Brazil tightens service quality rules for power distributors

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Tuesday, November 29, 2016

Brazil's power industry regulator has approved a law banning dividend payments to shareholders of electricity distributors that breach service quality standards.

Distributors will be limited to issuing dividends that amount to 25% of their profit if they fail to meet minimum targets for two consecutive years or three times in five years, according to a resolution published on Tuesday.

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Aneel, as the regulator is known, said the rules are valid for concessionaires that renewed contracts at the end of 2015. Among them are Energisa, Cemig and Copel.

"Investment needs to be made to ensure the quality of service," Valor Econômico quoted Aneel director general Romeu Rufino as saying.

"Clearly some companies have a stronger focus on paying their shareholders. What we want to do is to ensure an equilibrium. Nobody is saying that there shouldn't be a fair distribution of dividends but it shouldn't be at the expense of investment," he added.

Distribution companies that renew or sign new contracts in future will also be subject to the new rules.

Brazil's electricity distribution sector has been beset by years of underinvestment with blackouts a common occurrence in many parts of the country.

State-run electric power utility Eletrobras is selling seven of its distribution subsidiaries – starting with Celg-D in Goiás state – as it focuses on the more profitable generation and transmission segments.