Brazil & Southern Cone - April 2014 (ISSN 1741-4431)

Following shock blackouts affecting 6m people across 11 southern and eastern states on 11 February (which the government insisted had nothing to do with the increase in demand caused by the heatwave being experienced in much of the country), the Rousseff government on 13 March announced new measures in support of electricity distributors struggling with high power costs on the back of the recent drought, and also in an effort to contain inflationary utility prices rises this election year.

Under the package, the government will provide an additional R$4.0bn (US$1.7bn) of financial support (i.e. subsidies) for power distributors, who have been forced to pay more for thermal power to cover a drop in hydroelectricity supplies, while the country's electricity clearing house will also be permitted to see up to R$8.0bn in private financing to support the distributors. The government will also auction off any excess electricity in April Gradual electricity prices rises will be allowed as of 2015 only, when Rousseff hopes to be safely back in the Planalto for a second four-year term.

Treasury secretary Arno Augustin said the R$4.9bn in subsidies would be covered by an extension of a corporate tax settlement program and possible tax increases this year, with specifying. Critics said the measure was a short-term fix to repress inflation in an election year and expressed scepticism as to the government’s insistence that the measures will be fiscally neutral.

Govt denies electricity rationing on the cards

The federal government puts the prospect of energy rationing in the country at just 2%-3%, below the 5% that the main grid operator, Operador Nacional do Sistema Elétrico (ONS), works with on a permanent basis, according to Paulo Pedrosa, executive president of Associação Brasileira de Grandes Consumidores Industriais de Energia e de Consumidores Livres (Abrace), who made the announcement on 18 March after a meeting between the government and electricity sector representatives.

Operators told Energy Minister Edison Lobão that the main hydro plants in the country were in a ‘delicate’ situation, with reservoirs, particularly in the populous and industrialised south and south east of the country, at their lowest levels since 2001. Hydro plants provide about 70% percent of Brazil’s power. The last major blackouts were in 2001, following a previous drought. Pedrosa said the Rousseff government had painted a ‘much more positive scenario’ than feared, although some of the government’s optimism seemed to be founded on long-range weather forecasts projecting rain soon.

Water shortages are already forcing supply restrictions

Brazil’s main water utility, Companhia de Saneamento Básico do Estado de São Paulo (SABESP), in mid March began limiting the amount of water it supplies to the state of São Paulo, after the federal and state water agencies ordered the company to conserve its primary source by reducing the water drained from the Cantareira reservoir by 15.5%. The Cantareira is the biggest of six reservoirs supplying metropolitan São Paulo, home to 20m people and one of the host cities in the upcoming Fifa World Cup in June and July. On 12 March, Mauricio Tolmasquim, president of the state energy research agency Empresa de Pesquisa Energética (which sits under the energy ministry), said the drought affecting the country since early this year may be worst in 80 years.

• Investment

Sustaining annual electricity consumption growth averaging 3.7% in 2013-20 will require large investments to increase capacity, but there are delays to construction of several hydroelectric mega-plants. Of US$485bn in projected energy investment to 2021, over two thirds will go into upstream and downstream development of the new oil and gas sector, and one-quarter into electricity generation and transmission.