Positive Environment News

Brazil Amazon Dam Creates Headache For Lula

Date: 16-Apr-10
Country: BRAZIL
Author: Brian Ellsworth

Brazil Amazon Dam Creates Headache For LulaPhoto: Ricardo Moraes

Members of the Movimento dos Atingidos por Barragens (Members of the Movement of Dam) and Brazilian indigenous groups protest against the construction of the Belo Monte Hydroelectric power plant in the Xingu River, in Brasilia April 12, 2010
Photo: Ricardo Moraes

Brazil's plan to build the world's third-largest hydroelectric dam in the Amazon is drawing scathing criticism from a rare combination of investors and environmentalists, creating a potential political headache for President Luiz Inacio Lula da Silva.

Lula vigorously insists the Belo Monte dam, which may cost as much as $17 billion, will bring jobs to poor communities in the Amazon rain forest and ensure electricity supplies for one of the world's fastest-growing economies.

But activists and indigenous groups, including Hollywood director James Cameron, say the dam will destroy parts of the Amazon and displace up to 20,000 people, while financial analysts call the project a politically driven money-loser.

A Brazilian court on Wednesday delayed an auction to build the dam on the grounds that it may violate environmental law, slowing the flagship project of an $878 billion public works crusade that is a key campaign platform of Lula's anointed successor, Dilma Rousseff, for this year's presidential vote.

"These big investment projects like Belo Monte have major design flaws and major management flaws," said Luiz Vellozo Lucas, an opposition legislator. "There is no way this project can work, and that's going to have a political cost.

Lula has staked significant political capital on the 11,000-megawatt project. By 2014, the dam should begin generating as much as 6 percent of the electricity Brazil consumes, which the government estimates will soar 48 percent by 2018.

Supporters argue the dam is crucial to ensuring power for Brazilians from thriving automakers to homeowners, including low-income families that are quickly joining the ranks of the middle class.

"It is a project that generates very clean competitive energy, without even taking into account the environmental benefits of renewable energy that does not emit carbon dioxide," Mauricio Tolmasquim, head of a government energy think-tank, said in an interview with local media.

Last week, Brazilian construction giants Camargo Correa and Odebrecht walked away from the bidding process to build the dam, citing low returns, and left the government scrambling to bring in more companies.

The April 20 auction, meant to create competition between companies to offer the lowest price for power generated by the dam, was delayed by Wednesday's court decision. The government is expected to appeal.

Oscar-winning director Cameron, who has compared the construction of Belo Monte to his environmentally tinged sci-fi thriller "Avatar," has become the most high-profile critic of the project.

Cameron, donning an indigenous headdress and streaks of red paint on his face, in recent days joined local indigenous leaders in a ceremony in the Amazon town of Altamira, near the proposed dam site.

Originally conceived some 30 years ago, progress on Belo Monte has been slowed over the years by protests, including an incident last year in which Kayapo Indians armed with clubs and machetes attacked a state electricity official.

"The dam will have a terrible social and ecological impact," said Lucio Flavio Pinto, an environmental activist who lives in the Amazon city of Belem. "But the worst part is it's a white elephant, it's not economically viable."

During the dry season, the water flow will fall so much that the dam will generate less than 10 percent of capacity. Still, supporters say it will help balance power generation because dams in southern Brazil have lower output just as Belo Monte would be generating at full steam.

Ricardo Correa, a power sector analyst with the brokerage Ativa Corretora in Rio de Janeiro, said the possibility for work stoppages caused by protests or environmental lawsuits has made the project exceedingly risky.

Investors have been turned off by a ceiling on the amount the dam could charge for power along with high construction costs -- which vary by more than 50 percent between government and private company estimates.

"This is a project with risks that are enormous and returns that are very low -- and possibly negative," Correa said. "It not a project that creates value, it's a project that destroys value."

(Editing by Todd Benson and Doina Chiacu)

© Thomson Reuters 2010 All rights reserved

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