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Cablegate: New Energy Model Bill Passes Senate

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS BRASILIA 000528

SIPDIS

NSC FOR DEMPSEY
DOE FOR GWARD
COMMERCE FOR 4332/WBASTAIN/JANDERSON/DMCDOUGALL
COMMERCE FOR 3134/010/DEVITO/ANDERSON/OLSON

E.O. 12958: N/A
TAGS: ENRG EINV EFIN PGOV ECON BR
SUBJECT: NEW ENERGY MODEL BILL PASSES SENATE

REF: A. BRASILIA 509

B. BRASILIA 464
C. BRASILIA 321
D. 03 BRASILIA 3940
E. 03 BRASILIA 2859

1. The Brazilian Senate on March 4 approved the new energy
model with some changes sought by the energy sector. The
most favorable change pertains to the definition of "new
energy" and "old energy," a point that determines to which
of two energy pools power plants must sell. The bill as
passed by the lower chamber mandated that any generation
plant in operation before January 1, 2003 would have to
compete in "old energy" auctions with plants that had
already been amortized, i.e., on a less favorable footing.
The Senate version pushed back the date to January 1, 2000,
helping the majority of plants which started construction
after privatization in 1998. This change would allow 29
hydroelectric plants and 19 thermoelectric plants to compete in new energy auctions that would be considered "old energy" in the lower-chamber version.

2. However, even the bill passed on March 4 may not prove
to be the final Senate-approved version. Reflecting a
peculiarity of Brazil's legislative process, there will be
further separate Senate votes on a series of extra
amendments to the bill. Neither the number nor the nature
of these amendments are publicly known, but they evidently
represent private industry representatives' last shot at
inserting what they have described as essential changes for
the survival of adequate conditions for sector investment.

3. The big losers in the new energy model as passed by the
Senate so far are the distributors. Tariffs are to be based on auction prices, and the distributors will not be allowed to pass on all of their costs to the consumers. Also on the losing side were the opponents of the energy-model's prohibition of "self-dealing" (direct energy sales from generation to distribution operations of vertically
integrated companies.)

4. The Senate-passed version now must go back to the
Chamber of Deputies for the latter to consider its new
provisions. Separately, the Senate is scheduled to vote
Tuesday, March 9 on the further amendments, as well as
separately on Presidential Decree 145 (specific legislation
to create an Empresa de Pesquisa Energetica (EPE), the data
collection body akin to the United States Energy Information
Agency.)

VIRDEN

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