NEW ENERGY MODEL BILL PASSES SENATE

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