The appeal of receivables investment funds (FIDCs) has galvanized one of Brazil's monster power companies into action, according to sources. Executives at hydroelectric producer Furnas Centrais Eletricas have been talking to local media and sidling up to structured finance bankers about a deal for potentially R$400 million (US$139 million). "They want to use the vehicle because of the tax incentives," said one banker who was approached. "And they can't pull this together on their own."

Furnas has yet to formally send out RFPs, a source said. As a state company, it is obligated to bid out contracts. An official at Furnas did not return a call for comment.

The company, which billed 144,329 gigawatt hours (GWh) in 2002, covers much of the country's most economically vital region, the southeast. It procures power from Itaipu, the world's largest hydroelectric project.

Furnas has discussed the feasibility of securitizing different assets, but sources said that in the last several weeks the company has homed in on one in particular. The likely asset of choice is a 10-year contract that was initially signed with state-controlled Companhia Energetic de Goias. That liability was picked up by the center-west state of Goais, which, after a time, transferred that obligation to the federal government. A deal backed by a federal government liability would likely secure a national scale rating of triple-A rating, as long as the structure was straightforward.

But this seemingly winning formula - where the federal government is the single obligor - masks challenges linked to the contract and the industry itself. "This is something of a cumbersome asset," one banker said. "It brings up questions about the regulatory provisions and the conditions under which the government would pay the bond."

The winds of regulatory change are blowing as well. The government of Luiz Inacio Lula da Silva is pushing for a more centralized and longer-term system for negotiating power contracts, a source said. The sector has been struggling since a drought a few years ago sparked power rationing in regions of the country dominated by hydroelectricity. The forced cutbacks made Brazilians more efficient in energy use. That, combined with slow growth and the rolling off of contracts starting last year, has crippled the sector.

Furnas is a unit of Eletrobras. It receives the bulk of its power from Itaipu, which straddles the border of Brazil and Paraguay on the Parana River. The length of the reservoir at Itaipu is 106 miles (170 kilometers) and its width is 4.4 miles (7 kilometers), according to the Itaipu Web site.

The dam has a capacity of 12,600 megawatts (MW) and produced nearly 93,428 gigawatt hours (GWh) in 2000. The volume of earth and rock excavations at the massive project exceeds that of the Eurotunnel linking France and England by eight times.

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