SAO PAULO, Feb 28 (Reuters) - Brazil's government and

power giant Eletrobras reached a deal in a mediation process

that could allow the state to appoint three members of the

company's board of directors, while freeing the firm from fresh

investments in a controversial nuclear plant.

The two parties had been trying to reach an agreement since

2023 as the government pushed to regain influence in Eletrobras

more equivalent to its stake in the firm, which was

privatized in 2022.

Eletrobras in a securities filing on Friday said the parties

would now work on a conciliation term to be approved by the

company's shareholders and validated by Brazil's Supreme Court

as part of the settlement deal.

Sao Paulo-traded shares of the company rose more than 5% on

the news, among the biggest gainers on benchmark stock index

Bovespa, as analysts see the agreement helping to

de-risk Latin America's largest utility.

Brazil owns more than 40% of Eletrobras' common shares, but

under the privatization terms no more than 10% of that stake can

be used to exercise voting power over company decisions.

Leftist President Luiz Inacio Lula da Silva, who has long

slammed the privatization carried out by right-wing predecessor

Jair Bolsonaro, in his first year in office asked the Supreme

Court to grant the government proportional voting power.

The court then pushed the parties into a mediation process.

Under the new agreement, the 10% voting power cap for

shareholders will be maintained, but the government will be able

to appoint three members of Eletrobras' board, which will be

expanded to 10 people from nine currently.

Itau BBA analysts, praising the deal's overall terms as very

positive for Eletrobras, said that having three

government-nominated board members was in line with

expectations.

NUCLEAR RELIEF

The deal also settled some outstanding issues regarding

state-run nuclear power firm Eletronuclear, of which Eletrobras

is a shareholder, and the controversial multi-billion dollar

process to complete the Angra 3 nuclear plant.

Eletrobras will no longer be obliged to allocate money for

Angra 3's completion, it said, but will keep guaranteeing 6.1

billion reais ($1.05 billion) in loans previously obtained for

the project during 40 years of off-and-on construction.

Eletrobras will also subscribe 2.4 billion-real debentures

to be issued by Eletronuclear to extend the service life of the

Angra 1 plant.

The government, meanwhile, agreed to support the company's

efforts should it decide to divest its Eletronuclear stake.

"The main positive among the terms is that Eletrobras would

no longer be committed to future capital increases to fund Angra

3," JPMorgan analysts said. The maintenance of the voting cap,

they added, was also "surely a positive."

($1 = 5.8344 reais)

(Reporting by Gabriel Araujo and Leticia Fucuchima; Editing by

Kirsten Donovan and Emelia Sithole-Matarise)