* Higher electricity costs could stall Brazilian recovery
* Lack of rain has reservoirs critically low
* Costly thermo back-up threatens plan to cut energy rates
By Anthony Boadle
BRASILIA, Jan 8 President Dilma Rousseff cut
short her vacation on Tuesday to deal with a budding energy
crisis that could wreck her efforts to restore vitality to
Brazil's economy this year.
Rousseff denies there is any risk of electricity shortages
or rationing stemming from a historic drought that has left
hydroelectric dams short of water. But some independent analysts
disagree, saying it depends on whether summer rains finally
arrive in coming weeks.
Even if the worst is avoided, the crisis has already pushed
up electricity prices on the spot markets and could torpedo
Rousseff's delicately balanced economic agenda. She is trying to
revive an economy that likely grew less than 1 percent last
year, while also keeping a lid on inflation now running above
Rousseff flew back to Brasilia on Tuesday and will sign off
on steps to stem the crisis that energy officials are expected
to propose on Wednesday.
Electrical companies led Brazil's Bovespa stock
index down for a second consecutive day on Tuesday, as sector
leader Eletrobras tumbled nearly 9 percent.
Brazil's state-owned energy colossus Petrobras
saw shares fall 2.3 percent by mid-afternoon on fears that it
would have to shoulder losses to deal with the crisis.
Brazil last rationed power supplies during a drought in
2001. While the electricity grid is much less dependent on hydro
power than it was then, the economy has also grown dramatically
after a boom during the past decade.
Energy Minister Edison Lobao repeated on Monday that there
was no risk of electricity shortages or rationing because Brazil
has turned up its thermo-electric power generation. This
generation largely uses gas-fired power plants.
Others say it's not that simple.
"It is irresponsible to say that no rationing will be
needed. That does not depend on the government, it depends on
nature now," said Ildo Sauer, a former head of gas at state-run
oil company Petrobras and now a professor of energy at the
University of Sao Paulo. "All Brazilians - even the atheists -
are praying for more rains and no rationing."
ELECTRICITY PRICES IN DOUBT
The simple math also looks bleak for the government.
Thermal power is five times more expensive to produce than
hydroelectricity at current prices. Electricity prices on the
spot market shot up more than 60 percent this week to an average
555 reais per MWh, which is not far off the 700 reais level seen
during the 2001 energy crisis.
If it does not rain this month and reliance on thermo-power
continues into March, electricity rates charged to consumers
will rise by 5 percent, said Abradee, an electricity
distributors lobby group.
That would eat into efforts by Rousseff to lower energy
costs this year by at least 16 percent, a key piece in her
government's plans to keep inflation under control.
Deputy Energy Minister Marcio Zimmermann said the use of
more costly thermal power was only temporary and the cut in
electricity rates for residential and commercial consumers was
Higher energy costs and the prospect of electricity
shortages will also hurt economic activity just as Rousseff was
hoping to see the world's sixth largest economy return to solid
growth after two years of stagnation.
"This will not only affect inflation but also industrial
production," said Jose Francisco de Lima Goncalves, chief
economist at Banco Fator investment bank.
The impact on growth is hard to project at this point
because it depends on when rain comes and reservoir levels
improve, he said.
While Brazil has added 10,000 MW of thermo-electric
generating capacity since the 2001 crisis - accounting for 18
percent of its energy demand - most of the generators are
gas-driven and LNG prices are high due to demand in Japan since
its nuclear catastrophe, Sauer said.
Petrobras has increased imports of liquefied natural gas
(LNG) into Brazil's northeast so far in January as the worst
drought in decades reduces the availability of hydro
As the main importer of LNG, Petrobras supplies generators
with discounted gas, which will further add to the oil company's
Petrobras will lose between 230 million and 250 million
reais per month on the LNG sales as long as the dry weather
persists, said Marco Tavares of the Rio-based research firm Gas
Power shortages would hurt Brazil's massive mining sector
most of all and hamper production by big electricity users such
as the steel and aluminum industries.
But Brazil's fast-growing ethanol business would not be
affected, since it burns its own sugar cane bagasse for power
and sells its electricity surplus to the national grid.