IPCA could index power contracts

Brazil's government could use the IPCA inflation index for the annual revision of power rates in the contracts between power generators and distributors, newspaper Valor Economico reported. The new index would be applied in the auction for 55,000MW of existing power that the government wants to hold before the end of the year, the newspaper reported. The index used in the contract would be the IPCA index, instead of the IGP-M index that is currently used in power contracts. The government reportedly abandoned plans to create a new specific index for the power sector. The IPCA index is used by the central bank for its inflation targeting policies. It is compiled by the federal government's national statistics and geography bureau IBGE, based on monthly prices collected in 11 major cities. The IGP-M is compiled monthly by the Fundação Getúlio Vargas economic institute, and also involves prices in the main urban centers in Brazil, but also accounts for variations in foreign exchange rates. Prices measured by IGP-M rose 12% in the 12 months ending August 2004, and increased 7% when measured by IPCA. Power sector agents have until September 17 to comment on draft bidding rules for the power auction. The mines and energy ministry wants to introduce rules to increase competition, including a price floor to keep large state-controlled generators from selling power too cheaply. The government will hold auctions for eight-year contracts and the generators will deliver the power in 2005, 2006, 2007 or 2008, the government's online news service reported.