August 14, 2008

Amazon Dams Under Fire

Legal challenges and a dispute between construction groups are threatening to delay the construction of a dam in the Amazon approved by Brazil earlier this week.

The Brazilian government plans to place two dams on the Madeira River, one of the Amazon River's largest tributaries.  The government sees them as a key to preventing major energy shortages over the next decade.

The $13 billion Santo Antonio and Jirau projects are also seen as a major step toward regional integration.

They would help in the creation of a waterway that could cut transport costs for farming areas in Bolivia and Peru, and for Brazil's agriculture exports.

Carlos Minc, Brazil's environment minister, has promised to shorten the time taken to authorize large projects.  Minc attached 40 provisions to the building of the Santo Antonio dam during Monday's approval.

Environmentalists view the dams as a potential disaster that could dramatically change the ecosystem if they flood up to 494,200 acres of forest.

They say the government has not provided enough safeguards.

"Minc is blowing a lot of smoke and pretending his agency is demanding a lot of rigorous measures," said Glenn Switkes, Latin America Program Director for International Rivers Network, a California-based group that protects rivers and the communities that depend on them.

"We're dealing with a principal tributary of the Amazon...which has maybe the highest biodiversity of fish and among the highest biodiversity of birds in the world."

Environmentalists said the dams violate the Equator Principles on project finance.  Several banks signed off, potentially funding the projects, and possibly opening the way for legal challenges.

So far, conservationists have failed to hold up the licensing process.

The separate consortiums building the dams have started a fight that has the government worried about a legal battle and possible delays.

This week, the government threatened to reopen the auctions or take over the projects through state-controlled generator Eletrobras if the business groups failed to resolve differences.

On Monday, Victor Paranhos, head of the Enersus group that won the Jirau concession, accused the rival group led by construction giant Odebrecht, of espionage after it sent a report about Enersus's building plans to the environment agency.

Odebrecht responded by beginning court proceedings on Tuesday that could lead to a defamation case against Paranhos.

Odebrecht's report criticized Enersus's plans to move the Jirau dam six miles downriver.

He said that move could affect the other dam's generation capacity. The government has not approved a relocation site.

"If an accord does not happen, the government could take the initiative to build the two works through Eletrobras," said Energy Minister Edison Lobao.

Last month, French utility Suez, which leads the Jirau group, threatened to end new investments in the Brazilian power sector if Odebrecht kept up its complaint.

Any delay, however small, will raise investor concerns about their profitability. The issue is already fed by regulatory uncertainty and pressure from Brazil's government for low consumer tariffs.

The Jirau consortium agreed to a plan to market electricity from the 3,300-megawatt project at a 21.5 percent discount compared with the auction's base price.

Erasto Almeida, an energy analyst at Eurasia Group in New York, played down the risk of major problems, including delays.

"The Brazilian government really wants to get these projects done because of concerns about potential power shortages," he said. "My sense of this is that both companies will defend their interests and you might have legal action but there'll be some kind of agreement."

Image Caption: Mouth of the Amazon River. Courtesy NASA