Dam riots to push up Brazil’s power costs

Another guest post from the increasingly reliable Quasecarioca, who is ably observing and analyzing the vast eastern half of South America for those of us too lazy to practice our Portuguese.

Madeira river. Image stolen from International Rivers, click it to go to their site.

Industries and markets pay most attention to social issues when they start costing money. The plight of workers in the remote Amazon is a clear example. Analysts are now predicting a 20 percent rise in generation costs for upcoming hydroelectric projects as a result of riots in March that halted two of the biggest dams in construction in Brazil.

In a confused melee involving complaints about working conditions (the exact circumstances are still not clear), workers set fire to buses and burned down barracks at the Jirau hydroelectric project in the Amazon state of Rondonia near Bolivia, requiring the sister project Santo Antonio to halt construction as well. The incident creates a political headache for President Dilma Rousseff, who is heavily promoting the projects because they are among the largest in her $1 trillion infrastructure development plan.

It is also creating a financial headache for industries trying to lock in future power supplies. Not only are workers going to demand higher wages, but contractors that build hydropower projects are going to be looking at higher insurance costs given the increased risk of facilities being burned to the ground.

This outbreak of violence should not have come as a much of a surprise because Jirau is the same as most Amazon boomtowns. Politicians put heavy pressure on the Energia Sustentavel consortium, which includes French utility behemoth GDF Suez, to have the dam operational by 2012. They hired workers at a furious clip, bringing some 24,000 mostly from the poor northeast of the country to worker camps along the Madeira river where the dams are being built. Towns swelled, brothels proliferated, local teenage girls got knocked up by migrant workers, crime increased, boat traffic scared the fish and left the fisherman looking for other things to do. Now the startup date has now been pushed back until 2013, and the companies are firing some 4,000 workers who are now unneeded.

The government’s strategy of ensuring low-cost hydroelectric power is an unfortunate holdover from the dictatorship era when making cheap energy was much easier. Now faced with environmental licensing, indigenous rights legislation, and higher labor standards, keeping a lid on costs is not what it used to be. (Brazilian consumer power rates, by the way, happen to be among the world’s highest because almost half what folks pay goes to taxes or fees, making it good business for the government).

This does not bode well for the giant Belo Monte dam, which is already the subject of celebrity criticism and international condemnation. Another flagship infrastructure project, this one to be sited along an Amazon tributary called the Xingu, it has become a lightning rod for criticism before the work has even started. The consortium has not even gotten started on around half the social projects that are supposed to mitigate the impact of the project. Construction is now almost six months behind schedule, but the consortium insists it will open as promised in 2015.

I can’t say I see a lot of easy alternatives to this strategy. Brazil’s economy is growing and is going to need more power. But these issues aren’t going away.