Brazil will cut taxes and renegotiate rates with power companies to reduce electricity costs next year and boost a recovery in the world’s sixth- largest economy.
President Dilma Rousseff will announce today details of her plan to demand lower rates of 16.2 percent for households and by as much as 28 percent for companies starting next year in exchange for renewing operating licenses.
Shares in power companies fell after Rousseff revealed the outline of her plan in a nationally televised address Sept. 6.
Companhia Energetica de Sao Paulo declined 6 percent yesterday while Belo Horizonte-based Companhia Energetica de Minas Gerais saw a 2.5 percent drop.
Energy Minister Edison Lobao, presenting the plan to business leaders today, called the rate reductions “one of the most important decisions” taken by Rousseff.
The move marks a shift in economic policy by the Rousseff administration from a focus on stimulating consumer demand to attacking the high costs of business that have long deterred investment in Latin America’s biggest economy.
Her administration is also cutting payroll taxes for select industries and auctioning licenses to manage roads, railways, ports and airports.
The main goal is to heighten the competitiveness of Brazilian manufacturers, who’ve lost market share to cheaper imports as a result of currency gains and rising labor costs in recent years, and more recently from weaker domestic and international demand.
While industrial production expanded 0.3 percent in July, it’s still down 3.7 percent this year. Today’s announcement “shows that industry requests had echo in the government,” Franklin Feder, Chief Executive Officer for Alcoa Inc. in Latin America, told reporters at today’s event.
Inflation Help
In addition to promoting Brazil’s development, the cut in utility rates may also help Rousseff tame inflation, which has remained above the government’s 4.5 percent target since August 2010.
The rate cut will shave 0.58 percentage point off next year’s inflation and should prevent the central bank from raising the benchmark Selic rate next year after policy makers cut it by 500 basis points since August 2011, Deputy Finance Minister Nelson Barbosa told Folha de S.Paulo on Sept. 9.
Brazil’s industry pays an average of 330 reais ($162) per megawatt-hour, the fourth-highest rate in the world, according to the National Industry Confederation.
Benjamin Steinbruch, president of the Sao Paulo-based steelmaker Companhia Siderurgica Nacional (CSNA3), said on Aug. 15 that a 10 to 20 percent reduction of electricity rates would be insufficient compared to much lower rates in the U.S. and China.
“Brazil is an expensive country,” he said Aug. 15. Feder told reporters that with the rate cuts announced today Brazil’s production costs will be moving closer to the world average.
He added that “it’s still early to guarantee Alcoa’s investments in the country.’’ Rio de Janeiro-based power company Light SA (LIGT3) fell 1.1 percent fall yesterday, while Eletropaulo Metropolitana SA (ELPL4) declined 2.3 percent.
bloomberg.com
President Dilma Rousseff will announce today details of her plan to demand lower rates of 16.2 percent for households and by as much as 28 percent for companies starting next year in exchange for renewing operating licenses.
Shares in power companies fell after Rousseff revealed the outline of her plan in a nationally televised address Sept. 6.
Companhia Energetica de Sao Paulo declined 6 percent yesterday while Belo Horizonte-based Companhia Energetica de Minas Gerais saw a 2.5 percent drop.
Energy Minister Edison Lobao, presenting the plan to business leaders today, called the rate reductions “one of the most important decisions” taken by Rousseff.
The move marks a shift in economic policy by the Rousseff administration from a focus on stimulating consumer demand to attacking the high costs of business that have long deterred investment in Latin America’s biggest economy.
Her administration is also cutting payroll taxes for select industries and auctioning licenses to manage roads, railways, ports and airports.
The main goal is to heighten the competitiveness of Brazilian manufacturers, who’ve lost market share to cheaper imports as a result of currency gains and rising labor costs in recent years, and more recently from weaker domestic and international demand.
While industrial production expanded 0.3 percent in July, it’s still down 3.7 percent this year. Today’s announcement “shows that industry requests had echo in the government,” Franklin Feder, Chief Executive Officer for Alcoa Inc. in Latin America, told reporters at today’s event.
Inflation Help
In addition to promoting Brazil’s development, the cut in utility rates may also help Rousseff tame inflation, which has remained above the government’s 4.5 percent target since August 2010.
The rate cut will shave 0.58 percentage point off next year’s inflation and should prevent the central bank from raising the benchmark Selic rate next year after policy makers cut it by 500 basis points since August 2011, Deputy Finance Minister Nelson Barbosa told Folha de S.Paulo on Sept. 9.
Brazil’s industry pays an average of 330 reais ($162) per megawatt-hour, the fourth-highest rate in the world, according to the National Industry Confederation.
Benjamin Steinbruch, president of the Sao Paulo-based steelmaker Companhia Siderurgica Nacional (CSNA3), said on Aug. 15 that a 10 to 20 percent reduction of electricity rates would be insufficient compared to much lower rates in the U.S. and China.
“Brazil is an expensive country,” he said Aug. 15. Feder told reporters that with the rate cuts announced today Brazil’s production costs will be moving closer to the world average.
He added that “it’s still early to guarantee Alcoa’s investments in the country.’’ Rio de Janeiro-based power company Light SA (LIGT3) fell 1.1 percent fall yesterday, while Eletropaulo Metropolitana SA (ELPL4) declined 2.3 percent.
bloomberg.com
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