Brazil energy minister - radical in Lula cabinet

www.planetark.org BRAZIL: March 10, 2003

RIO DE JANEIRO, Brazil - While Brazil's new left-leaning government is sticking to market-friendly economic policies, one minister with a wild revolutionary past seems less inclined to please investors in her ailing sector - energy.

As prospects strengthened this week for the nationalization of cash-strapped U.S. energy firm AES Corp's (AES.N) Brazilian affiliate Eletropaulo (ELPL4.SA), Mining and Energy Minister Dilma Rousseff has done little to soothe foreign investor nerves.

Analysts say tough remarks by the 55-year old former urban guerrilla suggest stricter government control over the market and pricing policies, which have become vitally important since the government is fighting a surge in inflation.

"So far, the (government's) economic team have been much more orthodox in what they say or do than the energy minister," said Jed Bailey, Latin American director with Cambridge Energy Research Association. "She sounded more radical than others."

Rousseff, a member of President Luiz Inacio Lula da Silva's Workers' Party, is known among leftists who came to power in January for taking part in a daredevil "expropriation" of $2.5 million from a former governor in 1969.

Rousseff fought the 1964-85 military regime, spent three years in jail and was tortured. Later, she got a doctorate in economics from Campinas University and was the finance secretary and twice the energy secretary of southern Rio Grande do Sul state. Rousseff is divorced and has one daughter.

NO DECISIONS YET

So far Rousseff, who inherited a power sector in crisis and mired in uncertainty whether it should be private or state-run, is yet to come up with key decisions on energy and fuel pricing, as well as a model for the electricity sector.

A critic of privatizations, she had denied any plans to nationalize the private part of the power sector.

But the problems at AES, which this week acknowledged a second default on its debt to the government's BNDES National Development Bank in a month, means a nationalization might become the first major event in the sector under her rule.

Rousseff told the Istoe Dinheiro Magazine recently the bank had every right to claim AES assets and did not rule out a provisional federal administration for Eletropaulo.

Analysts said such an act on behalf of a government-run bank would be bad for an already difficult investment climate. The sides have decided to continue talks until next week.

As for the sector's model, Rousseff has promised to come up with a plan by July.

"The government will have to regulate the market, improve the revenues of utilities and guarantee investment. It's a tough task but it has to be done, or we'll have power rationing again in two years," said Osvaldo Telles of BBV Securities. Nine months of rationing ended a year ago.

Her plan may involve a wider use of wind power in Brazil, which Rousseff has advocated in the past using a quotation from Bob Dylan: "The answer, my friend, is blowing in the wind."

OIL SECTOR SEEKING GUIDELINES

Rousseff is also responsible for the oil and gas sector, which analysts say needs urgent attention as well.

So far, Rousseff has been focused mainly on fuel pricing, which is key for inflation. Giant state oil firm Petrobras (PETR4.SA) (PBR.N) accounts for nearly all refining in Brazil, but it has not raised prices of gasoline and diesel since December despite a sharp rise in world oil prices.

Petrobras had obtained formal independence in price-setting, seen as key to its profitability, under the previous administration, and analysts attribute the lack of price hikes recently to Rousseff's influence.

Rousseff has said local fuel prices should continue to depend on world oil prices, but the government has to work out a mechanism to protect the population from sharp fluctuations.

"But the energy policy is also much wider than the question of pricing. Natural gas consumption and production, free access to gas pipelines, taxation of providers and producers all have to be tackled," said Jean Paul Prates of Expetro consultancy.

Story by Andrei Khalip