Energy and Development in South America

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Energy and Development in South America ( energy-and-development-south-america )

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44 | SERGIO C. TRINDADE DIVERSIFYING THE ENERGY MATRIX | 45 Up until the 1960s the environment—air, water, and soil—was not really a meaningful consideration for development in Brazil. In the 1930s, the Getúlio Vargas administration began a process of systematic development, which was increased in the 1950s during the administration of Juscelino Kubitschek and further expanded during the period of military rule (1964–1985). Thus, irre- spective of the political regime—civilian dictatorship, democratic rule, or mili- tary dictatorship—there was continuity of political will in Brazil to build up the infrastructure necessary for development, namely electric power, liquid fuels, roads, ports, and telecommunications. During most of this time, the Brazilian state was the driving force behind development initiatives. But over the past fifteen years there has been a transi- tion toward an ever-increasing role for private enterprise in the Brazilian energy sector. Funding for these endeavors came from the financing of multilateral banks, international private lending, and the Brazilian government’s equity and debt financing. Yet these funding packages often faced obstacles due to poor credit ratings, a history of defaulting on sovereign debt, and other risks. The severe inflation that afflicted Brazil for some forty years starting in the mid- 1950s added to the difficulties the country had to overcome. These problems were gradually resolved as the country improved its infrastructure and generally honored its loan repayment commitments. Once basic rules and contracts were developed, including the establishment of independent regulatory agencies, the increased private investment overcame the bottlenecks in the energy and other types of infrastructure. There is, however, uncertainty about the future role of the government and the regulatory agencies, which could make private capital hesitant to invest in energy and infrastructure in general. As a result, there are concerns about the availability of power in the decades ahead if the needed investments do not occur in a timely fashion. Financing energy development is likely to remain a difficult task and, given the scale and level of risk involved, will require a diverse portfolio of public and pri- vate sources, including national, foreign, and multilateral funding. Beginning in the 1970s, environmental rules and regulations gradually began to play an increasing role in energy investment in Brazil. These are sometimes seen by investors as unnecessary barriers that consume time and resources for lit- tle benefit. The environmental authorities, however, have different views. Hydropower development, for example, requires the flooding of extensive areas, which can cause the destruction of habitats and other ecological damage; con- sequently, environmental permits are quickly becoming harder to obtain. In addition, sugar cane harvesting in Brazil is traditionally preceded by a controlled burn of the fields to facilitate manual cutting, an activity that employs a large number of people. This operation emits soot particles into the air and can be a cause of public health concerns. In the state of São Paulo, such burning will be phased out gradually over the next fifteen or so years, which will expedite the mechanization of sugar cane harvesting and lead to the loss of hundreds of thou- sands of jobs. Obviously, environmental requirements introduce a level of uncertainty that may make potential investors think twice before committing resources to a project. But overall, environmental requirements help guide the design and implementation of sound, sustainable projects. PUBLIC POLICIES AND ENERGY COOPERATION OR CONFLICT IN THE MEDIUM- AND LONG-TERM Energy-related development projects that occur in areas that are shared by two or more countries might raise their own types of problems, based on the state of rela- tions between the interested countries. When Brazil began planning the Itaipu hydropower project—which involved a large dam—it could have, in theory, been built entirely in Brazil. Nevertheless, the decision was made to build it on the bor- der with Paraguay. This required the negotiation of a bilateral treaty between two countries of considerably different sizes, making the process of negotiation diffi- cult. Paraguay’s total consumption of electricity at the time of these discussions was equivalent to one half the output of one of the eighteen turbines that were eventually installed. Thus, the bulk of the electricity generated at Itaipu would be, and is, consumed by Brazil. However, the treaty gave both countries the same number of turbines. There was also a disparity between the electricity frequency used by each country. Paraguay insisted that all of its nine turbines should gener- ate power at fifty cycles. Brazil countered with a proposal to convert the whole country of Paraguay to sixty cycles, with Brazil paying for the conversion. But the Paraguayans were adamant about their position. Ultimately Brazil yielded and used the opportunity to build—learning in the process—a High Voltage Direct Current System (HVDC). This allowed for the electricity generated by the Paraguayan turbines at fifty cycles to be purchased by Brazil, as agreed upon in the treaty, converted to direct current, transported 1,000 kilometers to São Paulo and reconverted there to sixty cycle electricity. Similar cooperation schemes were devised by Brazil and Argentina and Brazil and Uruguay, allowing for the exchange of electricity between the existing grids in the three countries. Another cooperation scheme that has recently been tested concerns oil and gas cooperation between Brazil and Bolivia. A natural gas pipeline was con-

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