CESP Auction Draws Zero Interest

The Tuesday auction of Sao Paulo electricity generator CESP was abandoned through lack of interest. No company deposited the BRL1.74bn in guarantees required to participate in the sale, which had a minimum price tag of BRL6.6bn. The total required is heard more than double that, factoring in CESP debt, payouts to minority investors and investment in facilities. Local analysts speculate that the failure is specific to CESP, and will not hold back the May 9 auction of rights to build and operate the Jirau hydroelectric plant on the Rio Madeira. The federal government refused to guarantee that CESP hydro concessions that generate 67% of its energy would be renewed when they expire in 2015. It also did not change the BNDES’s mandate to permit it to help finance the deal. At present, the BNDES can only finance projects that increase energy generation, not transfers of control. Politics may well be behind these problems. A CESP sale would have brought billions into the coffers of the Sao Paulo state government, which is headed by Lula’s chief political rival, Jose Serra. The upcoming Jirau auction is a federal project, which Lula has called crucial, and BNDES has already announced willingness to help finance it. Other state utilities (Cemig, Copel, Eletrobras) also face concessions that will expire. If the government does not change the law to permit renewals, they too may face problems.