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The Globe and Mail

Hot, dry weather leaves Brazil at risk of energy rationing

Brazil’s Itaipu Hydroelectric dam. Hydroelectric reservoirs in the populous southeast industrial hub are operating at 28.8 per cent of capacity, and those in the northeast are at 31.61 per cent of capacity.


Brazil is facing the risk of widespread energy rationing for the first time since 2001 due to a hot, dry summer that has deprived hydroelectric dams of the water they need and driven up power consumption in stifling cities.

Electricity experts say that even if the country escapes rationing it may have to make up for the shortfall by resorting to increased use of thermoelectric power – which is more expensive, and could undermine Brazilian President Dilma Rousseff's plans to lower energy rates this year.

Brazil's stock market shed nearly 1 per cent on Monday as rationing fears intensified. Depending on how Ms. Rousseff handles the shortage – and whether it rains in the next few weeks – the fallout could impair Brazil's ability to hit its inflation goal in 2013 and damage growth in an already stagnant economy.

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Several big cities already experienced blackouts late last year. Rationing would cause particular disruptions for the country's large, power-hungry mining and metallurgical sector.

Ms. Rousseff dismissed the idea of rationing or a power crisis as "ridiculous" in late December.

But Folha de S.Paulo newspaper reported on Monday that Ms. Rousseff has called an emergency meeting of energy officials on Wednesday to discuss the situation. Government officials said the meeting of a committee that monitors electricity supplies was previously scheduled.

Energy shortages caused widespread blackouts in Latin America's largest nation last year, and are a sensitive issue for Ms. Rousseff, who as energy minister a decade ago was charged with making sure rationing never happened again in Brazil.

The southern hemisphere summer season is usually the wettest time of year in Brazil, but not this year. The situation is most dramatic in the poorer northeast of the country, where the lack of rain has hurt corn and cotton cane crops, wiped out a third of sugar cane production, and left cattle and goats to starve to death in dry pastures.

Brazil's private sector is growing increasingly anxious.

Shares in major power utilities traded on Sao Paulo's BM&FBovespa fell around 3 per cent in early trade on Monday over concerns that rationing would be implemented as water levels at hydroelectric dams, which provide most of the country's electricity, dip near critical levels.

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According to the national grid operator ONS, hydroelectric reservoirs in the populous southeast industrial hub of Brazil are operating at 28.8 per cent of capacity, and those in the northeast are at 31.61 per cent of capacity.

While weather forecasters expect rain to alleviate the situation in the south, the Northeast is suffering its worst drought in decades, threatening hydro-power supplies in an area prone to blackouts and potentially slowing economic growth in one of Brazil's emerging agricultural frontiers.

Power consumption shot up in recent weeks owing to hot weather that boosted air conditioner use.

Even though there are no estimates of the size of the energy shortfall, private players on Brazil's open electricity market are worried that energy rationing is inevitable this year and are factoring that into their projections.

"The chance of not having rationing is small. The situation is ultracritical," one power sector executive said last week. He added that his company has factored in a period of rationing into its planning for the year. The executive spoke on condition of anonymity, owing to the sensitive nature of the matter.

Mauricio Tolmasquim, head of Brazil's federal energy research institute, EPE, and a close associate of Ms. Rousseff's, said in a radio interview that there was no risk of an energy shortage or any need to ration supplies, with gas-fired generators on hand as a backup.

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The Energy Ministry last week granted the Uruguaiana thermoelectric plant in Rio Grande do Sul state, which is owned by AES Brasil and has been at a standstill since 2009, a permit to import natural gas until the end of the year.

The government imposed power rationing in 2001 and temporarily cut supplies to homes that exceeded the limit, severely crimping economic growth that year. Businesses that lowered consumption were rewarded.

Brazil's electricity sector has grabbed headlines in the past six months after the government imposed significant cuts on the price of power to consumers. Power generating firms and distributors have said that could undermine investment.

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