Tractebel: New power model forces unfair competition

Brazil's new power sector rules puts the local power generation subsidiary of Belgium's Tractebel in an unfair position by forcing it to compete with state-controlled generators despite facing higher costs, newspaper O Estado de Sao Paulo reported Tractebel Energia president Mauricio Bahr as saying. The government plans to split power sales into two groups: a regulated pool in which all companies already producing energy will sell so-called "old energy", where the price is set by a government agent; and a "new energy" group for power plants whose concessions have not yet auctioned. Prices in the "old power" pool account for only the current cost of generation, while the "new power" pool also accounts for the capital costs in new investments, making its prices higher. Tractebel and US companies Duke Energy and AES are the only private companies that acquired generation plants in the privatizations of the late 90s. Most other hydroelectric power generation assets in the country are state-controlled. Bahr said that since the 1998 privatization, the Belgian company has invested US$2bn to expand the installed capacity of Tractebel Energia - formerly known as Gerasul - to 6,000MW, the newspaper reported. Because Tractebel is still paying for the privatization and investments made since then, the company's financial costs are higher than state-controlled companies against whose generation it will have to compete in the pool system, because the construction costs of the state companies have mostly been amortized, Bahr said. Tractebel should therefore not be forced to sell power in the regulated environment, he argued. Analysts expect the cost of the "old power" to be around 50 reais/MWh (US$17) while new generating capacity could reach over 100 reais/MWh, to account for capital costs. Furthermore, the new model is raising private sector doubts because many details, especially the role of electricity regulator Aneel, still need to be finalized. "For us, a strong and active regulator is fundamental because we make 30-year investments" the newspaper quoted Bahr as saying. Bahr nevertheless welcomed some aspects of the new model, especially the government's proposal to tender new generation capacity with environmental licenses. Tractebel Energia is waiting for environmental licenses to build the 241MW Sao Salvador and the 1,087MW Estreito hydro projects on the Tocantins river in the country's northern region. According to Bahr, investments are at a standstill and should restart in 2005.