In its report to congress, Brazil’s national development bank BNDES said the utilities Cesp and Eletrosul lost R$6bn by investing in the Porto Primavera (Sao Paulo) and Jacui (Rio Grande do Sul) power plants, which are still incomplete. The losses incurred due to these plants are to be written off from the companies’ privatization prices.
BNDES also disclosed that the Tucurui power plant may be spun off from Eletronorte’s assets in order to help the privatization. Despite pressure from some congressmen, BNDES defended its support of the privatization of the electric utility sector in Brazil. BNDES expects the electric utility sector in Sao Paulo to be wholly privatized by May this year.
Cesp’s losses with Porto Primavera amounted to R$5bn, while Eletrosul’s losses with Jacui amounted to R$1bn. BNDES disclosed, that the Mato Grosso-based electric utility company Cemat’s debts to BNDES are related to income taxes and social welfare amounting to R$170M, while its debts with the Eletrobras amount to R$250M. Cemat’s privatization price has been estimated at R$332M, which will provide the owner, Mato Grosso government, with about R$200M after payment of debts. The utility Ceron, based in Rondonia, had income tax debts of R$90M. The privatizations carried out during 1997 provided BNDES with R$400M-worth of revenues. It predicts to post profits of R$1bn for 1997.
Another supporter of the ongoing privatization in the electricity sector in Brazil is Previ – the pension fund of state-owned Banco do Brasil. Previ, formally known as the Caixa de Previdencia dos Funcionarios do Banco do Brasil, has invested steadily in the privatization of state-owned power companies since 1994. In July 1994, Previ led a pension fund consortium, which along with a banking consortium, spent US$357M to buy the federal government’s controlling stake in the Espirito Santo Centrais Eletricas S.A. (Escelsa). That organization is the regional electricity distributor of southern Espirito Santo state. Again Previ took a five per cent stake in a consortium that spent US$1.6bn to buy control of the Companhia de Electricidade da Bahia (Coelba) from the Bahia state government in July 1997. In October 1997 Previ bought a 33.3 per cent stake in a consortium that took control of the Norte – Nordeste de Distribuicao de Energia Electrica, from the Rio Grande do Sul state government.
In November, Previ took a 38 per cent stake in a consortium that spent US$2.57bn to buy control of the Companhia Paulista de Forca e Luz (CPFL), which is Brazil’s fourth largest electricity distributor. CPFL’s sale by the state of Sao Paulo was Brazil’s second biggest privatization ever.
The financial industry has invested in the privatization and the restructuring of the energy sector, hoping to reap big dividends from the escalating demand for power in Brazil.
Energy demand in Brazil is increasing at the rate of six per cent each year, exceeding the country’s four per cent economic growth rate.
Increasing demand for energy means that already high dividend yields and dividend payouts on energy company investments will further rise in the near term, as well as when the new buyers of these firms implement cost reductions and run them in a more business-like manner.