Nov. 12 (Bloomberg) -- Brazil’s integrated electricity grid leaves it vulnerable to the types of outages that occurred this week, when 40 percent of the country was plunged into darkness, according to a government energy research agency.

“Brazil has the largest integrated power grid in the world; it’s fantastic because it facilitates electricity transmission between regions, but the domino effect that happens when we have a problem is a major inconvenience,” said Mauricio Tolmasquim, president of Brazil’s Energy Research Agency.

As many as 70 million people lost power on the night of Nov. 10. Energy Minister Edison Lobao said wind, rain and lightning strikes on transmission lines connected to the 14,000- megawatt Itaipu hydroelectric dam probably caused the failure, which affected 18 of 26 states for as long as 3 1/2 hours. Companies including Vale SA, Gerdau SA and Petroleo Brasileiro SA reduced output because of the lack of electricity.

While Brazil’s economic growth quickens and officials prepare to host the 2014 World Cup and 2016 Olympics, concern is mounting that its aging electricity grid can’t keep up, said Adriano Pires, head of the Brazilian Center for Infrastructure.

Lobao said the Brazilian energy system is solid, adding it only took a few hours for power to be restored, whereas other countries took “days” to do so after an outage.

The minister said the outage was a “closed chapter” after meeting President Luiz Inacio Lula da Silva today in Brasilia.

U.S. Comparison

A storm first knocked out two transmission lines in Sao Paulo state. When an overloaded third line collapsed almost immediately after the first two, a cascading effect crippled about 15 transmission lines in southern Brazil, causing Itaipu to automatically shut down as a safety measure, Lobao told reporters yesterday in Brasilia.

Brazil’s Federal Prosecutor’s office said it opened an investigation into the causes of the outage. Itaipu and government officials have 72 hours to submit their preliminary reports, according to federal prosecutors.

Unlike in the U.S., which has three main regional power grids, almost all of Brazil’s electricity runs through an interconnected network. The blackout occurred because the system couldn’t cope with the three transmission lines failing at about the same time, Tolmasquim said.

It was the first time that transmission from the world’s largest dam by output was forced to shut down since power began to flow from Itaipu in 1983, he added. Preferred stock in state- run Centrais Eletricas Brasileiras SA, which owns the Brazilian stake in Itaipu, fell 1.8 percent to 24.25 reais ($14) in Sao Paulo trading today, the first decline in seven days.

Inefficient Management

Ildo Sauer, an energy professor at the University of Sao Paulo and former executive director of gas and energy at state- controlled Petrobras, said the blackout reflects a lack of monitoring and inefficient management of the system.

Lula said the blackout shouldn’t spark fears of another energy crisis like the drought-induced shortages of 2001 that led to power rationing and slower growth. He said Brazil has invested more in its power system since 2003 than in the 120 years before that.

“No one can promise interruptions won’t happen,” Cabinet Chief Dilma Rousseff told reporters in Brasilia. “What we can promise is that there won’t be rationing this country again.”

Investments in the power industry have totaled about $10 billion since 2003, according to Tolmasquim. He said investment will rise over the next five years as the government seeks to promote annual economic growth of about 5 percent.

Eletrobras is dedicating 6.3 billion reais through 2012 to build 10,386 kilometers (6,455 miles) of power lines and maintain existing ones. The spending is part of 30.2 billion reais the company plans to invest in the 2009-2012 period.

‘Not Acceptable’

“The government will have to look into the question of how to restore electricity more quickly,” Tolmasquim said.

Itaipu, which meets 20 percent of Brazil’s energy needs, said operations were back to normal at 6 a.m. local time yesterday.

Rio de Janeiro was the only state left completely in the dark, according to the Mines and Energy Ministry. Rio-based Vale, the world’s largest iron-ore producer, said the outage affected its southern system, where half of its mines are located, and it is assessing its losses.

Governor Sergio Cabral deployed 300 extra policemen to maintain calm in Rio, and the international airport and the subway systems there and in Sao Paulo were shut.

“We can’t discuss growth plans if we’re facing electricity disruptions,” Vanderlei Macris, a lawmaker from the opposition Social Democracy Party, said in a phone interview.

Water Shortage

About 6.7 million people in Sao Paulo state had limited water supplies after the outage, which caused Cia. de Saneamento Basico do Estado de Sao Paulo’s treatment centers to shut down. Supplies were back to normal at 5 p.m. local time today as the company’s systems were replenished with water.

Petrobras said the blackout temporarily reduced output at its refineries. The company said in a statement that the impact wasn’t significant and its distribution network wasn’t affected.

Gerdau SA, a steelmaker based in the southern city of Porto Alegre, said its industrial units were affected.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net

Last Updated: November 12, 2009 15:52 EST