|Messages Posted on 02/18/08 [
|Café Brazil: FT Latin America Agenda|
||02/18/08 09:35 AM |
0 Brownie Points
Brazil’s rationing nightmare|
3 Brownie Points
| Observers have been warning for some time that Brazil faces electricity shortages as early as this year. Rationing is among the government's worst nightmares. The previous administration was booted out by the electorate in 2002 largely because that year's rationing - a result of low rainfall and bad management - branded it as the "blackout government". |
This government insists that rationing is not a threat. The industry thinks otherwise. Rowe Michels and colleagues at Bear Stearns in New York recently issued a report showing that "a perfect storm of four worst-case scenarios" could force the government to ration supplies as early as May this year. Conspiring together are shortages of natural gas, especially from Bolivia; a faster-than-expected rate of growth in demand; unusually low rainfall since the rainy season failed to get underway in November; and delays in delivering new generating capacity.
In fact, the report concludes, rationing is already here, in the form of high prices for those large industrial users who buy electricity on short-term contracts and who account for a quarter of electricity use in Brazil. Prices hit the permitted ceiling last month, forcing some users such as aluminium smelters to shut down part of their capacity.
The obvious short-term solution for Brazil is to buy more natural gas. Unfortunately its main supplier, Bolivia, has been unable to fulfil its contracts since it nationalised its gas industry in May 2006, bringing investment to a grinding halt. President Luiz Inácio Lula da Silva is due to meet his colleagues Evo Morales of Bolivia and Cristina Fernández of Argentina in Buenos Aires at the weekend to discuss the issue. The last thing he will do is insist that Bolivia delivers what it promised. Brazilian industry will go on picking up the bill.