Electricity bill: MP increases pressure on tariffs in the future – 04/09/2024 – Market

The MP (provisional measure) of the Luiz Inácio Lula da Silva (PT) government to lower the electricity bill by at least 3.5% in 2024 could lead the consumer to bear an even higher cost in the future.

The draft text, obtained by Sheetalso authorizes investments in the energy sector to be used to reduce tariffs.

The text is defended by Minister Alexandre Silveira (Mines and Energy) and should be signed by Lula this Tuesday (9), despite resistance from other sectors of the government.

In one of the main points, the MP anticipates resources that Eletrobras would need to pay in the coming years to the CDE (Energy Development Account), which pays for subsidies to consumers and energy generators.

The transfer was in return for the privatization of the company, approved in 2021.

The use of advance payment, calculated at R$26 billion, provides relief in the tariff in the short term, but reduces the inflow of resources into the account in the future — which, without reviewing the size of these subsidies, generates pressure for steeper adjustments to pay the bill for the next few years.

Industry representatives say it’s like taking out a loan to pay a credit card bill. Down the line, the debt will need to be paid off with interest.

When contacted, Silveira’s ministry stated that the MP deals with specific issues and that “structural solutions to reduce tariffs are being analyzed by the MME”.

The text authorizes investments to be made by energy concessionaires, mainly in revitalizing rivers and reducing generation costs in the Legal Amazon, to be redirected to tariff cuts — a request from Lula to reverse the drop in popularity.

These obligations were created at the time of the privatization of Eletrobras through tortoises to the project and are not considered more efficient investments.

Another section of the text also extends the deadline for renewable energy projects to receive a discount on the use of the energy transmission system, an increase in subsidies that could cost R$6 billion and will also fall on consumers’ pockets in the coming years.

In exchange, companies must provide a guarantee corresponding to 5% of the estimated value of the project — which will be forfeited if the MP rules are not complied with by the companies.

In an interview with SheetSilveira stated that the cut in the electricity bill in 2024 could be even greater and reach 5.5%.

According to him, the additional two percentage points of relief would be guaranteed through approximately R$10 billion of the total R$26 billion in Eletrobras resources to be securitized.

“This will be structural. It will last a long time,” said the minister.

A wing within the Executive warns that the use of the anticipation of Eletrobras’ receivables to cut the tariff today will be followed by an increase in the coming years and could politically represent a “shot in the foot”.

The resources will be used to pay off installments of two loans made by the electricity sector in times of crisis, the Covid Account (which covered losses due to the drop in consumption during the pandemic) and the Water Scarcity Account (which financed thermal plants during the 2022 drought). Without the advance, these payments would weigh heavily on the consumer’s pocket.

Other administrations had a similar experience. During the Dilma Rousseff (PT) government, a series of measures were implemented to reduce the price of electricity bills for consumers in 2013. There was also an attempt to advance receivables from Itaipu, which ended up not materializing.

The Treasury ended up making direct contributions to the CDE, which were not sustained. Subsequently, in 2015, a tariff more than reversed the gains and contributed to the deterioration of the PT member’s popularity.

Using the resources from Eletrobras’ anticipation in a spaced manner, to smooth tariff adjustments that are to come, would make more sense in the view of some technicians and would help to minimize the impact on inflation, a key variable for the Central Bank to continue cutting the interest rate.

However, the MME wants to use the resource to obtain an immediate reduction for consumers, responding to calls from President Lula himself for measures to reduce electricity bills.

To maintain a more contained tariff in the future, the minister has also defended using resources that the Union will receive from the pre-salt and even spending outside the framework’s limits, but said that these are just suggestions given by him.

The government also discussed a way for the MP to avoid a 44% increase in Amapá’s electricity bill, which is already one of the most expensive in the country.

As Panel SA showed, an agreement between Lula, Silveira and senator Davi Alcolumbre (União Brasil-AP) guaranteed an arrangement to balance the costs of the Equatorial distributor without the need for adjustment.

Government technicians and sector representatives criticize the fact that the MP does not address the structural problem of the cost of energy in Brazil, which is the size of the bill paid by the CDE. Today, the bill is paid in full by consumers through the electricity tariff.

The text also gives an additional 36 months for the completion of wind and solar projects eligible for discounts on the use of the transmission system.

This is a stock of projects with a generation capacity of 88 GW (gigawatts), whose work has not yet started due to difficulties in connecting to the grid, according to the government.

Executive technicians and sector experts, however, warn that there is no demand for some of these projects, which, moreover, are far from large centers, requiring new transmission lines.

Therefore, if they leave the paper, they will still increase the electricity bill. As shown by Sheetthe impact could be R$6 billion.

There is also a fear that the MP will be used by congressmen as a vehicle to lobby other groups within the energy sector, linked to gas or wind energy.

Silveira said that subsidies are being discussed more broadly with ministers Fernando Haddad (Finance) and Rui Costa (Civil House), but that there is still no definition on which items to attack.

“[Foi] a brainstorm, a series of ideas. Now, as none of them are concrete, speculating is very bad for this market because it creates instability,” he said.

“It is worth highlighting that this [revisar os subsídios] It is a very courageous habit, because it has always been a big deal to put subsidies on the consumer’s account and only receive bonuses from subsidized enterprises. This issue has been swept under the carpet in recent years and today the electricity bill has a series of subsidies that make it expensive,” he said.