The Brazilian government is refusing to sanction a proposal by Chinese state-owned power company State Grid to send 11,000 of its employees to Brazil to work on the construction of a 2,100-kilometer power transmission line beginning at the Belo Monte hydroelectric plant. Local labor laws forbid companies from hiring foreign workers as long as qualified Brazilians are available.
The dispute is the latest episode in the ongoing drama of the controversial megaproject that has been implicated in an unprecedented corruption scandal and is expected to force the displacement of over 20,000 indigenous people.
Belo Monte's so-called linhão or “big line”, one of the longest in the country, will require the installation of 4,500 towers and 25,000 kilometers of cabling, requiring investment of around US$1.6 billion. But work cannot begin until the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) has issued an environmental permit.
With Brazil in the throes of a record-breaking drought, stagnant growth and potential energy crisis, job creation and energy capacity are sensitive issues but this chapter is expected to be a short one for State Grid as the first step in the process for beginning work is already underway - IBAMA has authorized public consultations on the additional line.
“This industrial policy was designed to create jobs in Brazil,” Professor Nivalde de Castro, coordinator of the Electric Sector Study Group at the Federal University of Rio de Janeiro told Diálogo Chino. But China's entry into Brazil's energy sector is not necessarily a threat.
According to Castro there is still a lot of room for new companies – especially Chinese ones – to participate in Brazil's energy market, as long as they do so indirectly: “Chinese companies are strongly encouraged to open subsidiaries” Castro added, explaining that by doing so, China can provide finance for the sector without harming local industry and Brazil can keep imports down.
The new transmission line tenders scheduled for this year alone will offer opportunities for almost US$7 billion in investments.
But according to Castro, the question is whether China will remain interested in investing if it has to comply with Brazil’s industrial and financial policy and operate through subsidiaries.
Brazil's Minister of Mines and Energy, Eduardo Braga, has discussed plans to speed up overdue energy infrastructure projects – including power plants and transmission lines. While the specific projects under consideration are still unknown, it is likely that the linhão will be a priority given the centrality of Belo Monte to Brazil's energy expansion plans.
At 11,233 MW of installed capacity, Belo Monte will be the second largest hydropower plant in Brazil, and a considerable part of its output will be transmitted to Brazil’s industrial Southeast, which accounts for almost 70% of the country’s energy consumption.
Ultra High Voltage technology will deliver 800 kilovolts (kV) of direct current to a system that interconnects almost the entire country and extends for almost 117,000 kilometers, according to data from the National Electric System Operator (ONS).
State Grid paid US$1bn to purchase seven transmission lines from Plena Transmissoras (a joint venture of Spanish and Brazilian companies), and also bid successfully for the main transmission system through a partnership with Eletrobras, the largest energy company in Brazil – which, like its Chinese peer, is controlled by the federal government.
The IE Belo Monte consortium is composed of State Grid (51%) and two Eletrobras subsidiaries: Furnas (24.5%) and Eletronorte (24.5%). At the bidding, the consortium asked for annual revenues of around US$140 million. Under the rules of transmission line bids in Brazil, bids compete against each other to offer the lowest cost to the national grid.
State Grid's chairman of the board, Liu Zhenya, had stated that Brazil and China have some similarities in their interconnected energy systems with power supply sometimes extending more than 2,000 kilometers away from the country's load centers. This, he said at the bidding event, can generate demand for the construction of long-distance distribution channels with high capacity and low levels of energy loss.
State Grid has already faced problems in Brazil with the construction of the transmission line that will connect to Teles Pires, a 1,820 MW hydroelectric plant whose construction is nearing completion. The plant, located in the Amazon rainforest, will not be operational until a 1,005-kilometer transmission line connecting it to the national grid is finished. But the line has been delayed because of problems acquiring an environmental permit as it would interfere with important indigenous and archaeological sites, according to the daily newspaper O Estado de São Paulo.
The Teles Pires consortium is made up of the Brazilian companies Neoenergia (which has controlling a 50.1% stake), Odebrecht (0.9%), Furnas, and Eletrosul (the latter two being subsidiaries of Eletrobras).
The consortium responsible for the line, known as Matrinchã, is composed of State Grid, which has a 51% stake, and Copel, a state-controlled company of the state of Paraná, which holds the remaining 49%.
The solution negotiated with ANEEL, Brazil's energy regulator, was the emergency construction of a new, 25-kilometer transmission line that will connect Teles Pires to the national grid at the Sinop substation. This line will transmit not only the energy generated by Teles Pires, but also the output of other hydropower plants that will be installed in the region.