* Mantega says plan to slash energy costs by 20 pct will
* Most companies are on board to lower rates - finance
* Lower energy costs is key to keep inflation in check in
By Tiago Pariz and Alonso Soto
BRASILIA, Nov 14 Brazil will not give in to a
handful of electricity companies that are resisting a government
plan to reduce the cost of energy in average by 20 percent to
power up a sluggish economy, Finance Minister Guido Mantega said
Mantega said only a few companies were holding out on the
offer of early renewal of concessions in return for charging
less for their electricity, while most utilities had signed on
for the plan guaranteeing its success.
Lowering some of the world's most expensive energy costs is
crucial for Brazil to keep inflation under control next year and
regain the impressive economic growth rates that made it a star
among emerging market nations over the last decade.
"We will not give in on the 20 percent reduction in energy
costs," Mantega told reporters in Brasilia. "I'm confident that
the overwhelming majority (of power companies) will opt for the
option to renew their concessions."
Mantega said the government was ready to step in to
guarantee electricity costs dropped next year, but he declined
to say how it would do that.
President Dilma Rousseff in September asked power companies
to slash their rates or risk the loss of their operating
concessions when they expire between 2015 and 2017.
The companies have the right not to renew their concessions
right now, keeping their current energy rates. In that case,
Mantega said, the government will "somehow" make sure energy
prices will fall next year. He said the Treasury could be
involved in such an action, but provided no specifics.
Rousseff's plan has knocked down shares of power utilities
and greatly upset energy investors, some of them have accused
the government of trying to break their concession contracts in
a new bid to intervene in a key sector of the economy.
Large energy companies such as Cemig, Cteep
, and Cesp have threatened or already
decided not to renew their concessions.
However, Brazil's largest utility, state-led Eletrobras
, is on board with the plan.
Eletrobras said on Wednesday that its board has recommended
that shareholders approve the government's plan to renew its
hydro dam concessions.
The move is expected to reduce Eletrobras revenue and has
been opposed by shareholders such as Norwegian fund Skagen,
which asked the company not to renew the concessions on the new
terms, according a report on Tuesday by local newspaper Valor
Economico. Skagen has cut its stake in the company to less than
1 percent at the end of September from 2 percent in August.
Eletrobras shares fell 4.3 percent to 13.22 reais in
Wednesday trading on the Sao Paulo stock exchange, the seventh
decline in eight sessions. Eletrobras stock has lost a third of
its value since Rousseff announced the plan for cheaper
electricity. By contrast, shares of utilities that rejected the
government offer, such as Cteep, have risen.
Mantega said Brazil's energy rates need to come down next
year to allow for the Brazilian economy to grow at its potential
of between 4.0 and 4.5 percent per year.
The world's sixth largest economy has slowed dramatically
from a two-decade high of 7.5 percent in 2010 to an expected
expansion of just 1.5 percent this year.
Although economic growth is picking up speed, the strength
of the recovery remains on shaky ground.
"It is important that we do this right away because the
country is in a hurry," Mantega said.
Lower energy costs will boost production and investment in
all sectors of the economy ranging from industries that are
heavy power users like steel smelters to supermarkets and
service providers, Mantega said.
Lower energy prices would also help the government ensure
inflation remains in check next year, making room for the
central bank to keep its benchmark interest rate at an all-time
low for longer.
The central bank has estimated that lower electricity costs
next year could trim about half a percentage point off
inflation, which is running at 5.45 percent in the 12-month
period to October. That is well above the center of the
government's target of 4.5 percent, plus or minus two percentage
Mantega said that, by refusing to adhere to the government
plan, some firms are trying to keep their "privileges," forcing
the population to pay unfairly high energy prices.