UPDATE 2-Brazil denies energy contract renewal by decree

SAO PAULO, Jan 29 (Reuters) - Brazil's Mines and Energy minister denied a newspaper report on Friday the government had drafted a provisional measure to enable concessions for electricity companies to be renewed by decree.

Folha de Sao Paulo newspaper said on Friday such a measure was afoot to reduce regulatory uncertainty that had dampened investments and mergers in the sector and to help utilities raise funds from banks by showing concrete future plans.

Existing concessions will expire between 2015 and 2020.

The news was behind a 12 percent increase in the share price of Cesp on Friday, one of the companies that stood to benefit. The share fell steadily later in the day, but still ended 3.5 percent higher.

Sources contacted by Reuters on Friday said the government had not reached a decision on how to deal with the renewal of energy concessions.

A source at the Mines and Energy ministry said a provisional measure for renewal of the concessions by decree would be legal, but leave the government wide open to criticism. A draft law was an alternative, the source said.

Brazil will hold a presidential election in October and passing new legislation is likely to become more difficult in the second half of the year when campaigning will be at its peak in the run-up to the poll.

The government formed a working group more than a year ago comprised of officials from the Mines and Energy ministry and a number of state energy agencies to discuss plans for the renewal of energy concessions.

The group has finished studying various options for the distribution of the concessions and would make a decision about new contracts on the basis of that work.

Folha's article said that, with concession renewal by decree, the operators would have to agree to lower electricity tariffs. The rules for companies in energy transmission and distribution would not be changed, the daily said.

A portion of electricity tariffs in Brazil goes directly to generators to make up for investments in power plants, but since the majority of those plants were built several years ago, companies were less likely to need the funds, Folha said.

The decision to renew the concessions by decree may benefit in particular three state-run utilities that ran the risk of having a majority of their assets returned to the federal government, the daily reported.

Sao Paulo state-run energy generator Cesp has four power plants with concessions ending in 2015, Folha said, while Cemig , the combined utility controlled by Minas Gerais state, has 19 plants with concessions coming due in 2020. Parana state's Copel also has concessions for seven power plants ending in 2019.

(Reporting by Elzio Barreto; editing by Andre Grenon) Keywords: BRAZIL UTILITY/CONCESSIONS ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.