World Bank: Brazil regulation boosts hydro costs, uncertainty

The World Bank has issued a report finding Brazil’s hydropower project regulatory process imposes unnecessary delays that push up project costs and increase developer uncertainty.

The bank issued a Practioner Note, �Toward Cleaner, Cheaper Power: Streamlined Licensing of Hydroelectric Projects in Brazil,� that that provides a synopsis of hydro licensing problems outlined in a larger report, �Environmental Licensing for Hydroelectric Projects in Brazil.�

�The direct costs paid by developers during the licensing process make hydroelectric projects less economically viable, but the indirect costs of delaying, postponing, or rejecting the projects are borne by the country as a whole,� the bank said. �Since demand for electricity is ever-increasing, the lengthy timeline for licensing such projects means that less-desirable alternatives must fill the gap to stave off shortages.

�Plants that burn diesel or coal, though generally less expensive to build, are more expensive to operate, resulting in electricity costs that are roughly 10 percent higher than with hydroelectric plants,� it said. �In addition, the environmental damage associated with coal, diesel, and nuclear generation is much greater than with hydroelectric generation, and the total long-term costs are difficult to accurately assess.�

The bank said almost three-fourths of direct costs of the licensing process stem from various �social contributions� that developers must make in exchange for their license. The contributions fund road and school construction and distribution of goods to the poor.

�Governments could help make hydroelectric projects more attractive to investors by sharing the burden of social-improvement activities tied to the projects, justifying the cost-sharing on the grounds that successful projects benefit everyone,� the report said.

Bank proposes more coherent licensing process

The World Bank proposed what it called relatively simple changes to bring a more unified holistic approach to the licensing process. However, it said some improvements would require more ambitious reforms.

The bank proposed:
o Reducing jurisdictional overlap and lack of coordination between states and the federal government;
o Establishing agreement among public prosecutors and environmental and energy agencies on explicit guidelines for hydroelectric projects, and creating an overarching body to handle disputes;
o Reducing the current three-stage (planning, construction, operation) licensing process into a simpler, more coherent approach;
o Developing region- and site-specific terms of reference for preparation of comprehensive environmental assessments;
o Providing of baseline environmental information by state and federal government experts;
o Providing immunity from individual liability to decision-making bureacrats except in cases of gross malfeasance; and
o Establishing better communication among governing bodies and possibly creating a governing council unifying all levels of government and various agencies.

The Practioner Note, �Toward Cleaner, Cheaper Power: Streamlined Licensing of Hydroelectric Projects in Brazil,� may be obtained from the World Bank Internet site www.worldbank.org under Publications, by searching Documents and Reports for �Toward Cleaner, Cheaper Power.�

The larger report, �Environmental Licensing for Hydroelectric Projects in Brazil,� may be obtained from www.worldbank.org/water under Hydropower, Key Publications, �Environmental Licensing for Hydroelectric Projects in Brazil.�

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