Brazil power rationing plan adds to industry woes

By an OGJ Online Correspondent

Rio de Janeiro,May -- Peugeot-Citr�en in Porto Real, Rio de Janeiro state, is considering shutting down car production because the company said it has little leeway for reducing power consumption.

"We need 12 Mw per day to function," said Rodrigo Junqueira, director for corporate relations of the French firm's Brazilian subsidiary.

Due to poor rains in the last 2 years, water reservoirs are severely depleted, and Brazil's electric power is around 90% dependent upon hydroelectric plants. The federal government announced electric power rationing will begin June 1.

Peugeot-Citr�en inaugurated its plant last February with installed capacity to produce 100,000 vehicles/year. This year the company expected to produce 24,000 vehicles. Previous to the rationing announcement the company had planned to increase production.

Other factories will close and some will reduce production as a result of the power rationing, warned Pio Gavazzi, a director of the Sao Paulo Federation of Industries (FIESP). Sao Paulo state is responsible for around 40% of Brazil's GDP.

Even the industries that generate energy for their own consumption will suffer because they depend upon suppliers which are unable to generate energy, explained the FIESP director. The government is planning a 20% average reduction in power supply.

Gavazzi said the rationing plan will result in a 23%-24% cut back in production. "The situation is very serious. This country has industries with varying degrees of dependence upon electric power," added Gavazzi. Several industries suggested shutting down a unit of their plants so that the other units can maintain normal production.

Energy analysts predict electricity rates will soar after rationing begins, but quoting two Brazilian dailies Reuters reported Tuesday AES Corp. has put on hold plans to invest $2-$2.5 billion on energy projects in Brazil, alleging government pricing policies have jeopardized its operations. If true, AES's decision could throw a monkey wrench into Brazil's plan to boost the percentage of power produced from thermoelectric plants.

AES President Dennis Bakke, on a brief visit to Brazil, was reported to have suspended indefinitely plans to build as many as 10 thermoelectric power plants, Reuters said. AES has already invested as much as $6 billion in Brazil, primarily in electricity projects, making it one of the country's top private foreign investors, the papers said.

The newswire reported AES criticized Brazil's top electricity sector regulator Aneel for maintaining an energy policy that charged what Bakke said were "unrealistically low prices for consumers," forcing AES to carry the burden of rising costs.

A 1998 federal law created a schedule for deregulation of tariffs in the electric power sector. Beginning in 2003, tariffs will be deregulated by 25%/year until all controls are removed by 2006.

Price are expected to rise after 2006 as the number of thermoelectric plants, which today are responsible for around 6% of power generation, increases. The government has said it will build 49 gas-fired thermoelectric plants between now and 2005 in partnership with the private sector.

Jose Mario Abdo, director-general of the federal electricity agency Aneel, reported 13 new thermoelectric plants with the capacity to generate 2,890 Mw are scheduled to begin operating this year, with 13 more plants generating 2,142 Mw scheduled to come on line next year.