Lack of Private Sector in Belo Monte Consortium Signals Investor Concerns Over Financial Risks

International Rivers and Amazon Watch
Friday, July 16, 2010

Amazon Mega-Dam Deemed Unfeasible in Risk Scenario Analysis

Brasilia, Brazil - This week's announcement detailing the members of the consortium seeking to build the controversial Belo Monte Dam in the Brazilian Amazon reveals a striking lack of private sector participation. The 18-member Norte Energia consortium(1) is marked by the absence of key players in the country's dam-building industry. State-owned or state-controlled participation in the consortium totals 77.5 percent, dwarfing the role of private sector investors and reflecting concerns about the financial risks associated with the world's third-largest planned hydroelectric project.

The lack of private sector enthusiasm reflects a series of unanswered questions, including the dam's higher-than-projected construction costs and uncertain generating capacity, as well as doubts about costs stemming from mitigation of its massive social and environmental impacts.  

The federal government's willingness to use massive public subsidies and pension funds in a project of dubious economic viability has drawn sharp criticism in Brazil.  "Taxpayers and workers with investments in pension funds have no idea of the huge risks associated with Belo Monte.  The workers of Petrobras, Caixa Economica Federal, and Banco do Brasil are spending their retirement money to subsidize what private investors are afraid to touch," said Raul do Vale, spokesperson from  the Instituto Socioambiental.

An influential report entitled "Uncertainties in Amazon Hydropower Development: Risk Scenarios and Environmental Issues around the Belo Monte Dam" released in May by the Instituto Tecnológico de Aeronáutica in São Paulo and the Conservation Strategy Fund in California has fueled investor fears. The report found that there is only a 28 percent chance that the Belo Monte Dam would yield a positive rate of return over the first 50 years of its operation. The report's risk scenario analysis calculates a high likelihood of a loss for investors ranging between US$3 - 8 billion.

Questions over the inefficiency of Belo Monte, which will produce an average of only 39 percent of its 11,233 megawatt installed capacity due to seasonal fluctuations in the river's flow, indicate that the project's heavy financial risks could only be solved by building additional reservoirs upstream.  The risk scenario report concludes that "construction of Belo Monte now will lead to an entirely foreseeable - some would say planned - crisis, which will exert enormous pressure for the construction of new dams upstream of Belo Monte to store water and enable the dams' capacity to be fully used."  Critics have long maintained that Belo Monte is only the first of a series of planned dams on the Xingu.
Given uncertainties over the project's economic viability, the Brazilian government has announced a series of generous perks to lure investors, including subsidized loans, tax breaks and public-guaranteed insurance.  The National Development Bank, BNDES, has committed to finance up to 80 percent of Belo Monte's US$17 billion price tag, with interest rates of a mere 4 percent, a generous grace period and 30 years for repayment in what will be the largest loan in the bank's history.  The bank has already issued subsidized credit totaling  US$8 billion (R$14 billion) and 50 percent tax breaks over 10 years to increase the private sector's involvement in Belo Monte's auction on April 20th and to entice European turbine suppliers Alstom, Andritz, and Voith-Siemens in signing with the consortium.  BNDES has repeatedly been charged with having weak social and environmental safeguards, a lack of transparency in lending decisions, and deficient public oversight mechanisms.

"Belo Monte and other mega-dams in the Amazon are not necessary.  Studies have shown that by investing in energy efficiency and alternative sources of energy, Brazil could avoid the need for huge dams in the Amazon and save billions in the process," said Brent Millikan, Amazon Program Director at International Rivers. "This project is a government handout to large construction and energy companies, several of which are major funders of political campaigns, at the expense of the Brazilian taxpayer, indigenous people, riverbank dwellers, small farmers and the Xingu River's incredible biodiversity."


(1) Norte Energia is dominated by the state-led electric utility Eletrobras, with a 49.98% stake divided among itself (15%) and regional subsidiaries Eletronorte (19.98%) and Chesf (15%).  Pension funds of government banks and other state-owned entities will hold an impressive 25% stake in the consortium, including the Petros fund of Petrobras employees (10%), the funds Funcef (2.5%) and Caixa FI Cevix (2.5%) pertaining to Caixa Econômica Federal employees, and finance from Bolzano Participações (10%), which draws on the Previ fund of Banco do Brasil employees, as well as investments from Spanish electric utility Iberdrola.   Such government-led participation, totaling 77.5%, dwarfs the role of private sector investors in the consortium, such as regional pig iron producer Sinobras (1%) and energy company Gaia Energia e Participações of Grupo Bertin (9%), the leading player in the Brazilian Amazon's beef industry.

Media contacts: 

Brent Millikan, International Rivers, +55 61 8153-7009
Christian Poirier, Amazon Watch, + 1 510 666-7565,

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