Brazilian industry asks Bolsonaro for help with soaring power costs

SAO PAULO, April 9 (Reuters) - Double-digit increases in energy costs face Brazilian households and factories already slammed by the pandemic this year, leading some industry lobbying groups to ask President Jair Bolsonaro for help.

The situation could further erode stagnant incomes and spending power for consumers, who cannot afford to pay higher costs that companies will have to charge to preserve profit margins.

Figures on Friday showed consumer inflation rose above 6% in March for the first time since 2016, which should bring another interest rate hike in May. Most economists think inflation will rise further in the coming months.

State-run oil firm Petroleo Brasileiro SA, or Petrobras, recently announced a 39% increase in natural gas prices for distributors effective May 1, while power rates are set to rise more than 10% this year.

The National Confederation of Industry (CNI) told Reuters it has recommended Bolsonaro introduce a temporary 90-day cut to federal taxes on power bills.

The CNI is also demanding the government temporarily assume costs related to use of more expensive thermal generation as poor rains have hurt hydroelectric generators.

“It could cut electricity costs by up to 25%,” the CNI said in an email.

National energy regulator ANEEL said this week it will suspend changes to distributors’ rates for several weeks while it considers ways to mitigate rising consumer prices.

Although the move signals some relief for households and industry, it raised investor fears of government interference in the energy sector, weighing on share prices for some companies.

“The situation is worrisome,” said Claudio Sales, head of power sector think tank Instituto Acende Brasil.

“On the one hand, we need to acknowledge the extremely delicate and difficult moment right now regarding the pandemic. But on the other, any change in the regulatory due process to cut rates would generate serious legal insecurity,” he said.

Both electricity and gas prices are partly linked to the IGP-M wholesale inflation index, which is showing inflation far higher than the IPCA consumer price index. Annual IGP-M inflation is 31%, compared with 6.1% IPCA inflation.

Paulo Pedrosa, head of industry lobby group ABRACE and a former deputy energy minister, said gas and power sector reforms will ease the strain. But not yet.

“The industry’s daily life has been terrible,” he said. (Reporting by Luciano Costa; Editing by David Gregorio)