Minister talks about reducing electricity bill and leaves market apprehensive

Energy analysts at the largest banks had a more tense than usual start to the week. Professionals from the main analysis houses went to the field early this Monday (10) to try to understand what measures the Jair Bolsonaro (PL) government will announce after the elections to reduce the electricity bill.

The financial market turned on the alert after the Minister of Mines and Energy, Adolfo Sachsida, signaled the changes in his participation in the program A Voz do Brasil on Friday (7). Sachsida said that on November 10 he would announce measures with the potential to reduce electricity tariffs by 10%. The second round takes place on October 30.

“I want to announce that Brazil will continue to have new reductions in [valor da] energy. It’s going to get cheaper, following the drops we’ve had this year. In the coming months, we will announce measures that will reduce energy tariffs by up to 10%, starting next year”, he said, without giving details and saying he would keep the “suspense in the air”.

The signaling was interpreted as a risk of populism, explained analysts interviewed by the Sheetwith the condition that the names are not mentioned.

Analysts took into account that the Bolsonaro government adopted several measures considered populist and aimed at improving the president’s performance in his reelection campaign. Among them is instituting a state of emergency to circumvent the electoral law and pave the way for raising the value of Auxílio Brasil and granting benefits to truck drivers and taxi drivers.

The minister’s speech reminded the financial market of the announcement of a reduction in the electricity bill made at the end of 2012 by the then president Dilma Rousseff (PT). Ratified in 2013, the 18% cut for residential consumers and 32% for companies was accompanied by a reformulation in the electricity sector. The package included the early renewal of concessions from some distributors, through MP 579, throwing a billionaire liability for future years that ended up raising the electricity bill up front.

In the words of an experienced analyst, a dog bitten by a snake is afraid of sausage and the market tries to understand the alternatives available to the government.

It is known that the current administration does not agree, for example, with the transfer of subsidies, which currently burden the electricity bill, to the National Treasury, an alternative advocated by numerous agents in the electricity sector. The CDE (Energy Development Account), where the subsidies are, reached R$ 32 billion this year and continues on an upward trend.

One way to reduce the tariff in 2023 is to ensure that the payment of Itaipu’s debt is reverted to the benefit of energy consumers.

The binational plant’s debt, from 2021 to 2022, has already dropped from US$ 2 billion to US$ 1.4 billion and will be paid off by March next year. Without this financial expense, Itaipu’s costs will plummet, allowing for a reduction in its fare.

Brazil understands that the treaty makes it clear that this reduction is automatic. Those who follow the sector, however, remember that it will be necessary to negotiate with the Paraguayans, who tend to harden the discussion, as demonstrated in the negotiation of the tariff cut in 2022.

This year, Brazil lost an arm wrestle with Paraguay and was unable to transfer all the reduction in the cost of debt to the electricity bill. Part of the released resources was transferred to the plant’s exploration cost. With this measure, for the first time in history, the cost of exploration reached US$ 1 billion.

The funds under this heading can also be used in works, such as the construction of bridges and highways, a procedure that politically interests governments on both sides of the border. The tariff reduction, in turn, benefits Brazil more. It is Brazilians who pay for almost 90% of the energy generated by Itaipu.