U.S. Markets closed

Brazil delays power service surcharge planned for next year

SAO PAULO, Dec 18 (Reuters) - The Brazilian government, in a further attempt to tame inflation through the use of utility fees, delayed by a year the implementation of a surcharge on electricity rates scheduled for January.

According to a late Tuesday decision by power industry watchdog Anatel that most analysts said was unexpected, the surcharge will now be implemented in January 2015.

The surcharge would affect residential power bills for the potential use of electricity from thermal plants, which produce much more expensive electricity but are chiefly used during times of dry weather.

The so-called fare flagging system, by which the surcharges would be implemented in clients' bills on a monthly basis, is a mechanism that helps reimburse electricity companies for extra power costs.

With the delay, a likely scenario is that the National Treasury, a unit of the finance ministry that earmarks budget money, will help compensate for additional costs incurred if costlier energy is generated, according to industry leaders including Nelson Fonseca Leite, president of the Brazilian Association of Power Distribution Companies.

Consumer prices are running close to the ceiling of the central bank's tolerance range for annual inflation. Economists expect them to gain further momentum in 2014 as rising utility fees and transport costs as well as stable food prices will offset a slight decline in the cost of some services.