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Law on Privatizing Electric Utility Assets Paves Way for More Auctions

Law on Privatizing Electric Utility Assets Paves Way for More Auctions

Utilities have historically been a safe investment during both good and bad economic times. Regardless of the state of the economy, business and residential customers always need electricity. Yet the ongoing recession in Brazil has state-owned utility company Electrobras looking for ways to improve its balance sheet. One way it aims to do so is by selling off unprofitable assets.

According to Reuters, one piece of Brazil’s electricity business is now in the hands of a foreign company. Italy-based Enel won electricity distribution company Celg-D at auction with a 2.18 billion reais ($647 million) bid. By selling off the money-losing electricity distribution unit, Electrobras will be able to use the proceeds to pay down its debt.

Electrobras was able to move forward with the transaction because of a new Brazilian law that makes it easier to privatize utility assets. The law makes the rules governing privatization more flexible, reports BN Americas. It also helps facilitate the distribution of resources from the government’s energy fund, a pool of money raised by collecting fees from electricity consumers. Money disbursed from the fund can go toward applications, such as helping low-income consumers pay for power.

Enel is no stranger to the South American power business. It is the largest private energy company operating in South America and already has a presence in Brazil. Electrobras earned 1.06 billion reais from the deal. The remaining amount goes to the other former shareholder, the state of Goias.

Reuters notes that energy analysts view Celg-D as the most attractive of Electrobas’ distribution assets because it brings power to a region of Goias rich in agriculture – one of the economic bright spots for the state and the country. Electricity distributors in other regions are also expected to go up for sale. Electrobras has said that selling these assets will allow the utility to focus on the more profitable businesses. But there’s another reason for the sale – a Brazilian economy that desperately needs a boost from foreign investment.

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