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With not enough funds to meet commitments, the government already eyes privatization of Eletrobras

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Brazilian energy company Eletrobras CEO Wilson Ferreira Junior

Brazil’s government is eying the privatisation of giant power utility Eletrobras in a bid to balance a yawning budget deficit, the energy ministry said, sparking a surge in share prices Tuesday.

“This is a move of fundamental importance for developing the Brazilian electricity sector,” Mining and Energy Minister Fernando Coelho Filho told a press conference in Brasilia.

The energy minister said in a statement issued after markets closed Monday that the selloff would “add competitiveness and efficiency to the businesses in the management of its operations, without the stumbling blocks facing public companies.”

The government, which is struggling to pay the bills following two years of deep recession, hopes to raise 20 billion Reais ($6.3 billion) in the partial selloff of the country’s biggest power utility.

The government would retain a golden share to exercise veto power. It also said it would exclude nuclear power plants from the sale, as well as the Itaipu hydroelectric station which is jointly owned with neighboring Paraguay.

Currently the government holds 40.98 percent of Eletrobras’ stocks, while state development bank BNDES holds another 18.72 percent.

Common share prices rocketed on the announcement Tuesday, rising more than 40 percent at around midday, and preferred shares rose 26.25 percent. The surge helped push the Sao Paulo market’s Ibovespa index above the 70,000 barrier.

Corruption and criticism

Last week, the government conceded that it would not meet its budget targets and raised the expected budget deficit ceiling to $50 billion in 2017, up from $44 billion.

Scandal-plagued President Michel Temer is pushing through market reforms that he hopes will loosen up Brazil’s notoriously inefficient economy and restore growth.

The energy minister said the troubled company’s debts were draining funds that could “be used for security, education and health.”

The government is modelling its plans on previous privatizations of aerospace company Embraer in 1994 and mining giant Vale in 1997.