July 29, 2014 / 4:37 PM / in 3 years

Brazil extends deadline for utilities to make payments on power

BRASILIA, July 29 (Reuters) - Brazilian power regulator Aneel said on Tuesday it extended by nearly one month a deadline that the country’s electricity distributors have to pay for spot-market power purchased in May.

Aneel said it extended the deadline to Aug. 28 from July 31 to allow the government more time to negotiate emergency loans for the distributors to help them pay for the soaring spot-market power prices.

Prices for power on Brazil’s spot market have jumped in recent months due to a drought that reduced the availability of power from hydroelectric plants. The national power system was forced instead to use of higher-cost electricity from thermal-electric plants that burn natural gas and other hydrocarbons.

Distributors though, are unable to quickly pass on the higher costs to consumers since they can only adjust their rates annually while payments to generators are due every 60 days.

The result has been to slash distributors’ cash flow, threatening them with default and Brazil’s government with the need intervene financially to uphold the stability of the country’s electrical system.

The deadline will allow the government more time to arrange 6.5 billion reais ($2.92 billion) from a group of financial institutions led by state-owned development bank BNDES . Reuters reported last week that the original June 11 deadline, which had already been extended to July 31, would likely be extended again.

The loan’s negotiation is expected to be complete before the new deadline and if that happens, payments could be made before the Aug. 28 cut-off, said Romeu Rufino, Aneel’s director-general.

The distributors make their spot-power payments to generators via the CCEE clearinghouse, which is also the organization that will receive the loan and use it to pay for the power. After distributors rates are adjusted to account for the new costs, including interest on the emergency loan, the CCEE will direct some of the cash to pay down the debt.

A previous 11.2-billion-real emergency loan arranged earlier this year for the same purpose was exhausted in May.

$1 = 2.223 Brazilian reais Reporting by Leonardo Goy in Brasilia and Ana Flavia Rochas in Sao Paulo; Writing by Jeb Blount in Rio de Janeiro Editing by W Simon

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