13:39 20Aug2001 RSF-ANALYSIS-Brazil energy diet slims utilities' accounts

By Andrei Khalip
RIO DE JANEIRO, Brazil, Aug 20 (Reuters) - The latest corporate results by Brazilian power utilities provided only a glimpse of the impact of energy rationing that started in June, but enough for analysts to say the sector is probably the most hard-hit by Brazil's economic woes.
Coupled with a sharp depreciation of the real currency, which has lost about one-fourth of its dollar value so far this year, and an overall economic slowdown, power rationing should hammer energy companies further in coming months.
"Although the currency's depreciation was the main culprit of poor results in the second quarter and first half, power rationing has already shown its face," said Oswaldo Telles, power sector analyst with BBV Securities.
"And it will get worse for power utilities this quarter."
The government was forced to resort to tough power rationing in June, ordering Brazilians to knock 20 percent off their usual power consumption, in order to avert crippling blackouts amid an acute power shortage.
Brazil is dependent on hydroelectric plants for over 90 percent of its electricity. Two years of drought and full use of power stations' capacity to feed a growing economy dried up reservoir levels and triggered the worst energy crisis in at least 30 years in Latin America's largest country.
Rationing, due to last at least until November, means lower sales and revenues for power firms, while their costs and dollar-denominated debt get inflated by the real's losses.
"It's only the beginning of rationing, but it gives us an idea of how power utilities, distributors in particular, will be affected," said Eduardo de la Pena of Banco Santander. "I think we can say that they are suffering the most."
Out of electricity sector stocks, most analysts only have a buy recommendation for Copel <CPLE3.SA< of southern Parana state, where there is no energy shortage and no rationing.
GOVERNMENT HELP SOUGHT
Among the big losers in the past six months were Sao Paulo's Cesp <CESP4.SA< utility whose losses rose sharply and Eletropaulo <ELPL4.SA<, controlled by US-based AES Corp. <AES.N<, which posted a net loss after a year-ago profit.
Rio de Janeiro's power distributor Light <LIGH3.SA< last week posted its biggest half-year loss ever of 431 million reais ($172 million) and Light officials said the company should suffer big losses this year with revenues falling at least 10 percent due to the rationing program.
The main problem for companies is that the government fixes electricity prices in Brazil -- even though most distributors had long been privatized -- and allows the adjustments to compensate for higher costs only once a year.
"This year, their costs grew so violently that when the adjustments came it was about time to adjust tariffs again," said Telles. "But they just have to wait till next year.
Analysts said the only bright spot may be that the government will allow companies to start adjusting tariffs twice in one year. There are rumors of such a change although analysts recognize such an unpopular measure would be difficult in the run-up to presidential elections next year.
In an ironic twist, power distributors are now spending money on lawyers to defend in court the government's order for power switchoffs for quota-busters -- the measure that effectively slashes their revenues.
In the meantime, the companies are banking on an obscure contractual clause, known as Annex V, that should compensate them for lost revenue due to rationing. Some have even booked that gain in the latest results, although the government has so far not confirmed that it will pay.
"Annex V is the biggest question for power firms. If there is no compensation, they are screwed," said another analyst.
($1=2.5 reais)
((Rio de Janeiro Newsroom, 5521 223 7144))

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Monday, 20 August 2001 13:39:51
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