Environmental Licensing Continues To Undermine Brazilian Power Projects

BMI View : Another Brazilian hydropower project is facing an uncertain future as a result of environmental licensing issues. The 7.8GW São Luiz do Tapajos hydropower plant, which would be the third largest in the country, has had its environmental licence declined by a federal court judge. However, it is unlikely thi s is the end of the story given President Dilma Vana Rousseff 's displayed commitment to building much needed additional capacity in the Amazon region.

The deficiencies in Brazil's environmental licensing procedures are resulting in significant cost and time wastage for developers. The country's inability to provide a comprehensive, unilateral and most importantly respected ruling on the environmental credentials of a project prior to that project being tendered is contributing to investor wariness over Brazil's infrastructure sector. The failure of the system has led to projects which should never have been approved encountering repeated and costly delays later on in the project life cycle.

Downside Risk From Project Delays
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The latest project to fall foul of the disorganised nature of the Brazilian environment licensing system is the 7.8GW São Luiz do Tapajos hydropower plant. The dam is the largest of six planned on the Tapajos and Jamanxim Rivers (comprising: 2.3GW Jatobá dam (2.3GW), Cachoeira dos Patos dam (528MW), the Jamanxin dam (881MW) and the Cachoeira do Caí dam (802MW)). The entire complex would have a generating capacity of 11GW, highlighting its importance to the future energy security of Brazil. The project is being developed by a consortium including Eletrobras , Eletronorte , EDF and Camargo Correa . However, despite having been in the planning for a number of years already, with a targeted completion date of December 2017, the project has only just had its environmental licence declined by a federal court judge. Judge José Airton de Aguiar Portela ruled that the project did not provide an adequate environmental impact assessment. The ruling follows reports from public prosecutors that the project would displace more than 10,000 indigenous residents in the Amazon. Eletrobras and Eletronorte have disp uted these claims according to B namericas.

We do not believe that this will be the end of the project given the commitment to developing new hydropower capacity displayed by the current government. Indeed, the Tapajos complex has been deemed strategically important and a priority project by the government and therefore we expect further studies to be carried out on the project and its eventual approval. Indeed, the Tapajos debate is only the latest in a string of projects which have been divisive on environmental grounds. However, the majority of these projects have all been moved forward thus underlining our view that the Tapajos project is not dead in the water yet.

The best example is the 11.2GW Belo Monte hydropower project, which has had multiple injunctions taken out against it on environmental grounds. Ongoing disputes over the environmental implications of the project have resulted in substantial and costly delays with construction yet to start. Despite international criticism of the project and nearly all private investors pulling out of the consortium developing the project, it is moving forward. Indeed, on November 26th 2012 BNDES approved a US$10.8bn loan for the project. The loan is the largest in the development bank ' s history and is equal to four fifths of the project cost. The presence of BNDES to finance the project, and a raft of state companies to develop it means these projects are not experiencing the typical reality test taking it to market to raise financing or secure a developer would present. Consequently, despite failures in the regulatory process and questions over the smooth running of the projects, we expect Amazon power projects to move forward due to the seemingly unequivocal and comprehensive support from the Brazilian government.

This article is tagged to:
Sector: Infrastructure, Power
Geography: Brazil