Impasse Continues Between Brazil State And GDF Suez

The Brazilian state of Rondonia and the GDF Suez SA-led (GSZ.FR) energy consortium Energia Sustentavel do Brasil have a large gap to bridge if Suez's power station is going to get built, a state official said Thursday.

"We are not against the hydroelectric plant, but we are looking for better compensation for their using part of a state reserve," said Marco Antonio Santi, spokesman for the Rondonia state government.

Rondonia is located in the western Amazon, and is a mix of wild jungle, plains and cities. It is also currently home to two new hydrolectric power plants, along its Madeira River.

One is being built by Brazil's Odebrecht, with Furnas and Cemig (CIG) as majority energy company shareholders.

The other is majority owned by the massive GDF Suez, with a minority stake by Eletrobras (EBR) companies Chesf and Eletrosul. Eletrobras said it estimated it was losing at least 1 million reals ($500,000) daily now that the project, known as the Jirau power station, is on indefinite hold. Another BRL5 million could potentially be lost daily if the project is stalled so much that it doesn't meet the January 2013 deadline to start selling contracted energy.

GDF Suez's director of business development, Gil Maranhao, told Dow Jones Newswires on Wednesday that the company would easily be fully operational by January 2013.

The problem, Rondonia state's Santi said, is that Jirau was to be built around 11 kilometers away from state forest reserves. Then it was moved and is now smack dab in the middle of them.

"The environmental impact is minimal to the forest, but a lot of other areas will be flooded because of the dam," he said.

Large industrial projects in Brazil must comply with complex environmental laws. For energy companies, there are social responsibility clauses in contracts to build power stations on public assets - in this case the Madeira River.

"If you're going to use a state reserve, you can't be expected to get it for free," said Walter Vitto, a consultant at Tendencias in Sao Paulo.

"Once Jirau moved a few kilometers away from its original setup, Rondonia really just saw this as a way to negotiate more money out of GDF because of the environmental and social impacts involved," he said.

The Jirau power station is a EUR3.3 billion hydroelectric dam that will pump 3,300 megawatts of electricity into the grid.

Most of that will go to the south and southeastern states, so Rondonia isn't going to get any tax revenues from the sale of that power. It is counting on around BRL100,000 monthly from royalties.

"A pittance," Santi said.

He said that the last time the state has met with Energia Sustentavel executives was Monday. The company has not responded to a counter bid. The project's been on hold since last Tuesday, when a temporary installment license ended.

GDF offered the state BRL34 million and the state came back with a counter offer of BRL154 million. GDF has not yet responded to the counter offer.

Up river from the where the Jirau project will sit, Odebrecht paid BRL148 million to the state of Rondonia and BRL49 million to Porto Velho city, the capital and home to 420,000 people.

"The money is going to an emergency hospital, which we do not have in the city," Santi said.

"The state doesn't have the infrastructure. We are fine with Jirau. If they are going to use a public good that belongs to the state, and profit from that, then we have to get compensated by law," he said, adding that he doubts GDF and partners will have a problem agreeing to concession payments with Porto Velho.

The state, however, is another matter, although Maranhao remains optimistic.

"The project could be approved any day," he said. "But nobody knows the day."

-By Kenneth Rapoza, Dow Jones Newswires; 5511-2847-4541; [e-mail]