Eletrobras takes a new step towards privatization with the disclosure of grants for hydroelectric plants, points out Credit Suisse

Eletrobras (ELET3;ELET6) informed on Tuesday that it will pay R$23.2 billion to the Union for the grants of 22 hydroelectric plants that will have contracts renewed, in a movement related to the privatization process of the company, after the federal government has approved a resolution which defines the value of the economic benefit of the company’s new concession contracts.

According to the state electricity company, the National Energy Policy Council (CNPE) set the amount of R$ 62.5 billion as added value for the new electricity generation concession contracts for the 22 Eletrobras plants, as a condition precedent for capitalization from the company.

Part of the added value, the BRL 23.2 billion will be paid to the Federal Government by capitalized Eletrobras or by its controlled companies, which will leave the current quota system -which only remunerates operation and maintenance- for independent energy production .

The amount to be paid for grants, which was close to previous estimates, will be raised by the company in the privatization process, with a primary offering of shares, in an operation that should be concluded by February of next year.

Eletrobras will also advance R$ 5 billion to the Energy Development Account (CDE) in 2022, with the objective of helping to alleviate the upward pressure on electricity tariffs, given the scenario of rising costs that should continue into next year.

The portion thus integrates the R$ 29.8 billion that should be allocated to the CDE, as provided for in the Eletrobras privatization rules, aiming at the so-called reasonable tariffs, for a period of 25 years. Payments will be made on a staggered basis over time.

As Credit Suisse highlights, the resolution fixing the amount of R$23.2 billion in fees for new concession contracts of the electric company was below the previously estimated, of R$25.5 billion. Resolution was one of the points as a condition for privatization.

The changes were diverse, but overall, the effect seems neutral, analysts assess. The assumptions used to calculate the rates differ from the initials used in February, when the government announced the first estimates for privatization.

In the view of analysts, the publication of the resolution is important (and in good time), since the valuation that the National Bank for Economic and Social Development (BNDES) is preparing for Eletrobras (expected to be released in early October) it depends on the assumptions used and also on the confirmation of payment of the concession fee.

The privatization committee is also expected to provide more details on the spin-off of Itaipu/Angra, details of the share offering (size, dilution, primary and secondary tranches) and governance.

Finally, the Federal Court of Accounts (TCU) must issue an opinion on the process so shareholders can vote on the terms of the privatization, expected for February 2022, they assess. See the next steps for the privatization of Eletrobras by clicking here.

Credit analysts have a neutral recommendation for Eletrobras’ PN share, with a target price of R$45 per ELET6 asset, or a potential increase of 19.14% compared to Tuesday’s closing.

(with Reuters)

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