By Alonso Soto
BRASILIA Feb 7 Brazil's fiscal accounts,
already under close scrutiny by rating agencies, could suffer a
new blow this year as the government picks up the bill for
rising energy prices.
A blackout in large swathes of the country this week raised
serious questions about the capacity of the power system to cope
with rising consumption and a drop in supply as low water
reservoir levels sap output at hydroelectric plants.
To avoid an embarrassment during the upcoming soccer World
Cup and a new spike in inflation, President Dilma Rousseff has
vowed to take on the cost of using gas-and-fuel-powered plants
to guarantee supply.
Finance Minister Guido Mantega acknowledged on Wednesday the
government may have to use more than the 9 billion reais ($3.78
billion) it budgeted to pay for energy costs this year. Most of
that amount would be loaned to power distributors to pay for
more expensive thermal energy.
In the worse-case scenario that rains stop completely, the
government calculates it would have to pay 18 billion reais to
keep all thermal plants operating all year long, said a
government source directly involved in energy policy
"That's a very unlikely scenario because it will rain again
at some point," said the official who asked not to be named in
order to speak freely. "We are still calculating the extra cash
that the sector would need. There are many variables involved,
including rain levels."
Local media has reported that the government could hand out
up to 5 billion reais in extra cash to guarantee power supply in
2014. Last year the energy bill for the government was nearly 10
The finance ministry declined to comment on the matter.
That extra expense could not come at a worse time for the
Her government is scrambling to appease rating agencies
threatening to downgrade Brazil's debt rating over fears that
she is abandoning the prudent fiscal policies that helped the
economy stabilize in the last decade.
A downgrade could further rattle financial and real economy
investors already worried by the recent sell-off in emerging
markets triggered by a slowdown in the Chinese economy and a
withdraw of monetary stimulus in the United States.
"An extra 9 billion reais could really hurt the fiscal
target," said Mansueto Almeida, an economist with IPEA, a
government economic think tank. "The government will either have
to resort to accounting tricks or cut investment."
To put the figure in perspective, 9 billion reais is nearly
the amount of money that the transportation ministry invested in
roads in all of 2013.
Under Rousseff the country's primary surplus, or excess
revenue over expenditures before debt payments, has shrunk from
3.11 percent of GDP to 1.9 percent last year. She has also
relaxed fiscal rules and used what analysts dubbed "accounting
tricks" to bolster the government accounts in 2012.
The risk of more power blackouts could further drag down an
economy that remains stuck in a rut, growing on average a meager
1.8 percent per year since Rousseff took office in 2011. Brazil
had been growing more than 4 percent a year in the previous
THE LESSER OF TWO EVILS
Allowing power distribution companies to raise energy bills
on consumers to pay for more expensive thermal power would ease
pressure on state coffers and appease rating agencies worried
about the country's finances.
But that would put upward pressure on already high
inflation, a big political liability for Rousseff who is
expected run for another term in the October general vote.
Her government has decided to take on that costly burden
even if it leaves a hole in its fiscal accounts.
Rousseff has said the administration will announce a budget
freeze later in February that should keep the country's
debt-to-GDP ratio on a declining trend. The new primary target
should be around 2 percent of GDP, government official have told