--Brazil considering proposal to cut residential tariff 11.8%,
source says
--Existence of talks confirmed by industry, mines and energy
ministries
--Potential effect on government coffers estimated at BRL1-4
billion
By Diana Kinch
RIO DE JANEIRO--The Brazilian government is considering
proposals to cut electrical energy tariffs by an average of 17.4%
for industries and 11.8% for residential consumers in September, a
person in the government familiar with the matter said
Wednesday.
The proposals have been discussed on a technical level with
trade and industry minister Fernando Pimentel, said the person, who
declined to be named because of the sensitivity of the matter. An
in-depth analysis of the effect of the proposed reduction on
industrial costs will now proceed, the person said.
The trade and industry ministry confirmed late Wednesday the
existence of discussions on reducing industrial and residential
energy tariffs, without confirming the percentage reductions
considered. The mines and energy ministry is also participating in
talks, a spokeswoman said.
Brazilian industrialists, including from the aluminum and steel
sectors, have complained vociferously in recent years about the
so-called "Brazil Cost"--a conjunction of high tax rates, energy
tariffs and insufficient infrastructure--which has eroded Brazilian
products' competitiveness on international markets.
Franklin Feder, chief executive of Alcoa Inc. (AA)'s Latin
American operations, said in June after a meeting with Brazil's
President Dilma Rousseff the Brazilian aluminum sector's
competitiveness had "disappeared," not due to currency factors but
to energy costs which have become the highest in the world due to
surcharges and taxes which account for about half of the final
price.
The measures now under study include elimination of four
charges--known as CCC, RGR, CDE and Proinfa--on industrial energy
use, and the concession of benefits to Brazilian states that reduce
value-added tax on their energy bills, said the person familiar
with the matter, who said he had been involved in drawing up the
proposals. In some cases these measures could reduce industrial
energy charges by up to 30%, he said.
"The biggest impact will be in energy-intensive sectors, which
should reap an immediate benefit," the person said.
In the short term, elimination of these charges would cut
families' electricity bills by 2.8 billion Brazilian reais ($1.39
billion) annually and reduce industrial costs by BRL5.2 billion a
year, according to the person.
"This would serve as an important stimulus to consumption and
production costs," he said. "The tariff reduction would also have a
relevant impact on inflation rates, as residential energy tariffs
account for around 3.5% of consumer inflation."
The measures proposed could initially work out costing between
BRL1 billion and BRL4 billion to the government in terms of
subsidies, as it proceeds with plans to foot the bill for the
charges to be eliminated. However, this cost would fall as Brazil's
minimum salary rises and the country expands its integrated
electricity supply circuit, the source said.
State-owned generator Centrais Eletricas Brasileiras (ELET6.BR),
or Eletrobras, would stand to lose up to BRL1.9 billion annually
from the loss of RGR revenues, but this should be offset by the
boost given to Brazil's industrial activity as a whole, according
to the source. However, analysts say that because Eletrobras merely
manages the public works projects financed by the funds, it
shouldn't suffer from the elimination of those charges.
-Paulo Winterstein in Sao Paulo contributed to this article
Write to Diana Kinch at diana.kinch@dowjones.com
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