São Paulo – This Monday (21st), the Brazilian minister of Mines and Energy, Edison Lobão, stated that a decision regarding new electric power sector concession contracts will be made next year. According to the minister, it will be up to president Dilma Rousseff to decide whether the contracts for exploration of hydroelectric plants, which will start expiring in 2015, will be renewed or whether new auctions will be held. Lobão said the president is already looking into the matter.
In 2015, concessions will end for 67 hydroelectric plants, with a capacity to generate 18,200 megawatts. From 2016 to 2025, the concessions for 47 plants will expire, with a combined generation potential of 12,500 megawatts.
The law provides that once the concessions have expired, plants are to be returned to the Union for new auctions to be held. The federal government, however, is considering submitting a bill to Congress so the contracts may be extended without auction.
The energy concession auctions are lowest-bid auctions. The company that commits to selling energy for the lowest price wins. As a result, new auctions are expected to lower the cost of electric power in Brazil.
Still, minister Lobão said prices may drop even if no auctions are held. According to him, in case the contracts are renewed, then concessionaires will not be required to make further investment in order to generate power. Currently, some of the investments made last year are still being charged as part of the tariffs. Without these costs, the price of power would also drop.
“Whatever the modality [of the new contract], tariffs will decrease,” said the minister during an event in São Paulo.
To the vice president of the Higher Board for Infrastructure of the Federation of Industries of the State of São Paulo (Coinfra-Fiesp), Carlos Cavalcanti, tariffs will drop further in case auctions take place. He called on the federal government to observe the agreement made with electric power companies. “The law is crystal-clear: the assets are to be returned to the Union.”
Cavalcanti claimed that many electric power sector companies want the renewal of concession contracts, because they will benefit from it. To him, the issue must be discussed with all of society, as it is up to it to pay the cost of electric power.
*Translated by Gabriel Pomerancblum