Brazil’s Backstage Efforts to Push Belo Monte Through

Belo Monte dam Following judicial battles that left at least two court injunctions overturned, the April 20 Belo Monte auction ended up taking place. It lasted less than seven minutes and the winner was a surprise – not the consortium most people expected to win.

Norte Energia was put together at the last moment by the government to ensure that there would be competitive bidding. And there was. It was a tight victory, with the winning bid just 6.02% less than the ceiling price the government set.

For the sake of comparison, two other hydroelectric projects recently auctioned off in the Amazon region, but on the Madeira River, in the state of Rondônia, had much larger differences between the ceiling the government set and the winning bids.

At Santo Antônio, for example, scheduled to be online in 2013 with a capacity of 3,300 MW the winning bid was 35% less and at Jirau, scheduled to be online in 2013, with a capacity of 1,966 MW, it was 21.5% less.

What the government did in the case of Belo Monte was set a ceiling (83 reais – US$ 47.1 – per MW/h) slightly above where the auctions of Santo Antônio and Jirau ended. The winning bid at Santo Antônio was 78.90 reais (US$ 44.8) per MW/h and at Jirau 71.40 reais (US$ 40.5).

Norte Energia, which came into existence on Friday, April 16, just a few hours before the registration deadline, is led by a state-run electricity company, CHESF (“Companhia Hidroelétrica do São Francisco”) (49.98%).

The large construction firm, Queiroz Galvão, and Gaia Energia e Participações each have 10.02% of the consortium stock. Gaia was formed in 2008 for the “analysis, development, production and commercialization of electrical energy from renewable sources.”

It is owned by the Bertin Group, which has existed for 30 years, but mostly in the agriculture sector, where it is one of the world’s biggest beef producers. It has been involved in infrastructure and energy only since 2003 and is definitely a newcomer and somewhat of an outsider in projects the size of Belo Monte.

It is believed that a series of adjustments will be made in the composition of the winning consortium. The only rule governing the entrance of new partners is that they cannot have been partners in the losing consortium.

The CHESF director of engineering and construction, José Ailton de Lima, in comments after the auction, declared, “In a project of this magnitude there is always room for improvements. There are no plans for changes at this moment, but we will introduce improvements over time, that is for sure.”

According to Lima, it is almost certain that another state-run electricity company, Eletronorte, will be part of the consortium at some time in the future, having already signed a commitment as a “strategic partner.” Eletronorte would assume part of CHESF’s 49.98% participation.

Lima also said that Belo Monte would be built within the projected cost of 19 billion reais (US$ 10.8 billion). That price was established by the government’s Energy Research Company (“Empresa de Pesquisa Energética” – EPE).

The president of the EPE, Maurício Tolmasquim, declared that there is no risk that the taxpayer will have to pay more for electricity if the construction costs more.

“The tariff (77.97 reais per MW/hour) set in the winning bid cannot be altered. It will be adjusted from time to time based on variations of the Broad Consumer Price Index (IPC-A), that’s all,” he declared, adding that the incentives the government gave Belo Monte are compatible with similar infrastructure projects around the world.

In essence, Lima and Tolmasquim are saying the same thing that the minister of Mines and Energy, Márcio Zimmermann, is saying: there was no special deal for the consortium and after all is said and done, electricity generated by Belo Monte will be the cheapest possible

According to the minister, thermo (gas) generated electricity costs an average 200 reais (US$ 113.5) per MW/h, nuclear is around 150 reais  per (US$ 85.1) per MW/h.

It is mandatory for the consortium to furnish 70% of the electricity they generate at 77.97 reais MW/hour. Partners in the consortium (self-producers) can receive up to 10% of the electricity generated at cost. The remaining 20% of the electricity generated can be sold on the open market.

Norte Energia consists of nine companies: Companhia Hidroelétrica do São Francisco (CHESF) 49.98%; Construtora Queiroz Galvão S/A, 10.02%; Gaia Energia e Participações, 10.02%; Galvão Engenharia S/A, 3.75%; Mendes Junior Trading Engenharia S/A, 3.75%; Serveng-Civilsan S/A, 3.75%; J. Malucelli Construtora de Obras S/A, 9.98%; Contern Construções e Comércio Ltda, 3.75%; Cetenco Engenharia S/A, 5%.

ABr

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