April 7, 2017 / 5:53 PM / in 3 months

China's ZEPC in talks to buy Belo Monte dam stake: sources

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An overview of the site of the Belo Monte hydroelectric dam, planned to be the world's third largest, in Pimental, near Altamira in Para state, November 23, 2013.Paulo Santos

SAO PAULO (Reuters) - China's Zhejiang Electric Power Construction Co Ltd (600023.SS) (ZEPC) is in talks to buy a stake in Brazil's Belo Monte hydroelectric dam, one of the country's biggest, two sources familiar with the negotiations told Reuters.

The 11,233-megawatt dam on a major tributary to the Amazon River is owned by the Norte Energia consortium, which includes utilities Eletrobras (ELET5.SA), Neoenergia SA, Cemig (CMIG4.SA) and Light SA (LIGT3.SA), mining company Vale SA (VALE5.SA), and pension funds Petros [PETROS.UL] and Funcef [FUNCEF.UL].

The sources, who asked not to be named because talks are private, gave no information on the value of a potential deal.

Last week, the chief executive of state-controlled Eletrobras, known formally as Centrais Eletricas Brasileiras SA, told reporters that some Belo Monte shareholders have been looking to sell their stakes in the project.

Belo Monte's shareholders' agreement includes a "tag along" clause, obliging an investor who buys a controlling stake in the project to offer similar terms to remaining shareholders, which could sharply increase the value of a deal.

It was not immediately possible to contact a representative for ZEPC. The Norte Energia consortium declined to comment and directed queries to its shareholders.

An overview of the houses being built for employees of the Belo Monte hydroelectric dam, planned to be the world's third largest, in Pimental, near Altamira in Para state, November 23, 2013.Paulo Santos

Eletrobras said it is prepared to evaluate its tag along rights, but said it would not comment on talks involving its partners. Neoenergia said there were no negotiations under way. Cemig, Light, Petros and Funcef did not return requests for comments.

The Norte Energia consortium has invested 31.6 billion reais ($10.1 billion), of an estimated 35 billion reais needed by the time it is finished in 2019.

Yet delays, cost overruns and licensing trouble have kept the dam from generating profits so far, and one of the sources said some partners are not satisfied with the project's outlook.

Belo Monte has also attracted controversy in Brazil and abroad, with environmental activists from Greenpeace to film director James Cameron decrying the impact on a previously untouched patch of rainforest and a nearby indigenous reserve.

A federal court suspended Belo Monte's operating license late on Thursday, for example, on the grounds that it had not completed basic sanitation projects near the dam.

At the same time, several stakeholders are struggling to cut debt amid tight credit conditions in Brazil. Cemig, Vale and Eletrobras have been looking to raise funds with asset sales. Pension funds Funcef and Petros are reevaluating their portfolios after losses.

($1 = 3.13 reais)

Reporting by Luciano Costa; Writing by Marcelo Teixeira; Editing by Jonathan Oatis and Leslie Adler

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