Brazil’s Dam-Building Industry: Crony Capitalism Goes Global

Brent Millikan
Friday, December 10, 2010

"We're going to build all the dams we possibly can in the Amazon, given the current legislation, and then we're going to revisit the other potential sites that involve impacts on indigenous lands and protected areas, and see how we may exploit that hydroelectric potential as well. Brazil's energy future is in the Amazon."

This statement by the head of energy planning at the federal Ministry of Mines and Energy makes it clear that the dam-building business in Brazil is booming. Two huge hydroelectric dams on the Madeira River, the largest tributary of the Amazon, are already under construction, while another highly controversial project, Belo Monte on the Xingu River (which would be the world's third largest dam) may receive an installation license at any moment. The Brazilian government's energy plans place top priority on mega-hydro-projects in the Amazon, calling for construction of up to 40 dams throughout the region over the next 20 years. On the Tapajos River and its main tributaries alone, a total of 13 large dams are planned for construction by 2019. The unprecedented surge of dam building threatens to cause irrevocable damage to the Amazon's biological integrity and to local populations whose livelihoods depend upon healthy riverine ecosystems.

One of the striking characteristics of today's dam-building industry in Brazil is the "triple alliance" of public-private actors driving it. The scene is dominated by the parastatal energy company Eletrobras and its subsidiaries (Eletronorte, Furnas, Eletronorte, CHESF and others), private Brazilian multinational construction companies (such as Odebrecht, Camargo Correa and Andrade Gutierrez) and the Brazilian National Bank for Economic and Social Development (BNDES). This well-funded alliance is increasingly extending its scope beyond Brazil's borders. Currently, they are deeply involved in the design, financing and construction of large dams in other countries of the Amazon basin and elsewhere in Latin American (Bolivia, Peru, Ecuador, Nicaragua, etc.) and in African nations such as Mozambique, Ghana and Angola. Sadly, Brazilian-led dam-building in other countries tends to repeat the same destructive pattern.

In Brazil, the current dam-building frenzy in the Amazon has typically been accompanied by a steamrolling of environmental and human rights legislation. Nevertheless, dam proponents portray large hydro-projects in the Amazon as "clean energy," ignoring their contributions to climate change through emissions of methane and other greenhouse gases, their immense social and ecological "footprints" – not to mention the fact that dammed rivers and the communities that depend on them are less able to withstand impacts of climate change than healthy rivers.

Politics as usual

What are the forces behind these alarming trends in the increasingly globalized Brazilian dam industry? A partial answer would be that the planning elite within Brazil's Ministry of Mines and Energy is dominated by technicians trained as large dam-builders, with little or no knowledge in areas such as energy efficiency or alternative sources of generation such as wind and solar, despite their enormous potential. However, the pronounced bias of Brazil's energy bureaucracy towards large destructive dams is much more political than technical.

The huge construction companies that dominate Brazil's hydro industry have grown and prospered by maintaining close relationships with powerful politicians and their political appointees within the energy sector. Such relationships have been cultivated through practices such as "grafting" from contracts that originate from rigged public bidding, under-the-table campaign financing and other (often creative) uses of corruption.

The profitability of mega-dam projects has been enhanced by increasingly generous policies of subsidized credit, government-backed loan guarantees, and tax breaks, as well as the externalization of social and environmental impacts, often associated with violation of environmental and human rights legislation. Such factors at the same time reflect and harbor promiscuous relationships between dam-builders and the public sector. In the case of the Eletrobras group, the conflation of public and private roles has created a situation where a parastatal company occupies a privileged position to lobby for the its own corporate interests and those of its private sector partners.

Corruption continues

Luiz Inácio Lula da Silva was elected President of Brazil in 2002 on a platform of promises to reduce poverty, while fighting corruption and reinstating "ethics in politics." Once in office, Lula proceeded to form political alliances with many of Brazil's most backward regional oligarchs, including enemies from his previous days as a union leader, supposedly to guarantee a majority of votes in Congress. Following tradition, alliances in the Lula administration were based on allocating control over key public institutions among political allies that serve the private interests of political parties which can be best described as patronage groups. The domination of the Sarney clan over the Ministry of Mines and Energy is just one example of such practices. After an initial Sarney appointee was dismissed amid corrruption charges, a new minister, Edison Lobão, known as violent land-grabber in the northeast state of Maranhão, continued his predecessor's obsession with large dams. Lobão became famous for his public statement that "demonic forces" were impeding the construction of dams in the Amazon, referring to opposition from indigenous peoples and NGOs.

The opportunities for corruption arising from multi-billion-dollar dam contracts, involving political patronage networks that extend to the local level, cannot be matched in alternative investments. This goes a long way in explaining the enormous support that mega-dam projects typically enjoy among politicians, as well as the interest among political parties to secure control of the Ministry of Mines and Energy and its affiliates.

President Lula has portrayed indigenous people, human rights activists and environmentalists as either woefully naïve or as members of an international conspiracy set out to impede Brazil's emergence as an economic superpower and violate its sovereign rights over the Amazon. It's difficult to gauge the extent to which such positions arise from true convictions, an outdated developmentalist mentality, expansionist ambitions, or the expediency of a skilled politician with a high tolerance for corruption – or perhaps all of the above.