Bruce Williamson, president and chief executive officer of Houston-based Duke Energy International, tries to stem risk at the source. “We are looking very carefully at structuring our portfolios to mitigate all the expected risk,” he says.
But Williamson recognises that the biggest risk of all in Latin America is not to invest in Brazil at all. “The size and overall fundamentals of Brazil’s economy made it a place we knew we should be looking at,” he says.
Duke Energy International, an arm of Duke Energy, has interests in Australia, Asia and Europe, and in other Latin American countries as well as Brazil. The company has a 95% stake in Paranapanema, a 2,300 megawatt (MW) hydropower plant in São Paulo state in Brazil, where it also has a 520 MW gas-fired thermal plant. Duke is also planning two peaking gas plants in conjunction with Petrobras, one either side of the Bolivia-Brazil border.
Power shortage
What has drawn many energy companies to Brazil is the forecast power shortage the country is facing as its economy grows. A long-running lack of investment in generation and an increase in demand has led to a large predicted shortfall in electricity supply.
The Brazilian government estimates that the current power generation capacity of nearly 70,000 MW will not be able to prevent an undersupply of around 15% for 2001. The prediction is that 4,330 MW of new generating capacity is required every year for the next 10 years if supply is to keep up with expected demand.
Thankfully for Brazil, ambitious building and buying schemes are commonplace there. As well as Duke, other Houston-based energy companies are jumping on the generation bandwagon.
El Paso Corp has bought the 158 MW Rio Negro plant and is building a 409 MW facility in western Brazil. These plants contribute to El Paso’s status as the largest independent power producer in the country.
To the north-east, in January 2000, Alliant Energy took stakes in four privatised utilities at a cost of $347 million. Jim Hoffman, president of Madison, Wisconsin-based Alliant Energy Resources at the time of the acquisitions, predicted a return of at least 15% on the investment. Since those acquisitions, Alliant has continued to buy assets, thereby strengthening its position and servicing at total of 1.6 million customers.
John Peterson, president of Alliant Energy International, says: “We are successfully executing our strategy to take advantage of the business opportunities that exist there. Energy consumption there is growing faster than electricity use in US homes and business.”
Other major US and European energy companies have been quick to seize upon the opportunities afforded by Brazilian privatisation. Established companies such as the US’s Enron Corp and AES have invested significant amounts in South America, particularly in Brazil. And these firms have been rubbing shoulders with European companies including Belgium’s Tractebel, Spain’s Endesa, Electricidade de Portugal (EdP), and Paris-based monopoly Electricité de France (EdF).
What has drawn many energy companies to Brazil is the forecast power shortage the country is facing as its economy grows. A long-running lack of investment in generation and an increase in demand has led to a large predicted shortfall in electricity supply.
The Brazilian government estimates that the current power generation capacity of nearly 70,000 MW will not be able to prevent an undersupply of around 15% for 2001. The prediction is that 4,330 MW of new generating capacity is required every year for the next 10 years if supply is to keep up with expected demand.
Thankfully for Brazil, ambitious building and buying schemes are commonplace there. As well as Duke, other Houston-based energy companies are jumping on the generation bandwagon.
El Paso Corp has bought the 158 MW Rio Negro plant and is building a 409 MW facility in western Brazil. These plants contribute to El Paso’s status as the largest independent power producer in the country.
To the north-east, in January 2000, Alliant Energy took stakes in four privatised utilities at a cost of $347 million. Jim Hoffman, president of Madison, Wisconsin-based Alliant Energy Resources at the time of the acquisitions, predicted a return of at least 15% on the investment. Since those acquisitions, Alliant has continued to buy assets, thereby strengthening its position and servicing at total of 1.6 million customers.
John Peterson, president of Alliant Energy International, says: “We are successfully executing our strategy to take advantage of the business opportunities that exist there. Energy consumption there is growing faster than electricity use in US homes and business.”
Other major US and European energy companies have been quick to seize upon the opportunities afforded by Brazilian privatisation. Established companies such as the US’s Enron Corp and AES have invested significant amounts in South America, particularly in Brazil. And these firms have been rubbing shoulders with European companies including Belgium’s Tractebel, Spain’s Endesa, Electricidade de Portugal (EdP), and Paris-based monopoly Electricité de France (EdF).
The next generation
The Brazilian government is keen to reduce the country’s reliance on hydropower – currently more than 90% of Brazil’s generation capacity is hydroelectric.
Key to this hydro capacity is the mighty Itaipu facility on the Paraná river at the Paraguay-Brazil border to the south-west. It is the world’s largest hydroelectric generator, producing 12,600 MW. The plant feeds the south of Brazil, where electricity-hungry cities such as Rio de Janeiro and São Paulo are growing.
