Patagonian Dam Proposal Rejected by Chilean Government

A proposal to generate electricity in the Patagonian wilderness for residents and copper mines in central Chile was thrown out after an eight-year debate as the country’s new government bets on imported gas to contain the region’s highest power costs.

The committee withdrew environmental approval for the 2,750-megawatt project proposed by Empresa Nacional de Electricidad SA and Colbun SA that would boost national power generation by 10 percent, Environment Minister Pablo Badenier told reporters in Santiago today. The ruling was unanimous, Energy Minister Maximo Pacheco said.

“Projects that don’t address all environment mitigation concerns should be rejected,” Badenier said.

Chile’s President Michelle Bachelet focused on initiatives to boost imports of liquefied natural gas in a May 15 plan to contain surging power costs. HidroAysen was opposed by a council of about 70 Chilean and international environmental groups because it includes five dams in a virgin area of the Patagonia wilderness and requires a transmission line to connect the project to the central grid.

The study approved by Chile’s environmental body in 2011 didn’t fully address concerns about the impact of the project on the local ecology and nearby populations, Pacheco said.

Chile’s government is working on building a third LNG terminal in the center-south of the country to ease prices that have doubled in the last seven years and could increase 30 percent in the next seven, Pacheco said May 15.

Wilderness Risk

“These giant dams would have put at risk the wilderness traditional culture, and local tourism economy of this remarkable region,” Amanda Maxwell, who oversees Latin American affairs for Washington-based National Resources Defense Council, said in an e-mailed statement.

Chile introduced a law last year that will require large-scale users such as mining companies to obtain 20 percent of their power needs from renewable sources by 2025. The law prompted Spain’s Abengoa SA (ABG/P), the biggest developer of solar-thermal power plants, to build a $1 billion project in the Atacama Desert.

Mining companies have stalled $43 billion of projects on concern that power prices in Chile will continue to rise as commodity prices decline, according to the National Mining Society, known as Sonami.

Endesa Chile, controlled by Italy’s Enel SpA, owns 51 percent of the project. Colbun, controlled by Chile’s billionaire Matte family, owns the rest. Colbun has suspended work on the project until Chile attains a nationwide consensus on how it should resolve its energy shortages.

The project is worthwhile because Patagonia’s unharnessed hydroelectric potential could solve an energy crisis that has been exacerbated by four straight years of drought, Colbun Chief Executive Officer Ignacio Cruz said in a June 6 interview.

Credicorp said Endesa and Colbun could book a $160 million non-cash non-recurring charge each if HidroAysen is completely discarded in a note to clients today. The Lima-based bank maintains a buy rating on both stocks.

Shares in Endesa rose 1 percent to 829.50 pesos at the close in Santiago. Colbun slid 0.3 percent to 139.89 pesos.

To contact the reporter on this story: Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar

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