The Brazilian government has agreed a $5 billion package to shield utilities and consumers from the impact of a severe drought. The financial assistance will enable the country's utilities to continue using expensive thermal generation without passing the costs on to consumers. Gradual electricity rate hikes will be allowed in 2015.
Brazil is heavily reliant on hydropower but the worst drought in the country in over 40 years has depleted reservoir levels and severely impacted the output of hydroelectric dams.
Brazil's treasury will provide power companies with around BR4 billion ($1.7 billion) to enable them to meet their financial commitments. In addition the country's electricity clearing house will be able to seek BR$8 billion from financial markets to help support utilities. The move will enable the Brazilian government to avoid unpopular price increases and keep a lid on inflation in an election year.
The Brazilian government has been keen to reduce electricity prices, which are among the highest in Latin America. In 2012 the government pledged to reduce electricity prices for consumers by 20 % by signing new contracts with generators. But energy costs have risen because of the drought and have also forced the government to increase subsidies to the sector, putting the fiscal budget under pressure.