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Brazilian Senate approves sweeping power bill

5 March 2004¿ The Brazilian Senate on Thursday approved a bill that would impose new rules on the ailing electricity sector, hoping to both keep a lid on energy prices and attract badly needed investment.

The bill creates a new pool system for energy sales using public auctions and relieves industrial companies that produce energy for their own needs — such as aluminum and steel producers from paying a special tax.

Under the new bill, power is divided into two segments “old” energy from power plants whose construction had been amortized, and “new” power from recent projects. There will be separate auctions for each segment.

Another change is that power from plants that became operative after January 2000 will be considered new. The original plan had set the cut-off date in early 2003.

The change should help state oil giant Petrobras, which has some thermoelectric plants whose losses, due to a fall in power consumption, have affected the company’s otherwise stellar results, analysts said.

The new system will take full effect in 2006 — a year longer than originally planned.

Next Tuesday, senators will also vote on some 40 amendments to the legislation and on a second bill that creates a company to manage pool trading. Among the changes that still need to be approved is passing pool purchase costs on to consumers.

The two bills with Senate’s amendments still have to return to the lower house for approval.

Power sector stocks that had mostly been off Thursday, rose after the vote, but fell soon afterward.

Industry executives and some analysts have complained the new system relies too much on government control. Still, many analysts agree the new rules will be better than the current uncertainty caused by the lack of clear regulations.

Analysts estimate the power sector needs up to $4bn in private investment every year. Failure to expand generating capacity could lead to an electricity supply crises like the one that occurred in 2001, when power rationing was imposed for nine months, they said.