Hydroelectric project with Bolivia rekindles fears of high costs and lack of transparency

The government of Luiz Inácio Lula da Silva (Workers' Party) is betting on the resumption of large hydroelectric projects to expand energy generation in Brazil. The inspiration comes from an idea launched during the military governments and put into practice with the construction of the Itaipu hydroelectric plant, one of the largest in the world, between 1975 and 1982. The current initiative is the construction of a binational plant on the border with Bolivia, harnessing the potential of the Madeira River.

The plan, however, is born amid skepticism from experts and rekindles fears of high-cost projects with little transparency and few economic benefits for Brazil. The proposal was highlighted by the Minister of Mines and Energy, Alexandre Silveira, who last month stated that he had spoken with the president about the importance of moving forward with "a new binational project on the way, replicating the success of Itaipu."

However, for experts such as engineer and economist Erik Duarte Rego, the proposal has a strong political dimension and presents no technical or economic advantages for the Brazilian side.

High costs and logistical challenges would mark the project

One of the main obstacles is cost. Besides being a massive project, building a binational hydroelectric plant in the Amazon would require even more resources due to the region's logistical challenges, such as transportation, limited access, and long rainy seasons. Environmental requirements would also generate additional economic impacts, increasing the final construction cost.

Transmission lines, needed to transport energy, pose a separate challenge. During the construction of the Santo Antônio and Jirau plants, both on the Madeira River, the cost of the lines to transport energy to the Center-South region of the country was close to that of building one of the plants itself. Therefore, it is necessary to evaluate whether the existing lines can support the new transmission or whether new, costly structures will be necessary.

Energy generation itself may fall short of expectations. With evolving environmental concerns, the "run-of-river" model is now being used, with a lower impact because it doesn't require large reservoirs like Itaipu. The disadvantage is that these plants don't store water, and generation is dependent on rainfall patterns, which can be low or non-existent during dry seasons—further increasing the cost of energy generated.

Economic viability is questioned by experts

Given these costs, the project's economic viability is questioned. According to Erik Rego, the answer is no. Currently, a combination of alternative sources—such as wind, solar, and biomass—can achieve the same generation capacity with much lower construction and implementation costs.

In the long term, the investment wouldn't be justified, as there are cheaper alternatives capable of providing energy at a lower price. "To build a hydroelectric plant in Brazil today, you need a subsidy and government interest. It can only be done if the government wants it and authorizes it," commented the expert, reinforcing the political nature of the proposal.

History with Bolivia and political risk enter the equation

In addition to economic uncertainties, market skepticism is supported by the complex history of energy cooperation with Bolivia, which highlights the political and legal risks of the new venture.

If implemented, the hydroelectric plant would not be the first joint initiative between the two countries. The history of the Bolivia-Brazil Gas Pipeline (Gasbol), built in the 1990s, is a precedent that cannot be ignored.

Construction on the gas pipeline began in 1997 and the first section went into operation in 1999. In 2006, with Gasbol already in full operation, then-president Evo Morales nationalized Bolivia's oil and gas sector and ordered the occupation of Petrobras refineries.

At the time, President Luiz Inácio Lula da Silva called the measure a Bolivian "sovereign act." The following year, a new agreement increased the cost of gas to Brazil by approximately US$100 million annually, and Bolivia agreed to compensate Petrobras US$112 million for the "purchase" of the refineries.

Division of costs and responsibilities raises doubts

The doubts surrounding the new binational project revolve precisely around financing and the division of responsibilities. Considering the hydroelectric plant's position, Erik Rego asserts that the reservoir would remain entirely within Bolivian territory, with Brazil responsible for providing the technical expertise and resources to finance the project. In the expert's view, as a poorer country, Bolivia would not be able to contribute significantly, and the burden would fall on Brazilian public coffers.

Lawyer Isabela Ramagem, an energy specialist and partner at Caputo, Bastos e Serra Advogados, states that, even with a more modest financial and technical contribution, Bolivia could contribute.

According to her, the country has a hydroelectric park geared towards domestic consumption, with large plants such as San José 1 and San José 2, which would guarantee its technical participation in the project. Furthermore, Bolivia has financial support from the Development Bank of Latin America (CAF) to facilitate new projects, which could guarantee funding for the binational project.

According to the expert, continued cooperation between the two countries is strategic from a commercial perspective, especially given the expansion of renewable energy and the possibility of a new hydroelectric plant serving as a guarantor of energy security. The question for the market and the Brazilian taxpayer is whether the potential strategic benefits outweigh the high economic risks and the unstable political precedent.