21 April, 2010

Lula insists on a damned dam in the Amazon

Sergio Abranches

Amidst a judicial battle around the hydropower dam of Belo Monte, in the Brazilian Amazon region, the government has hastily auctioned the project. The 7-minute long bidding is being contested at the federal courts.

There are four lawsuits, as of yesterday, to stop the project, and revoke the auction. The government has been able to suspend the injunctions and go on with the auction, but there has been no ruling yet by the Federal Court of Appeals on whether the whole process has been in accordance to the law and environmental rules. See Jeremy Hance story on the Belo Monte auction for Mongabay here.

Only 8 months before being replaced by a new administration, the government has bypassed rules and set all legal and policy precaution aside only to see the project auctioned. What has been puzzling many analysts, including myself, is why is President Lula fighting so stubbornly to speed up a project that clearly requires a more thorough technical evaluation on all grounds.

It is also intriguing why the government has refused to look at any alternative, even other hydro plants already planned. The project has raised doubts on economic, financial, energy efficiency, environmental, and procedural grounds. There is no justification for such a hasty implementation. The country will have a surplus of electric power of about 4,000 mW by 2013. Technological uncertainties may lead to skyrocketing maintenance costs. The dam is more than 1,000 km away from the grid. For its electricity to reach consumer centers the government will have to build a long and very costly transmission line. There are better alternatives within the grid area. The government has never done a comparative analysis of the costs and benefits of the Belo Monte plant against other hydro or wind power alternatives closer to consumer centers.

One of the Federal Prosecutor’s arguments is that the auction has specified a larger flooded area than allowed by the provisional environmental license. If the court finds that there is a difference between what was auctioned, what was licensed, it is likely that it will be revoked.

The environmental license itself is contested at the Federal Court due to several irregularities identified by the Federal Prosecutor. He has argued that it was granted by Ibama, the federal environmental agency, without a complete assessment of the dam’s environmental impact, as required by law. He attached documents showing that Ibama’s analysts wrote several memos stating that there were many technical points requiring clarification, before an appropriate assessment of environmental impact could be effectively made.

The project has a huge environmental impact, endangering forest reproduction over a 100 km long tract of the Amazon rainforest. It would also reduce the fish and water supply of local indigenous communities. Belo Monte is controversial on economic and energy security grounds as well. It is the less efficient electric power project under consideration in Brazil. It will cost over US$ 17 billion and would have to be almost entirely subsidized. The fiscal risk is very high. The maximum tariff adopted as a ceiling for the auction, of US$ 47.00 per kWh, is too low to make it financially viable to private investors. As a result, private investors have decided to participate only under the umbrella of state-owned companies. To circumvent private financial objections, the government has decided to organize consortia led by state-owned power companies. Private investors were invited to join as minority partners. The state-owned investment bank, BNDES, will provide highly subsidized finance for 80% of the project. The return on investment is so low that the pension funds of state-owned corporations the government wanted to bring to the consortia could not participate. ROI is smaller than the minimum set by the law that regulates pension funds.

The Belo Monte project was first released in 1979. Its original design was an environmental nightmare. Although subsequent redesigning has reduced its impact on the environment, it failed to remove its structural flaws. For the plant to be more efficient, the dam would have to be much larger, doing an unbearable damage to the Xingu river and to the Amazon forest. To minimize environmental damage, the project ends up with one of the lowest capacity to yield ratios in the Brazilian power sector. Its annual average power yield would be within the range of 3,500 mW – 4,500 mW, depending on the water flow, for an installed capacity of 13,000 mW.

Even for the plant to generate 4,500 mW annually, channels would have to divert a huge amount of the water flow into the dam. Upriver water availability would be severely compromised. Draining the river upstream would have important environmental consequences. A large portion of the rainforest in this region remains flooded for several months. The flood season coincides with the fruit season. Several species of fish enter the forest area when it is flooded and eat fruits, becoming major vectors for forest spreading and reproduction along the river banks. Depending on the water flow remaining upriver after the diverting channels are operational, most of the forest area would no longer be flooded and the forest would die. The level of remaining water would lead to imbalances on forest life and biodiversity. It would also negatively impact fisheries and the food supply of the local indigenous population. There is risk of spreading vector-borne epidemics, particularly malaria and dengue fever, because of changes in the distribution of water, drying upriver and flooding at the dam site. Levees would be necessary to reduce flooding in the rain season by water overflowing the dam.

Emissions of methane due to forest degradation and death were not counted as environmental impacts. The dam could also become a major source of emissions due to the large amount of organic sediment typical of Amazonian rivers.

The winner of the 7-minute auction was a loose coalition of companies, assembled only a few days before the bidding, and led by state-owned CHESF. The government agency in charge of auctioning, ANEEL, has made several last-minute maneuvers for the group to be entitled to register. Their bid of US$ 44.00 has been unanimously considered as untenable. It is consensus in the financial markets and in the electric power sector that even the US$ 47.00 set as ceiling by the government would not be profitable. Experts who are favorable to the project, although critical of the way the government is conducting the process, say that the minimum profitable tariff would be US$ 57.00, taking finance subsidy into account. O Globo newspaper columnist Miriam Leitão gives more details on the final dealings that led to this objectionable fast-track process. Her column, here, reveals several important aspects of the Belo Monte affair (in Portuguese).

The dominant groups in the Brazilian electric power sector – contractors, experts, consultants, government officials – refuse to even consider wind power as an alternative, in spite of the country’s obvious wind and solar power advantages. Brazil has only 600 mW of wind power installed capacity, compared to China’s almost 30,000 mW. China has increased its capacity by 13,800 mW in 2009, more than Belo Monte’s nominal capacity.

Only two experts, among more than a dozen interviewed in the Brazilian press, said that wind power should be considered as an alternative. The Brazilian energy establishment is so antagonistic to the idea of wind power, that there is no serious official inventory of the country’s wind power potential. There is only a very partial survey of on-shore potential. Recent academic research has estimated that Brazil’s off-shore potential is even greater than on-shore. There are indications that in some on-shore sites in the Northeastern states, and several off-shore sites, along the coast, installed capacity to effective yield ratios could be as high as 50%, compared to the commonly used 30% average. The difference has to do with the direction and strength of the wind during the day and the number of windy days in the year. But no official and systematic appraisal has ever been released.

Senator Marina Silva, the Green Party presidential candidate, has told me that Belo Monte should be reexamined and the government should conduct further public inquiries before it is thoroughly reviewed by Ibama, the federal environmental agency. The forerunner in the polls, the Social Democrat candidate, José Serra, has not commented. But he has adopted greener policies while governor of the State of São Paulo. If the electoral wind does not go in the direction of President Lula’s candidate, he might well have bet his political assets on a damned dam.

Tags: , , ,