Dispute raises doubts over Amazonian dams

Brazil's government has approved construction of one of two dams planned in the Amazon, but possible legal challenges and a dispute between contractors threaten to delay both projects.

Granting the license for the Santo Antonio hydroelectric dam, Brazil's new environment minister, Carlos Minc, said he had attached 40 provisions to protect Indian reservations and nature preserves.

The government sees the dams on the Madeira River, one of the Amazon River's biggest tributaries, as crucial to prevent energy shortages in its fast-growing economy over the next decade.

The US$ 13 billion Jirau and Santo Antonio projects are seen as a key step in regional integration, creating a waterway that would cut transport costs for Brazil's agriculture exports and for farming areas in Bolivia and Peru.

However, environmental groups, including Friends of the Earth, Amazonia, and International Rivers, see the dams as a potential disaster that will flood up to 200000 ha of rainforest, dramatically changing the ecosystem. They say the government has not provided enough safeguards.

Environmental groups said the dams violate the Equator Principles on project finance that were signed by several banks potentially funding the projects, possibly opening the way for legal challenges.

While the legal battle has yet to be resolved the separate consortiums involved in building the dams are also in dispute, which could result in a protracted legal battle and possible delays.

Brazil originally auctioned off the rights to construct the 3150 MW Santo Antonio dam to a consortium including Brazil's Odebrecht and Furnas in December 2007. The dam is expected to cost BRL 9.5 billion (US$ 5.9 billion) and be operational in 2012.

The government has now threatened to reopen the auctions or take over the projects through state-controlled generator Eletrobras if the various groups do not resolve their differences.

Victor Paranhos, head of the Enersus group that won the Jirau concession, has accused rival Odebrecht of espionage after it sent a report about Enersus's building plans to the environment agency.

Odebrecht responded by starting legal proceedings on Tuesday that could lead to a defamation case against Mr Paranhos.

Odebrecht's report was critical of Enersus's plans to move the Jirau dam 9 km downriver, something it said that could affect the other dam's generation capacity. However, the relocation has not been approved by the government.

Speaking to local media organisations this week Energy Minister Edison Lobao, said, "If an accord does not happen, the government could take the initiative to build the two works through Eletrobras."

French utility group Suez, which is leading the Jirau group, threatened last month to stop new investments in Brazil's power sector if Odebrecht continued with its legal action, raising concerns the project could become mired in a protracted legal dispute.

The Santo Antonio consortium also includes an investment fund set up by Spain's Santander and Portugal's Banif, and Furnas, a subsidiary of Eletrobras.