The Heat Is Online

100-Year Drought Threatens Brazil Electricity Supply

Brazil in deep water as power sector lacks water

Reuters News Service, March 28, 2001

RIO DE JANEIRO - Brazil is bracing for energy shortages and maybe rationing as water levels in power plant reservoirs grow perilously low ahead of what promises to be a long, dry winter, officials and analysts said.

Government officials in Latin America's largest country admit they may impose quotas on the use of electric energy to prevent crippling blackouts in the next few months.

Some analysts draw a gloomier picture that actually includes power cuts and massive blackouts - a damaging prospect for a sector that is in the midst of privatization and needs to garner investor confidence.

"It is almost impossible not to have power cuts this year," said Osvaldo Teles, power sector analyst with BBV Securities. "Last year we had the worst drought in 100 years, but now the situation with water reservoirs is even worse."

Unlike another famous energy crisis - in California, where corporate practices and soaring prices are to blame - Brazil's long, water-related woes are rooted in the country's dependence on hydro resources.

Nearly 90 percent of all Brazil's power comes from hydroelectric plants, which makes the country of 170 million hostage to nature's will. Rain water is supposed to fill he reservoirs in the first two or three months of the year.

A senior official at the Mines and Energy Ministry told Reuters that reservoirs in the main industrial areas in the southeast and central east were two-thirds empty. Only one month is left to make them half-full in order to live through the June-August period without power problems.

"Rains are not matching the expectations. The refilling of reservoirs has been pitiful," said the official, who declined to be named. "Quotas for energy consumption are probably the most likely option at the moment."

He added that power imports from neighboring Argentina, now at 1,000 megawatts (MW) annually, could be increased soon.

ENERGY LOSSES ALSO TO BLAME

Brazil generates about 70,000 megawatts (MW) of electricity annually, and consumes all but an estimated 5 percent of total output. Analysts say this cushion may prove to be too small this year due to the water shortages and the continuing growth in demand for power.

Imports can be increased, but they would not be able to solve the problem as Brazil does not have enough transmission lines to send the energy to regions that need it the most.

The Mines and Energy Ministry and the National Electricity Agency (Aneel) are mapping out a contingency plan, which should be ready by April and include measures aimed at boosting power generation and "lowering consumption".

Minister Jose Vasconcelos said over the weekend that the reductions in demand for power would be implemented through "rationalization" of energy usage rather than "rationing".

He did not go into details, but the recently appointed minister has complained in the past of energy losses of up to 15 percent due to irrational use.

The ministry's senior official said that any quotas on consumption would be designed to bring no damage to the industrial production in order not to slow down the country's fledgling economic growth, projected at four percent in 2001.

But some analysts said that if it comes to power cuts, the government would only be able to choose the key industries to be spared. Power distributors will get hit anyway as they sell less and are locked into fixed prices.

Aluminium industry officials have already voiced concerns that any rationing would in the first place affect their electricity-hungry sector. They say this would hit Brazil's fragile trade balance as most of the product is exported.

For all analysts and officials, fresh power problems underline the need for more thermoelectric plants and the use of alternative sources of energy, such as wind or solar power.

The government's 1999 "emergency plan" that encouraged the construction of gas-fired power plants and the still-fledgling industrial use of natural gas, will only bring fruit after August, when several power plants enter into operation.

Teles said the government still has to offer better conditions to investors for them to pour cash into new plants. The first thing to be done, he says, is to start adjusting electricity tariffs every three months, as is the case of imported natural gas, and not every year. "Otherwise, investment in is too risky," he said.

REUTERS NEWS SERVICE