* Dam renewal plan aims to cut power rates
* Eletrobras revenue seen falling on plan
* Board member resigns, slams renewal plan
RIO DE JANEIRO, Nov 14 Brazil's state-led
utility Eletrobras said on Wednesday its board had
asked shareholders to support a government plan to renew hydro
dam concessions early in exchange for lower power rates, a move
that could slash revenue and investment.
The vote brought sharp criticism from Jose Luiz Alqueres, a
representative of non-government minority shareholders on the
board, who resigned late on Tuesday.
The renewals and rate cuts are part of government policies
that are damaging state-led companies such as Eletrobras, he
said in a resignation letter obtained by Reuters.
"The sector's capital needs are exponential, and we've seen
government measures, while well intentioned, that have brutally
destroyed shareholder value in Petrobras and in Eletrobras by
failing to consider the reality of the market," Alqueres wrote.
Shares of Eletrobras, Latin America's largest utility, fell
5.07 percent on Wednesday. It closed at 13.11 reais on Sao
Paulo's BM&FBovespa exchange, one of its lowest values in more
than six years.
The renewals are part of a decree issued by Brazilian
President Dilma Rousseff in September to cut electricity rates
in Brazil by more than 20 percent. Rousseff wants to bring rates
down to boost the economy in the face of European debt problems
and a Chinese economic slowdown.
Brazil has some of the world's highest electricity rates
even though it gets about 80 percent of its electrical power
from hydro rather than more expensive natural gas, oil or coal.
While he criticized the plan, Alqueres said in the letter
his main reason for resigning was to avoid a conflict of
A former president of Eletrobras in the early 1990s,
Alqueres makes his living as an electrical-industry consultant.
He said he felt he could not advise Eletrobras while helping
other companies, who are less enthusiastic about the
government's plan, draw up their own responses.
Eletrobras will have to follow the government, its
Cemig, the utility controlled by Brazil's Minas
Gerais state, has refused to submit several dams for renewal
citing economic problems with the proposal. The board of CESP
, controlled by the state of Sao Paulo, has made no
recommendation to shareholders on how to vote at a special
meeting on the renewals Dec. 3.
Since the decree was announced, Eletrobras stock has lost a
third of its value because of expectations that the hydro dam
renewals will crimp profit and hinder the company's plans to
expand in Brazil and Latin America.
Brazil's Finance Minister Guido Mantega said on Wednesday
that the government may buy new stock in Eletrobras to help
The government will have little choice but to pump new
capital into Eletrobras if it goes forward with the plan,
Alexandre Montes, an analyst with Lopes, Filho e Associados, a
Rio de Janeiro economic consultancy, told Reuters on Tuesday.
"I don't know what will happen with Eletrobras, but I see
very difficult days ahead for the company if it renews the
concessions," he said. "It will probably need a rescue from the
government to continue operating. It's not sustainable."
In the wake of the government's efforts to cut electricity
rates and renew concessions, some investors have slashed their
holdings of the Rio de Janeiro-based utility.
In August, Norwegian fund manager Skagen owned about 27.5
million preferred shares of Eletrobras. That was about 10.35
percent of preferred stock and 2 percent of total capital,
according to Sao Paulo's BM&FBovepsa stock exchange.
As of Sept. 30 that stake was 7.87 million preferred shares,
or 3 percent of non-voting stock and 0.6 percent of total
capital, according to Thomson Reuters.
Under the government renewal decree, Eletrobras and other
utilities that choose to renew concessions expiring between 2015
and 2017 will also be compensated for investments that have been
made but not recouped from operations.
The federal government has offered to pay Eletrobras 14
billion reais ($6.80 billion) for such investments, less than
half the amount the company expected to get.
Under the original concession agreements the rights to own
and operate the dams revert to the government on expiration and
then are either kept or auctioned to new owners.
The Eletrobras board's recommendation to approve the
renewals will go to a vote by shareholders at a special meeting
on Dec. 3. With the government holding a majority of voting
shares in Eletrobras, the renewal plan is expected to pass.