Armed Indians Hurt Hydro Spending by Utilities: Corporate Brazil

Photographer: Ricardo Stuckert/Presidency/AFP/Getty Images

Former Brazilian President Luiz Inacio Lula da Silva is seen inspecting Jirau hydroelectric power station works in Rondonia, northern Brazil, in this August 2010 handout photograph. Close

Former Brazilian President Luiz Inacio Lula da Silva is seen inspecting Jirau... Read More

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Photographer: Ricardo Stuckert/Presidency/AFP/Getty Images

Former Brazilian President Luiz Inacio Lula da Silva is seen inspecting Jirau hydroelectric power station works in Rondonia, northern Brazil, in this August 2010 handout photograph.

Armed invasions by indigenous groups and cost surges of as much as 53 percent are making it harder for the government to lure private investments to hydropower projects in the Amazon, a cornerstone of President Dilma Rousseff’s plan to ensure energy supplies.

GDF Suez (GSZ) and Odebrecht SA, two of the biggest private developers of plants in the region, will stay on the sidelines as Brazil seeks bidders next month for the 400-megawatt Sinop dam. France’s GDF Suez is focusing on its 16 billion-real ($7.2 billion) Jirau plant and doesn’t plan to submit an offer, said Business Director Gil Maranhao. Odebrecht also isn’t interested, its press office said.

Developers of hydropower plants are struggling to control costs amid construction delays and tensions with tribal groups being pushed off their lands. State-run Eletrobras and its units may have to take a controlling interest in the Sinop venture and may be forced to take increasingly larger ownership of bigger projects as it becomes harder to attract private investment, said Adriano Pires, head of the Brazilian Center for Infrastructure.

“Hydro plants are infrastructure projects that worry investors a lot,” Pires said in a telephone interview from Rio de Janeiro. “The government is taking a bigger stake.”

Eletrobras shares slid 0.6 percent to 8.73 reais at 12:50 p.m. in Sao Paulo.

Kidnappings

Centrais Eletricas Brasileiras SA, as the state utility is formally known, said last month that three biologists were kidnapped while preparing environmental studies for the Jatoba dam on the Tapajos River. The project is part of the government’s plan to build and auction 33.7 gigawatts of hydropower capacity in the Amazon through 2018, Thais Prandini, executive director of Sao Paulo-based research company Thymos Energia, said in an e-mail.

The incident followed two occupations in May of the 11,000-megawatt Belo Monte site by about 200 indigenous people that shut construction for about 12 days.

Costs for Belo Monte, the dam being built by Norte Energia SA that’s set to be the world’s third-biggest hydropower facility, have swelled to an estimated 29 billion reais from 19 billion reais when the project was auctioned in 2010 and are still rising, Biviany Rojas Garzon, socio-environmental technician of the Xingu program at environmental group Instituto Socioambiental, said in a phone interview from Brasilia.

Higher Forecast

A Norte Energia spokeswoman who didn’t want to be named because of company policy said the 19 billion-real estimate wasn’t the consortium’s forecast and set the estimate at 25.8 billion reais when it participated in the bid. Norte Energia is 45 percent owned by Eletrobras and two of its units, according to its website. State-run pension funds Petros and Funcef jointly own 20 percent.

With every invasion that halts work, “it becomes more expensive -- more expensive and fewer people are willing to take on that risk,” said Marcelo Wood Chiarello, superintendent director of Cia. Energetica Rio das Antas, a Porto Alegre-based company that operates three hydro plants in the southern state of Rio Grande do Sul. “There are some projects that are so risky no one will participate.”

Conflicts with Amazon tribes are one of the reasons GDF and Odebrecht are reluctant to get involved with the Sinop auction, said Pedro Galdi, an analyst for the market research company SLW CVC Ltda.

GDF Suez owns 60 percent of the 3,750-megawatt Jirau project in Rondonia in western Brazil.

Costs Rise

When GDF Suez won contracts to sell electricity from the project in a 2008 auction, it estimated the cost to accommodate the dam’s workforce and relocate the local population at about 550 million reais. About 1.2 billion reais has so far gone to compensating residents, mitigating environmental damage and other efforts to reduce the dam’s impact on the region, Business Director Maranhao said by phone from Rio de Janeiro.

“In the end we decided to build a city with 1,600 houses, hospitals and shopping centers,” he said.

Odebrecht owns 19 percent of the Santo Antonio hydropower plant on the Madeira River. The Salvador, Brazil-based company hasn’t studied the Sinop project, a press official said in an e-mail who asked not to be identified because of company policy.

Eletrobras doesn’t plan to take controlling stakes in future plants, though the company does play “a large part in projects that have a bigger impact on local communities,” Ronaldo dos Santos Custodio, director of engineering and operations at Eletrobras unit Eletrosul Centrais Eletricas, said by phone from Florianopolis, Brazil. “That’s the reason we’re studying the possibility of participating in Sinop.”

More Protests

Indigenous groups are vowing more protests, further driving up costs. A set of seven hydroelectric plants planned for the Tapajos region will submerge half the villages of the Munduruku tribe, Valdimir Munduruku, the group’s spokesman, said in a telephone interview.

“Most people have lived their whole lives in their villages,” he said. If construction goes ahead “we’ll do something, definitely.”

To contact the reporter on this story: Stephan Nielsen in Sao Paulo at snielsen8@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net; Jessica Brice at jbrice1@bloomberg.net

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