By Leonardo Goy and Anna Flávia Rochas
BRASILIA (Reuters) - Brazil's government plans to make it easier to renew expiring electrical power concessions, allowing power generators and transmission system operators to avoid competitive tenders, the country's top electricity regulator said on Monday.
The government is also expected to start trimming a long list of taxes and levies on electricity, which contribute to making Brazil's power the world's third most expensive.
"Energy prices are fundamental for competitiveness," Nelson Hubner, director general of power regulator Aneel told the Reuters Latin American Investment Summit.
Domestic utilities have sought changes to rules on concession renewals so they can preserve their capacity and capital, which would help state-led Eletrobras (ELET6.SA) as it takes on major dam projects in the Amazon and restructures money-losing power distributors in remote regions - tasks the government is keen to support.
Brazil's state of Sao Paulo, one of 27 in Brazil, has also sought to privatize more of its utility CESP (CESP3.SA). The public-private company, traded on the Sao Paulo stock exchange, has found it hard to win investor interest when it might lose its main power assets and would be more valuable if it kept its expiring rights.
Under current rules, concessions are only allowed one renewal before they revert to the state, which can either run the utility itself or resell it at a competitive auction that may draw deep-pocketed foreign competitors.
Eletrobras lost out in a $3.5 billion bidding battle for the Portuguese government's stake in its national utility EDP to China's Three Gorges in December. ID: nL6E7NM2I9
A bill incorporating the changes is expected to be presented to Congress by the end of June, Hubner said.
Brazil's energy ministry has been discussing the issue with concession holders for several years and both the government and key state-led utilities want the law passed soon so they can better plan their investments, Jose de Carvalho Neto, CEO of Eletrobras, the main Brazilian state-led utility, told Reuters on Friday.
Brazilian President Dilma Rousseff's ruling coalition has a majority in both houses of congress and has been able to pass most of its legislation since she took office in January 2011.
Concessions responsible for 22 gigawatts (GW), or about a fifth of Brazil's electricity generation capacity, will expire between 2015 and 2017. About 15 GW of that is currently produced by Eletrobras. Cemig (CMIG4.SA) and CESP (CESP3.SA) in the southeastern states of Minas Gerais and Sao Paulo also have concessions coming up for renewal in the period.
Brazil's power sector also features multinationals such as AES Corp (AES.N) and GDF Suez (GSZ.PA).
About three quarters of Brazil's power comes from hydro-electric dams. Nuclear, thermal and wind power supply the rest of the country's power needs after dominant hydroelectric power.
If the proposed bill clears Congress, the government will seek lower energy prices from generators as loans on decades-old infrastructure have been paid off in many cases, lowering financial costs, Hubner said.
Electricity prices are a big component of the so-called "Brazil cost" - the mix of taxes, high interest rates, labor costs, infrastructure bottlenecks and other obstacles that have held the economy back from faster growth seen in other emerging economies such as China, South Korea, Russia and India.
Brazil grew 2.7 percent in 2011 while growth was 4.7 percent in Russia, 9.5 percent in China and 7.8 percent in India.
President Rousseff has made it a priority to cut the cost of power for residential users and for companies in energy-intensive businesses such as metals processing and petrochemicals.
Hubner said the government was likely to start chipping away at a long list of taxes on Brazilian electricity that contribute to making it the world's third most expensive supply after Italy and Slovakia.
That would likely mean phasing out a tax used to compensate concession holders for the transfer of power plant ownership to the federal government once their concession expires, a tax known as the RGR. The tax could be ended in 2013, Hubner said.
"The fundamental purpose of the RGR is for compensation. With the renewal of the concessions, this no longer exists," Hubner said.
Electrobras's Carvalho Neto hopes the fund will be used to pay off any unamortized concession investments up front if renewals are granted, helping companies slash debt and boost their ability to borrow to expand. Doing so would also allow the concessionaires to cut electricity rates more, he said.
High electricity rates have contributed to stagnant investment and production in energy-intensive industries.
Despite Brazil's bauxite and alumina resources, no new aluminum factories have been built in Brazil since 1985 and two have closed, keeping production levels stagnant, a study by the country's Getulio Vargas Foundation said. It said electricity accounts for an "insane" 35 percent of the industry's production costs.
U.S.-based aluminum producer Alcoa (AA.N) said in April it was considering big production cuts at two of its Brazil factories in part because of high electricity costs.
Hubner said the direct renewal of concession contracts would bring increased demands on concession holders, with Aneel taking on greater authority to intervene in the operation of struggling companies.
"The idea is to make it clear under which conditions you can, for example, withdraw a concession by decree," he said.
The government is also considering ending the right of utilities to build up tax credits on a levy known as PIS-Cofins. The government would likely compensate by reducing the cost of that tax. A tax used to subsidize the cost of power for low-income consumers could also be reduced.
Separately, the government is preparing a draft bill that would prohibit public service concession holders from filing for bankruptcy. Under study by the attorney general, it would allow regulators to intervene when service declines because of heavy debt.
Such concessions could be canceled and put up for auction, according to the proposed law, Hubner said.
(Additional reporting by Tiago Pariz and Peter Murphy; Writing by Peter Murphy; Editing by Edmund Klamann)