consumer."
Consumers will begin to see lower-cost electricity a s of
February 5, an Energy Ministry spokesman said.
The initiative should also aid Brazil's efforts to keep a
lid on prices as the economy recovers in coming months. Finance
Minister Guido Mantega said Tuesday cheaper electricity will
slow inflation 0.5 and 1 percentage points next year.
Above all, reduced electricity costs will bring much-needed
relief to Brazilian industries, especially in energy-intensive
areas such as steel, aluminum and petrochemicals. Energy costs
in Brazil are currently the world's third highest and the
government action should help Brazilian companies lower sky-high
production costs and improve their competitive edge abroad.
The world's sixth-largest economy has been on the brink of
recession since mid-2011 as high taxes, a strong local currency
and other structural problems squeeze what had previously been
one of the world's most dynamic emerging economies.
Rousseff has in recent months announced targeted tax cuts
for stagnant sectors such as the car industry. The cut in power
costs is part of her government's strategy to reduce Brazil's
high business costs and stimulate its struggling economy.
Brazil's electricity industry includes state-run companies
such as Eletrobras as well as multinationals like AES
Corp and GDF Suez. Hydroelectric power supplies
about three-quarters of Brazil's electricity needs, with
nuclear, thermal and wind power accounting for the rest.
Electricity prices are a big component of the so-called
"Brazil cost" -- the mix of taxes, high interest rates, labor
costs, infrastructure bottlenecks, and other issues that have
caused the economy to become less competitive.
After a decade of strong performance, Brazil grew below the
Latin American average in 2011 and so far this year.
If the electricity initiative is successful, Rousseff plans
to use a similar blueprint to reduce taxes for other industries
in coming months, officials have told Reuters.
In exchange for reduced power costs, Energy Minister Lobão
announced the renewal of 20 concessions for electricity
generators due to expire between 2015 and 2017, accounting for
about one-fifth of the country's generating capacity.
The government will also renew contracts for 85,000
kilometers in transmission lines that were also expiring.
Under Brazil's current concession law, the government gets
the electricity assets at the end of the concession and can
auction them to the highest bidder or operate them itself.
Without renewals of these concessions, Eletrobras and other
Brazilian utilities such as CESP and Cemig
would have had to bid in auction to regain their operations
against companies that may have more cash. Eletrobras lost a
$3.5-billion bidding war last year with China's Three Gorges
for Energias de Portugal.
RELIEF FOR INDUSTRIES
Cheaper electricity could not come at better time for major
Brazilian industries struggling with a slow global economy.
Mining giant Vale and steelmaker CSN,
two of the country's biggest electricity users, are dealing with
a plunge in global demand. Iron ore has fallen by
50 percent in the last year, and steel prices have
slumped by a fifth or more.
Brazil's average electricity cost of $180 per megawatt hour
is exceeded only by Italy and Slovakia, the Getulio Vargas
Foundation, a private think-tank, said in a 2011 study based on
data from the International Energy Agency.
High electricity costs have contributed to stagnant
investment and production in energy-intensive industries.
Despite Brazil's bauxite and alumina resources, no new aluminum
factories have been built there since 1985 and two have closed,
keeping production levels stagnant, the Getulio Vargas study
said. It said electricity accounts for 35 percent of the
industry's production costs.
Alcoa Inc., the world's largest aluminum producer,
has been in talks with the government for years trying to lower
electricity costs and has considered reducing its presence in
the Brazil after 50 years.
Alcoa now expects the 28 percent drop in its electricity
bill to bring its production costs closer to the world average
of $35 per megawatt-hour (MWh). The president of Alcoa for Latin
America, Franklin Feder, said aluminum companies are currently
paying between $55 and $60 per MWh in Brazil.
Paulo Skaf, president of the powerful Sao Paulo industries
lobby FIESP, welcomed the electricity measures and said sectors
that had become "inviable" in Brazil like aluminum would be back
Investors sought shares in companies that stand to benefit
from cheaper electricity, rather than the power generators
themselves. On the Sao Paulo stock market Bovespa, the
electricity share index erased gains during the tax cut
announcement and was trading 0.49 pct lower at midday.