Brazilian utilities on their own; government won't help with debts

    By Doug Peeples    

In an effort to stem further strains on its already uncertain finances, the Brazilian government is expected to quit providing subsidies to keep them afloat. It had been paying out huge sums of money to the country's utilities to help them weather higher costs of generating power and government-ordered rate cuts for citizens.

The government also is expected to drop the mandated rate cuts so utilities can increase customer bills to make up to some degree for losing the subsidies. And those increases in electric bills are going to hurt. Adriano Pires, Brazilian Center for Infrastructure director, told the Wall Street Journal that bills could increase 30 percent in 2015 -- and beyond.

If it sounds like the Brazilian energy industry is a crazy quilt of policy and regulatory changes and realignments, it is. The government had intended to give utilities an additional nine billion reals ($3.4 billion) more, but Finance Minister Joaquim Levy announced earlier this week that customers would have to pay more instead, the Journal said.

Quoted in Reuters, Levy also said, "This is a year of economic adjustment and rebalancing to regain growth."

It is also an attempt by the country to right itself with investors who are no doubt not happy with Brazil's investment grade rating, which was adjusted by Standard & Poor in March 2014. The current rating, BBB-minus, is its lowest.

The regulatory push and pull is not the only reason utilities are in their current situation. A severe drought hit two Brazilian states -- Sao Paulo and Minas Gerais -- in 2014. For a country heavily dependent on hydropower, the drought had lasting repercussions as utilities were forced to use more costly forms of power generation, mostly natural gas plants.

Brazil has the third largest electricity sector in North America, behind the U.S. and Canada, and is the eighth largest energy consumer and 10th largest producer in the world, according to the U.S. Energy Information Administration. The country had greatly increased its oil and ethanol production in 2013 and has been found to have massive onshore and offshore gas reserves.

There are immediate short-term solutions that may be available, such as the possibility of persuading banks that loaned the country's power distributors money to put off their repayment deadlines. In any event, how Brazil attempts to fix its hurting economy and energy industry is certainly a story worth watching.