But this region still needs a great deal more electricity from somewhere. And while there is significant hydro potential far to the north, the cost of transmission makes it impossible for electricity to reach the southern regions.
Consequently, the government is looking to natural gas. It aims to raise the consumption of natural gas to 10% by 2010 from 3% in 1998, primarily for electricity generation. In 1999, the Ministry of Energy and Mines introduced the Emergency Thermoelectric Programme, an initiative aimed at creating new gas-fired power plants, totalling 1,500 MW of capacity, by the end of 2003. Analysts expect the total investment required for this undertaking will be in the region of $6.6 billion.
Duke’s Williamson feels the building programme in Brazil is facilitated by lessons learned from other markets. “Facilities can be built in Brazil far more quickly than in other places, such as California, as there are clear incentives [offered by the government for such investment].” But he is wary of the same mistakes made in California being made in Brazil: “It is important that Brazil doesn’t start capping prices and scaring investors away,” he adds.
Nonetheless, one head of corporate finance at a major European utility investing in Brazil, is certainly excited about the increasing number of opportunities in the natural gas sector. “Brazil has much larger gas reserves than was initially thought,” he says. “Our plan is to be a major player in gas and power, as the two are going to be so closely linked in Brazil.”
He is also upbeat about the competition coming in from experienced European and US players. “Companies like [Spain’s] Iberdrola and EdF are establishing a real presence in Brazil, particularly in electricity, and other companies like TotalFina Elf are going about it by buying generation assets in Argentina,” he says.
The Brazilian government is keen to reduce the country’s reliance on hydropower – currently more than 90% of Brazil’s generation capacity is hydroelectric.
Key to this hydro capacity is the mighty Itaipu facility on the Paraná river at the Paraguay-Brazil border to the south-west. It is the world’s largest hydroelectric generator, producing 12,600 MW. The plant feeds the south of Brazil, where electricity-hungry cities such as Rio de Janeiro and São Paulo are growing.
But this region still needs a great deal more electricity from somewhere. And while there is significant hydro potential far to the north, the cost of transmission makes it impossible for electricity to reach the southern regions.
Consequently, the government is looking to natural gas. It aims to raise the consumption of natural gas to 10% by 2010 from 3% in 1998, primarily for electricity generation. In 1999, the Ministry of Energy and Mines introduced the Emergency Thermoelectric Programme, an initiative aimed at creating new gas-fired power plants, totalling 1,500 MW of capacity, by the end of 2003. Analysts expect the total investment required for this undertaking will be in the region of $6.6 billion.
Duke’s Williamson feels the building programme in Brazil is facilitated by lessons learned from other markets. “Facilities can be built in Brazil far more quickly than in other places, such as California, as there are clear incentives [offered by the government for such investment].” But he is wary of the same mistakes made in California being made in Brazil: “It is important that Brazil doesn’t start capping prices and scaring investors away,” he adds.
Nonetheless, one head of corporate finance at a major European utility investing in Brazil, is certainly excited about the increasing number of opportunities in the natural gas sector. “Brazil has much larger gas reserves than was initially thought,” he says. “Our plan is to be a major player in gas and power, as the two are going to be so closely linked in Brazil.”
He is also upbeat about the competition coming in from experienced European and US players. “Companies like [Spain’s] Iberdrola and EdF are establishing a real presence in Brazil, particularly in electricity, and other companies like TotalFina Elf are going about it by buying generation assets in Argentina,” he says.
A surfeit of oil
The oil industry is another business Brazil’s President Cardoso was keen to open to competition and investment. Hence, in 1997, the National Petroleum Agency (ANP) was set up to oversee its running.
Brazil’s oil reserves are estimated to be the largest in Latin America after Venezuela, and total more than 7 billion barrels (bbl). Over the past two years, Brazil has been successful in attracting foreign companies to its richest oil and gas fields in the Santos and Campos basins, off the south-east coast. Auctions for exploration and production blocks in these areas were conducted in June 1999 and 2000, with another due to take place this summer.
Petrobras owns a large proportion of these blocks and has the advantage of having been in the region longer than others. The company’s expertise is envied in the region as it sets records for depths of exploration and drilling.
The oil industry is another business Brazil’s President Cardoso was keen to open to competition and investment. Hence, in 1997, the National Petroleum Agency (ANP) was set up to oversee its running.
Brazil’s oil reserves are estimated to be the largest in Latin America after Venezuela, and total more than 7 billion barrels (bbl). Over the past two years, Brazil has been successful in attracting foreign companies to its richest oil and gas fields in the Santos and Campos basins, off the south-east coast. Auctions for exploration and production blocks in these areas were conducted in June 1999 and 2000, with another due to take place this summer.
Petrobras owns a large proportion of these blocks and has the advantage of having been in the region longer than others. The company’s expertise is envied in the region as it sets records for depths of exploration and drilling.
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