POWER February 2012 - 52

POWER IN BRAZIL
effective since 2004, when Law 10.848/2004
and Decree 5.081/2004 were enacted. The
auction's scheme aims to secure the constant
and centrally organized expansion of power
facilities while ensuring a fair balance between
universal service access and return
on investment together with the provision
of progressive tariff adjustments. One of
the most notorious effects of this particular
model is increased competition within the
Brazilian power sector, which introduces
downward pressure on energy prices, which
benefits end users.
Renewal of the Concessions. Today
one of the concerns in the Brazilian energy
sector is the controversy over the renewal of
concessions in 2015. An impressive number
of concession contracts were extended for
a 20-year period in 1995 and are thus set to
expire in 2015. This includes 112 generation
units representing 28% of total generation capacity;
37 distribution contracts corresponding
to 40% of the regulated market; and nine
transmission contracts amounting for 73,000
kilometers (km) of transmission lines, equivalent
to 82% of the total grid. According to
Law 10.848/2004 for generation concessions
and Law 9.074 for distribution and transmission,
legislation currently in force does not
provide for a second renewal of the concessions;
on the contrary, it envisages a return
of the concessions to the federal state for a
prospective reattribution.
If the actual legislation remains untouched,
the government will have to transfer
the expiring concessions to other players
or implement a bidding process in which
companies will compete for new contracts.
This possibility is supported by consumers
and industrial associations, which forecast
that the convocation of new auctions will
considerably reduce energy tariffs. Many
private investors also back this possibility,
as they expect it will bring new investment
opportunities.
The alternative would be modifying the
legislation in order to let current contract
holders extend their contracts for a third concession
term. This option is backed by those
companies concerned by the renewal, among
them, the Brazilian energy giant Eletrobras
as well as other relevant players including
Companhia Energética de São Paulo (CESP);
Companhia Energética de Minas Gerais
(CEMIG), the energy company of the State
of Minas Gerais; Companhia Paranaense de
Energia (COPEL), the energy company of
the State of Paraná; and the privately owned
transmission company ISA-CTEEP.
De Oliveira Mello of Andrade & Canellas
justified support for a renewal of concessions
this way: " Today the Brazilian energy sector
is in the middle of a large expansion stage,
52
and without the assets from the old concessions,
companies won't be able to support
their development plans. "
Between these contending positions is a
middle option that would involve renovating
the concession's contracts and lowering
energy tariffs in a way that would take into
account the individual features of each conceded
facility. This would satisfy consumers'
demands without jeopardizing the position of
current concession operators.
The debate is as intense as the interests at
stake, but there is a point on which every party
agrees: Whichever solution is preferred,
federal authorities have to make public their
final decision as soon as possible if they want
to reduce the harmful effects derived from
uncertainty.
Luiz Fernando Vianna, president of APINE,
illustrated the damaging effects resulting
from such uncertainty: " A few years ago,
when the government of São Paulo decided
to sell CESP, most of CESP's concessions
were close to an end; this discouraged potential
buyers, and the government of São Paulo
decided not to sell. Now, the state's government
has to wait for the final decision on the
concessions before being able to decide on
the future of the company. These uncertainties
are making the market increasingly nervous.
Last year was an election year, and the
government did not want to deal with the issue,
but this year a decision must come. "
Environmental Licenses. Another hot
subject concerns the delivery of environmental
licenses. This does not constitute an insubstantial
issue in a country known for, and
proud of, its biodiversity and its opulence in
natural resources. However, in a country that
must increase its generation capacity by an
average of 5 GW to 6 GW per year, impediments
imposed by the granting of environmental
licenses are often seen as a threat to
the energy industry.
Environmental licenses are delivered by
state agencies, if the project is geographically
limited to a single state, or by IBAMA
(the Brazilian Institute of Environment and
Renewable Natural Resources), the federal
institution, when it is an interstate venture.
PSR's Veiga explained that his company offers
services that help investors with environmental
regulations: " PSR is also working on
the design of hydro plants, and doing more
work in environmental consulting. We have
done three river basin assessments in Brazil
to determine which are the best combinations
of hydro plants. PSR is also involved in environmental
auditing; when a transmission line
is constructed, we are hired by the investors
to ensure that they meet the environmental requirements.
We are working on the economical-environmental
plan for the state of Bahia,
www.powermag.com
and have helped to plan the water supply for
São Paulo State. As the engineering arm of
PSR keeps growing, we are contemplating
the possibility of creating a spin-off to focus
exclusively on environmental engineering. "
The question of environmental licenses
especially affects the development of new
transmission lines and hydroelectric projects.
ABRAGEL's Lenzi pointed out a paradox in
the constraints posed by the delivery of environmental
licenses: " It is not always understood
that hydro is generally a clean source,
and it is today easier to get approval for a
thermal power plant than for a hydroelectric
facility. "
Indeed, belated issuance of environmental
licenses or negative answers often imply
turf wars pitting IBAMA and the Ministerio
Publico against those bodies working for the
development of the Brazilian energy infrastructure:
the MME, ANEEL, and EPE.
Many industry players see a need to clarify
the prerequisites for acquiring environmental
licenses and to simplify and hasten procedures
associated with their delivery. Many
energy associations, like ABCE, are working
with the authorities to make the licensing
process more predictable. " We are aiming to
end the uncertainty generated by the opaqueness
of environmental licenses' delivery procedures, "
ABCE's Neto said.
Overall, despite some complexities related
to the setting of energy tariffs, the delivery
of environmental licenses, and the concessions'
renewal, the Brazilian energy regulatory
framework has improved significantly,
especially with the reforms accomplished after
the energy crisis and approval of the new
regulatory framework for the electric market
in 2004. Today, Brazil is a secure haven for
investment, as contracts are respected and
regulatory risks are reduced.
Brazil's Generation Mix:
Renewables Rule
The increasing demand for energy in Brazil
offers opportunity for power generators
to expand their capacity. Coupled with the
country's gross domestic product (GDP)
growth, this reduces many of the risks found
in the power markets of other emerging
economies.
" There are two key issues in Brazil's generation
sector, " explained Antunes Sobrinho,
CEO of Desenvix, a power generation company
that, in addition to operating large hydro
plants like the 74-MW UHE Monjolinho,
also has a variety of small hydro and wind
projects in its portfolio. " First, the risk of
deficit is very low. There are not many other
countries in the world that keep the risk of
not supplying power at 5% or less. Second,
distribution companies must keep supplying
POWER | February 2012
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POWER February 2012

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