UPDATE – State utility Furnas leads winning bid for 3,150-MW Santo Antonio

A consortium of Brazilian state and private firms dominated by government-owned utility Furnas Centrais Eletricas S/A won a December 10 concession auction to build and operate the 3,150-MW Santo Antonio hydroelectric project on Brazil’s Madeira River.

Consorcio Madeira Energia outbid two other consortia by offering a lower-than-expected price for future sale of the project’s energy, prompting analysts’ talk of government meddling and raising concern about how realistic the price was. (HNN 12/3/07)

The electronic auction was completed in 15 minutes, energy regulator Agencia Nacional de Energia Eletrica (ANEEL) said. Brazil’s military police removed about 60 protesters from ANEEL headquarters where they sought to win suspension of the auction on behalf of people displaced by Brazilian hydro projects.

Auction organizers said Consorcio Madeira Energia agreed to sell power from the US$5 billion hydro project for about 78.9 reais (US$44.79) per MWh, a 35 percent discount compared with the auction’s price cap of 122 reais (US$69.26). The government had expected power to be sold just below 100 reais (US$56.77) per MWh.

The auction system is designed to hold down energy costs, so the company bidding the lowest energy price wins.

Consorcio Madeira Energia includes Furnas, with a 39 percent ownership stake, Odebrecht Investimentos em Infra-estrutura Ltda., 17.6 percent; Construtora Norberto Odebrecht S.A., 1 percent; Andrade Gutierrez Participacoes S/A, 12.4 percent; Cemig Geracao e Transmissao S/A, 10 percent; and Fundo de Investimentos e Participacoes Amazonia Energia (formed by banks Banif and Santander), 20 percent.

A competing bid of 94 reais (US$53.36) per MWh was offered by Consorcio Energia Sustentavel do Brasil – CESB, which included Suez Energy South America Participacoes Ltda., 51 percent; and Eletrosul Centrais Eletricas S/A, 49 percent.

A competing bid of 98.05 reais (US$55.66) per MWh was offered by Consorcio de Empresas Investimentos de Santo Antonio – CEISA, which included Camargo Correa Investimentos em Infra-estrutura S/A, .9 percent; Companhia Hidro Eletrica do Sao Francisco – CHESF, 49 percent; CPFL Energia S/A, 25.05 percent; and Endesa Brasil S/A, 25.05 percent.

Seventy percent of the energy produced by Santo Antonio is to be sold to 32 distribution utilities that bid to buy at the same time. The rest will be sold in the open market.

The winning consortium has until January 2, 2008, to present legal, technical, and financial documentation of the final auction result. A concession contract is to be signed by June 2008.

Auction of 3,300-MW Jirau to follow

Santo Antonio is one of the two big projects, with 3,300-MW Jirau, comprising the 6,450-MW Madeira River complex. The energy ministry said an auction is to be held in 2008 for a concession to build the transmission line linking Santo Antonio to the national grid. Jirau is expected to be auctioned in early 2008.

The Jirau and Santo Antonio dams would be built 84 kilometers and 119 kilometers from the Bolivian border on the Madeira, an Amazon River tributary. The two hydro projects, with 44 turbines each, have an estimated cost of 22 billion reais (US$11.6 billion). Santo Antonio is expected to begin delivering power in 2012 under a 30-year contract.

Analysts who had expected a price just below 100 reais, said prices should be higher to attract investors as Brazil urgently needs to boost its power generation to avoid shortages in the future.

“We believe the price at the auction doesn’t get close to reimbursing investment needed to build the plant,” said Monica Araujo, an analyst with Ativa brokerage. “In our view, the auction suffered a clear pressure from the government that again used (Furnas’ parent holding company) Eletrobras to promote public policies and lower long-term energy prices.”

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