Brazil's Treasury to Aid Electric Distributors to Offset Costs

    SAO PAULO--Brazil's treasury will provide aid to electric distributors to offset the higher costs of energy brought about by Brazil's increased use of thermoelectric power, the Minister of Mines and Energy said Friday.

    "We are rescuing the energy distributors to benefit Brazilian consumers," Minister Edison Lobao said in Brasilia.

    A drier-than-usual rainy season led to a drop in reservoir levels at Brazil's hydroelectric dams--responsible for about 80% of Brazil's power generation--and forced the government to fire up the country's thermoelectric plants. Those plants, which rely on natural gas and oil for fuel, are much costlier to operate, leading to a sharp increase in spot prices.

    Distributors must wait for annual rate adjustments to pass on the higher prices to consumers, putting short-term strain on their cash. Meanwhile, the government promised it would lower power prices by 20% to spur economic growth and contain inflation, and so has sought to absorb the higher costs itself.

    To that end, it said Friday that it would use the so-called CDE fund-- which was originally created to spur development of alternative energy sources and expand the reach of the electric grid to all Brazilians--to help distributors offset higher costs. According to Brazil's treasury, which administers the fund, it has about 11 billion Brazilian reais ($5.6 billion) available to offset the higher costs.

    The government also said Friday that it was revising the way that the higher prices from thermoelectric plants would be passed on in the future. In order to avoid wide variations in prices--spiking in abnormally dry seasons, then falling again during rainy years--it would spread out the cost of the higher spot prices among all consumers.

    Write to Paulo Winterstein at