December 26, 2017 / 10:14 PM / in a year

Government struggling to organize Eletrobras unit sales: sources

SAO PAULO (Reuters) - The Brazilian government is struggling to agree on terms for a sale of distribution units owned by Centrais Eletricas Brasileiras SA, two sources with knowledge of the situation told Reuters, a development that could hold up the privatization of the rest of the state-run utility.

Eletrobras (ELET6.SA), as the company is commonly known, is attempting to sell six distribution units that provide electricity to 13 million people in northern Brazil ahead of a wholesale privatization of the rest of the company. Buyers of the distribution assets will be required to make significant investments in the generally unprofitable distributors as part of the terms of any purchase.

Government teams involved in organizing the sale worked over the Christmas holiday but are having difficulty settling on the exact terms for the sale, said the sources, who requested anonymity as the negotiations are private.

Eletrobras could not immediately be reached for comment.

“There’s strong technical resistance. They’re companies with bad results,” said one of the sources. “If we don’t sell, the privatization of Eletrobras won’t go forward. It’s that simple.”

The sale of the distribution units is key to the overall privatization of Eletrobras. In August, the government said it planned to privatize the state-run company by the end of 2018, but will only do so once the distribution units are sold off.

More generally, the difficulties in selling the distribution units reflect larger problems faced by President Michel Temer’s unpopular government in pushing a broad privatization program in a country where the state competes with or has effectively replaced private actors in many sectors.

The official model proposed by state development bank BNDES, which is advising the privatization, foresees a sale of the distribution units for a symbolic value, paired with investment obligations of 8 billion reais ($2.42 billion) in total.

According to one of the sources, it is unclear that such an offer would be attractive to private sector buyers, given the inefficiency of the units for sale.

Reporting by Rodrigo Viga Gaier; Writing by Gram Slattery; Editing by Matthew Lewis

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