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Brazil struggles with energy

By Raymond Colitt in São Paulo Published: March 25 2001 22:55GMT | Last Updated: March 26 2001 20:59GMT

The Brazilian government is preparing to implement a contingency plan to avoid blackouts as dwindling water levels at hydro-electric plants have caused an energy shortage in Latin America's largest economy.

With rains 40 per cent to 50 per cent below average since December, water levels at several reservoirs have fallen dramatically.

In the south-east, which accounts for 89 per cent of the country's hydro-power, reservoirs are filled only to 35 per cent of their capacity. Hydro-power is the main source of electricity in Brazil.

The plan, prepared by the Aneel regulator and to be approved by the minister of energy, will seek voluntary reductions in consumption through public awareness campaigns and negotiations with large industrial clients. In addition, thermo-electric generators with spare capacity are likely to be asked to increase their output.

"The situation is serious but we will do everything so it has the least impact possible on people's lives," said José Jorge, minister of energy.

Yet analysts say such measures may be insufficient. "They may amount to as much as 5 per cent of the nation's power demand but no more than that," says Mauro Asti, secretary of energy of the state of São Paulo. If the current water levels did not increase substantially in the next four weeks, he said, power would have to be rationed.

The state government has already indicated it will ration fresh water to public and private consumers next month. "The situation is worrying and there will certainly be rationing," said Governor Geraldo Alckmin.

For the water levels in the reservoirs of hydro-electric plants to recover, according to Carlos Nobre, head of the climate centre at the National Institute for Space Studies, "it would have to rain four times the average for this time of year and that is very unlikely to happen".

As a result, many analysts believe blackouts are all but inevitable. "There is an 80 per cent probability that power will have to be rationed. The situation has reached a critical point," said Eduardo de la Penha, energy analyst with Santander Central Hispano Investment in São Paulo.

Despite unusually low rainfall, many blame the government for failing to ensure adequate growth in generating capacity. Last year it launched an emergency power generation plan, under which 49 new thermo-electric plants were to generate 18,000MW using domestic and Bolivian natural gas.

It requires estimated investments of more than R$12bn (US$6.6bn) but concerns over foreign exchange risks in the price of gas have delayed investments.

"The government made a big mistake. They build a multi-billion-dollar gas pipeline from Bolivia and now they can't work out the price to be charged for the gas," said Marcelo Mesquita, head of Brazil research with UBS Warburg, the investment bank.

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-- Anonymous, March 27, 2001


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