Brazil to invest $57 billion in power sector

BNDES energy financing underpins Brazil's hydroelectric capacity, funding Belo Monte on the Xingu River and grid transmission and distribution, while shaping M&A activity and supporting demand growth after past rationing shocks.

Brazil is expected to invest 100 billion reais (US $57 billion) in its electricity sector from 2010 to 2013, of which the BNDES national development bank will finance 60 percent, the bank's energy department manager Alexandre Esposito said.

The Brazilian government has been acutely aware of the importance of expanding capacity in its electric energy sector since it had to ration energy in 2001-2002, which sent the economy into recession.

With the slow pace of bringing new large hydroelectric projects online, and with firms like Brascan hydro plans signaling wider sector interest, the government has put considerable effort in keeping investments in expansion moving given the expected surge in demand from the fast growing economy.

The upcoming 11,200 megawatt Belo Monte hydroelectric project planned for the Xingu River in the Amazon is expected to absorb 12 billion reais in financing from the bank.

The total cost of the project, which has taken over two decades to make it to auction amid wider power plant sales activity and is due to go on the block by May, is valued by the government at nearly 20 billion reais.

From 2003 to 2009, the BNDES, through initiatives like the BNDES debt deal, financed 60.7 billion reais in energy generation, transmission and distribution, the bulk of the 105 billion reais of total investments in the sector.

In 2009 alone, the bank provided credit for 15.5 billion reais for the sector, versus 16.7 billion reais in 2008.

The BNDES is still actively seeking to exit its 49.99 percent stake in Brasiliana, the holding company that controls AES Eletropaulo and AES Tiete. The stake has been on the market since before the global financial crisis worsened in 2008, as Brazil's Light sought extensions on debt payments across the sector.

AES has first rights to buy the bank's share of Brasiliana but it also has "drag along rights" which permit it to any buyer to purchase 100 percent of Brasiliana.

"If we exit, the bank will earn a nice profit, but it depends on the time of the sale. If AES doesn't buy the stake, it will have to do a drag along," he said, adding that this would make it more difficult to find a buyer.

Esposito said that the recent return of AES' interest in investing in Brazil, which has weathered the global financial crisis superbly and whose economy is expected to grow 6 percent in 2010, was a surprise.

Analysts have been forecasting increased activity in mergers and acquisitions in Brazil's energy sector, as Canadian investment accelerates across infrastructure.

"AES went from a seller of assets to a buyer," he said.

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