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Crippled Hydro Power Brazil*

June 20, 2001

Crippled Hydropower Complex

Sums Up Brazil's Energy Crunch

Associated Press

SAO PAULO, Brazil -- It might look about as high-tech as Dr. Frankenstein's lab, but the jungle of pylons and power lines on the banks of Sao Paulo's Pinheiros river could produce enough power to end crippling energy rationing in this city. If only it worked.

The Traicao elevation station, part of the Tiete hydropower complex, is an apt description of the power crisis currently plaguing Brazil.

It should produce cheap, clean, renewable power. But because of a lack of investment and planning, it is running at a sixth of its capacity. To use its full potential, money is needed, but private investors are staying away. The government, in the midst of an energy crisis, is considering using public money.

At night, the high-rise skyline behind the station is pinpricked with the faint glow of televisions as families switch off their lights and huddle to watch their beloved telenovelas -- soap operas -- in the dark.

The same story exists across much of Brazil, where a stubborn drought has parched reservoirs and their hydroelectric stations that supply more than 90% of the country's power.

Fearing energy shortages could slash economic growth by as much as a half, President Fernando Henrique Cardoso's government -- apart from praying for rain -- is scrambling to patch up Brazil's disjointed transmission network and build a dozen new gas-fired power stations by year end.

It has also decreed six months of rationing designed to cut the national electricity bill by a fifth and preserve sinking reservoir levels. If they fail to save, Brazilians face hefty surcharges, California-style rolling blackouts or even a total collapse of the national grid.

If the Traicao station were working properly, the crisis, at least in Sao Paulo, would recede.

A pioneering work of engineering when it opened in 1928, the Tiete complex reversed the flow of the Pinheiros so it fed from the larger Tiete river and pumped it up to a huge reservoir south of the city.

From there, the water raced down the Serra do Mar mountains to a semi-subterranean power station whose 14 turbines could produce 600 megawatts, enough power for two million people -- about a fifth of Sao Paulo's population.

But according to Paulo Roberto Fares of EMAE, the municipal water and energy utility that owns the complex, only 108 megawatts are being produced.

"The main villain is pollution," he said. Because the Pinheiros and Tiete are so dirty, pumping them up to the reservoir would ruin Sao Paulo's drinking water. Today, pumping is only allowed in the rainy season when flooding is a threat.

EMAE is looking for investors to provide $44 million and install de-pollution plants along the two rivers. In return they would be allowed to commercialize any extra electricity produced.

U.S. power giants AES Corp. and Duke Energy Corp. and Belgium's Tracetebel initially showed interest, but now seem leery.

Fares says that's because the de-pollution technology is still untested on a large scale but also because the government still hasn't published bidding rules.

Many investors in the energy sector complain that the lack of clear investment rules and pricing policy are scaring them off. Others complain about federal oil giant Petroleo Brasileiro SA effective monopoly on the gas market.

Dennis Bakke, chief executive officer of AES, Brazil's biggest single foreign investor in energy with projects worth $6 billion, announced in May he was suspending new plants worth $2.5 billion.

British oil giant BP PLC will build two natural-gas power plants worth $100 million and capable of producing 350 megawatts starting in 2003, but said it has another 12 projects on hold because of the regulatory environment.

Edmilson dos Santos, professor of energy and electrical engineering at Sao Paulo University, says government policy has been "myopic."

"Brazil has attracted foreign investment in all other sectors, why not in the energy sector?" he asked. "There's a huge market, huge demand."

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