Brazil power rates may jump 60 pct on drought, subsidies -source

BRASILIA, Jan 16 (Reuters) - Brazilian electricity rates could rise as much as 60 percent in 2015 in order to cover the higher cost of power and to pay for subsidies for system expansion, low-income consumers and remote communities, a government source told Reuters on Friday.

Increases of between 50 percent and 60 percent are likely in Brazil’s southeastern and central west regions, the source said. The source said the estimate is based on government power-rate simulations for the entire country and on the accounts for the country’s main electricity subsidy fund the CDE.

The regions are home to the bulk of the Brazil’s population and industry and its most-important farming regions. The source requested anonymity because of a lack of authorization to speak to the press.

Increases in the remote Amazon north and underdeveloped Northeast are likely to be about 25 percent, the source said.

Brazilian power rates have soared since late 2013 as the country’s worst drought in at least 80 years reduced the level of water in hydroelectric reserves and increased the need to run more expensive thermal plants that burn natural gas, diesel fuel, biomass and other fuels.

The price has also been pressured higher by the government’s failure in recent years to auction or license sufficient new electricity generation and transmission rights to meet distribution utilities needs.

Some utilities’ finances were already fragile after a government move to renew hydroelectric dam concessions early in exchange for rate cuts of 20 percent or more.

To cover the soaring costs between the normal annual government rate reviews, the government had to help arrange 17.8 billion reais ($6.80 billion) of emergency loans in 2014 to prevent utilities from going bankrupt.

The increases are likely to be made up of two parts, the source said. The first will be part of annual government rate adjustment under electricity distributors’ concession contracts.

Brazil’s energy minister said this week that such adjustments will likely be between 20 percent and 25 percent.

A second increase will be an “extraordinary” adjustment related to additional costs and the need to raise 23 billion reais ($8.78 billion ) to pay for CDE subsidies.

Brazil’s principal electrical utilities include Centrais Eletricas Brasileiras, or Eletrobras. Companhia Energetica de Minas Gerais Cemig, Eletropaulo Metropolitana SA controlled by U.S.-based utility AES Corp, Cia Paranaense de Energia Eletrica and Cia Energetica do Estado de Sao Paulo.

$1 = 2.6189 Brazilian reais Writing by Jeb Blount in Rio de Janeiro; Editing by Lisa Shumaker