Lack of rain puts pressure on fund to reduce tariffs.

Wellton Máximo - Reporter for Agência Brasil
The R$ 9 billion allocated in the Federal Budget for the Energy Development Account (CDE) in 2014 may be insufficient to cover the fund's expenses, which finances the reduction of electricity bills. According to experts, the lack of rain, which increases the price of energy in the short term, and the new model of the electricity sector, which prioritizes subsidies for tariffs, are putting pressure on the CDE's accounts.

Until 2012, unforeseen events in the electricity sector were covered by consumers themselves, who paid three charges embedded in their electricity bills that financed the activation of thermal power plants and the short-term purchase of energy by distributors. With the new electricity sector model, two charges were eliminated. Only the CDE (Energy Development Account) was preserved, requiring supplementation with resources from the National Treasury.

Last year, the Treasury contributed R$ 7,9 billion to the CDE through the issuance of public bonds, in addition to an undisclosed amount of advance receivables (right to receive) from the Itaipu hydroelectric plant. This year, the government changed the procedure and will now make contributions using resources from the Budget itself. However, the government may be forced to issue extraordinary credits if the funds for the CDE are insufficient.

Rogério Sobreira, an expert in infrastructure and investment projects at the Getulio Vargas Foundation (FGV), praises the government's initiative to use budgetary resources to bail out the CDE (Energy Development Fund). "This brings more transparency to public accounts and the electricity sector than carrying out indirect operations with government bonds. Within the available fiscal space, the government wants to create a positive effect, even if temporary," he said.

The problem, according to the professor, lies in making permanent a form of aid that should be occasional. "The great risk is that the actions will cease to be one-off and become constant. If the electricity sector needs government support all the time, the ideal would be to address the causes directly, not the effects," he added.

The president of the Acende Brasil Institute (a research center focused on developing actions and projects to increase the transparency and sustainability of the Brazilian electricity sector), Claudio Sales, does not believe that the government's actions are merely temporary. He believes there is a high probability that government transfers to the CDE (Energy Development Fund) will not decrease in the coming years. "The big problem is that the new model of the electricity sector has ceased to be sustainable. Tariffs no longer cover costs, and companies can only pay their bills if the government subsidizes them," he said.

According to Sales, the failure to purchase energy from the 2012 auction for the following year left distributors with a shortage of 6 megawatts of energy. To meet the necessary supply, companies have to buy energy in short-term auctions, whose prices are volatile and skyrocket during periods of drought. "In the last auction, the price per megawatt-hour was around R$ 400. In the next one, it should reach R$ 800," he explained.

With companies increasingly pressured by high costs, Sales believes it is highly likely that the government will need to transfer more resources to the CDE than planned. "Without the CDE, companies can't even balance their accounts because tariffs are artificially low," he said. For the coming years, he suggests that the government raise the price ceiling for medium- and long-term auctions to attract those interested in selling energy and reduce dependence on subsidies to the electricity sector.