Pinera Losing Environmental Credentials as Endesa Seeks Power in Patagonia

Sebastian Pinera’s first bill as a Chilean senator 20 years ago aimed to protect the environment. He later created an island nature reserve. Now president, he may oversee approval of a $7 billion project that would flood Patagonian valleys and stretch cables across protected forests.

Pinera’s government has given Santiago-based Empresa Nacional de Electricidad SA until October to explain the environmental impact of its planned HidroAysen complex, which would have the capacity to generate 35 percent of the country’s current power consumption.

The billionaire businessman, whose promises to almost double annual economic growth hinge on new energy sources, is unlikely to heed calls from nature conservancy groups to block the project, said Patricio Navia, a specialist in Chilean politics at New York University in Manhattan.

“Pinera cares about the environment, but he cares even more about business and development,” Navia said in a phone interview from Santiago. “Even though Pinera may not like HidroAysen, he will not oppose it on environmental grounds.”

Capable of generating 2,750 megawatts, the complex would be the most powerful in the South American nation, dwarfing current leader Ralco’s 683-megawatt output.

Pinera, 60, said in a May 21 speech that Chile needs to expand electricity supplies by 10,000 megawatts over the next 10 years to meet demand. His government aims for 6 percent average annual economic growth in its four-year term compared with an average 2.8 percent under the previous administration.

Copper Mines

HidroAysen’s five dams would flood nearly 6,000 hectares (14,800 acres) of land and require 1,900 kilometers (1,180 miles) of cables to feed power into the central grid that supplies the capital of Santiago, surrounding towns and mines owned by Codelco, the world’s largest copper company.

The Patagonia Defense Council, which groups more than 50 Chilean and international organizations that oppose the project, will hold workshops and a concert in the Patagonian town of Coyhaique Aug. 28 to drum up support for their campaign, council spokesman Patricio Segura said.

The transmission lines would likely run through the 300,000-hectare Pumalin nature sanctuary created by Douglas Tompkins, a conservationist who founded the North Face Inc. and Esprit Holdings Ltd. clothing companies. In a March 2006 interview, Tompkins, 67, described HidroAysen as “a monster.”

“Pinera’s green credentials will be hurt if HidroAysen is built during his administration,” Navia said.

Deer Species

Endesa Chile’s planning application fails to adequately address the potential impact on wildlife, including threats to the Huemul, a deer species in danger of extinction, Segura said in a phone interview from Coyhaique.

“If Pinera wanted to he could instruct authorities to revise the proceedings and bring to light a series of problems,” Segura said.

Pinera’s press office said the president wasn’t available to comment on HidroAysen. The environment ministry’s press department didn’t respond to requests for comment. Tompkins’ assistants didn’t respond to interview requests.

Pinera, who took office in March, earned his fortune by setting up Chile’s first credit card network and turning around LAN Airlines SA. His senate bill sought to protect the environment by imposing stricter controls on air and water quality.

With the help of Tompkins, he created the Tantauco reserve on the Patagonian island of Chiloe. Run by the Fundacion Futuro, a non-profit organization Pinera set up in 1993, the park is home to threatened species, including Darwin’s fox. From its beaches, visitors can spot migrating blue whales.

‘Increase Investment’

Though he hasn’t talked specifically about HidroAysen in public as president, Pinera has said he doesn’t oppose such projects.

“We must increase investment in the cleanest energies we have including hydroelectricity,” Pinera said in a July 15 speech at the presidential palace. “We have to take advantage of the big projects that nature allows us to build in Chile.”

Without HidroAysen, Chile would have to build more coal- fired generating plants, which emit more carbon dioxide, Hugh Rudnick, a professor at Pontificia Universidad Catolica de Chile’s electrical engineering program, said in an interview in Santiago.

“The use of renewable, sustainable energies like hydro or unconventional sources seems healthier to us from an environmental perspective,” Daniel Fernandez, HidroAysen’s chief executive officer, said in an interview in Santiago.

October Deadline

Endesa Chile has until late October to answer questions from Chile’s environmental commission. The company will keep flooding to a minimum and transmission lines would be narrower and, as a result, less intrusive than comparable projects, Fernandez said.

“These dams -- taken one at a time or looked at all together -- by far are the most efficient in the world in terms of installed kilowatt versus the size of the flood zone,” Fernandez said.

Endesa Chile, a unit of Italy’s Enel SpA, and Colbun SA, the Chilean generator that has a 49 percent stake in the venture, would start construction no sooner than 2014, Fernandez said.

HidroAysen says on its website the complex would cost $3.2 billion. Transmission lines and cost increases may push the final price to as high as $7 billion, said Sergio Zapata, who covers energy stocks for the brokerage unit of Banco de Chile. HidroAysen may bring in a partner to build the transmission line to speed up development, CEO Fernandez said, declining to comment further on project costs or financing.

Underperformers

“Approval would be very positive news for both companies,” Zapata, who has “buy” ratings on Endesa Chile and Colbun, said in an interview from Santiago.

Endesa Chile and Colbun are among the worst performing stocks on Chile’s Ipsa index in the last year. Endesa Chile, which reported a 31 percent decline in second-quarter profit, fell 1.4 percent and Colbun, which is scheduled to report second-quarter results on Aug. 13, rose 7.4 percent in that period while the Ipsa rallied 37 percent.

Even if Pinera wanted to, he could do little to block HidroAysen, said Javier Hurtado, director of studies at Chile’s construction chamber.

“Chile’s environmental legislation is very clear,” Hurtado said in an interview in Santiago. “If an application shows that a project has a reasonable environmental impact that reasonably can be mitigated and compensated for, it must be approved.”

To contact the reporters on this story: Randy Woods in Santiago at rwoods13@bloomberg.net.

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