BRAZIL

1. ENERGY, ECONOMIC AND ELECTRICITY INFORMATION

1.1. General Overview

Brazil is a federal republic in South America, bounded on the north, west and south by every country of the continent except Chile and Ecuador, and on the east by the Atlantic Ocean, along 7,400 km (4,600 miles) of coastline. The country covers an area of 8,514,215.3 km2, about half of all South America, and is the world's fifth largest country in area. In 2002, the population of Brazil was about 176.3 million corresponding to a population density of 20.7 inhabitants per km2 The predicted population growth rate from 2002 to 2010 is 8.6%. Most Brazilians live in high-density areas of eastern Brazil or along the coast or the major rivers. Today, about 82.3% of the people live in urban areas.

The single most important influence on Brazil's climate is its location on the equator. Temperatures seldom exceed 35oC in the tropics owing to the moderating effects of high atmospheric humidity. Most of Brazil receives a moderate rainfall of 1,000-1,500 mm (40-60 in), although the Amazon lowlands and several other areas receive more than 2,030 mm (80 in) of rainfall annually. The semi-arid northeastern interior, or 'Sertao', frequently suffers from very long droughts. Tropical rain forest, or 'Selva', is found in the wettest part of the Amazon Basin. Much of the south and southwest of Brazil is covered by savanna, or tropical grassland, and in the interior of the northeast, caatinga, a low and bushy scrub and thorn forest is characteristic.

Brazil's three major river systems are: the Parana-Paraguay-Plata in the south, the Sao Francisco in the east, and the Amazon in the north. The Amazon, the major river of South America, is the world's second longest river (6,440 km/4,000 miles), and most of its basin lies within Brazil. The Amazon river's major tributaries are the Tocantins-Araguaia, the Madeira, the Negro, the Xingu and the Tapajos.

According the IAEA Energy and Economic Database, in 2002, the Gross Domestic Product (GDP) was 525,782 millions of current US$ and the GDP per capita was 2,983 current US$.

Brazil has modest fossil energy resource and one of the largest hydroelectric potential in the world. The hydro resources located in the north-east, south-east and south of the country have already been thoroughly surveyed. The hydroelectric potential of north and central west regions, which cover practically Brazil's Amazon area, are being tapped to partially meet both regional and national electric needs. According IAEA Energy and Economic Data Base, Brazilian estimated energy reserves are:: 196.83 EJ (Exajoules) solid fuels, 49.22 EJ liquid fuels, 9.01 EJ gas, 88.45 EJ uranium (essentially recoverable reserves), 293.06 EJ hydro (for comparison purposes a rough attempt was made to convert hydro capacity to energy by multiplying the gross theoretical annual capability by a factor of 10).

Historically, the expansion of the energy sector represented a dynamic aspect on the process of industrialization and modernization of economic and social structures in Brazil. This expansion has provided the energy needed for this process and has stimulated the development of productive sectors. During the last decades, Brazilian development was mainly induced by the State's direct action. Table 1 shows the historical energy statistics.

As shown in Table 1, during the period 1970 to 1990 the total energy production experienced an average annual growth rate of 4.72% and during the 1990's and early 2000's it had a small decrease to 3.82% per year. Primary electricity production had a different pattern: the average annual growth rate decreased from 8.63% from 1970 to 1990 to about 3.73% during 1990 to 2002.
Final energy consumption in Brazil reached 9.69 EJ in 2002, a bit more than three times the 1970 figure of 2.88 EJ. The share of liquid fuels in primary energy consumption had a small increase from 37.8% in the 1970's to 42.2% in 2002. On the other side, the share of solid fuels went down from 48.6% to 17.1 during the same period. Primary electricity (hydro and nuclear) and gas provided 37.0% and 3.7%, respectively, of primary energy consumption in 2002.

TABLE 1. BASIC ENERGY SITUATION^*

Source: IAEA Energy and Economic Database.

1.2 Energy Policy

The Brazilian energy sector has been facing deep changes evolving two different fronts: (i) the privatization of state owned electric companies (nuclear generation and power transmission were not included); and (ii) the restructuring of electric sector as a whole (deregulation). The government has decided to focus the role of the state on policy-making and market regulation, phasing out its previous involvement as owner of the major economic agents.

The main objectives of the national energy policy are orientated to: (i) conservation and efficient use of energy, (ii) expansion of oil production and electric power supply, (iii) realistic pricing policy, (iv) efficiency of energy production systems, (v) private enterprise participation, (vi) use of renewable energy resources; and (vii) technical innovation. Further comments on energy policy will follow in section 1.3.

1.3 The Electricity System

General description

Up to early 1960's, the Brazilian electric utilities had no central co-ordination. Operation and planning activities were limited to independent utility requirements, resulting isolated or poorly integrated systems. Rapid growth in industrialization led to an inter-regional integration creating expansion opportunities for the electric companies outside their geographical areas. This integration gave rise to increased supply reliability and provided great benefits due to economy of scale.

In 1962, federal government established a holding company, ELETROBRAS, with the objectives of organizing, co-ordinating and planning all activities of the sector at the national level. ELETROBRAS is attached to the Ministry of Mines and Energy. ELETROBRAS is an open corporation with shares negotiated in the capital market. It co-ordinates the whole electricity sector concerning the technical, financial and administrative aspects. ELETROBRAS is the major shareholder of the federal companies and is a minor shareholder in the state-owned companies. ELETROBRAS is also the main shareholder of ELETRONUCLEAR, the Brazilian nuclear utility.

A large utility company, ITAIPU Binational, was founded in 1973 by Brazil and Paraguay to manage the ITAIPU hydropower plant of 12,600 MW capacity located at the border of both countries. Due to the difference in the frequencies used in both countries, the energy share sent to Brazil has to be transformed in direct current, transmitted to a conversion unit and then reconverted to 60 Hz alternate current.

As of December 1996, the Brazilian electricity sector comprises 62 organizations: 4 companies of the ELETROBRÁS System (ELETRONORTE, CHESF, FURNAS and ELETROSUL), 27 state utilities associated to ELETROBRÁS and 31 public and private utilities (Table 2). The federal government is responsible for electricity generation in the north and northeast regions through two federal monopolies: ELETRONORTE and CHESF. In the remaining regions, the ELETROBRÁS System competes in the generation activities with state-owned utilities. The most important of these state-owned companies are Companhia Energética de Minas Gerais (CEMIG) in the Minas Gerais State; Companhia Energética de São Paulo (CESP) in São Paulo; Companhia Paranaense de Eletricidade (COPEL) in Paraná and Companhia Estadual de Energia Elétrica (CEEE) in Rio Grande do Sul. Four vertically integrated state-owned utilities are responsible for 30% of the available energy. During year 2002, four regional generation/transmission subsidiaries of ELETROBRÁS accounted for 40.5% of the available energy.

During the second half of the 90's, the government launched a privatization program for the generation and distribution sectors of the electric power system aiming to gather funds to reduce public debts and at same time decreasing the presence of state in activities where private enterprise can be more efficient. There were 35 state and municipal distribution companies/utilities responsible for distribution under public service concessions, covering all 26 states and the Federal District of the country. Today, 80% of these previously state-owned distribution companies are owned by the private sector due to this privatization program.

Following an auction in 1999, the control of the generating company Centrais Elétricas Geradoras do Sul S.A.(Gerasul) was sold. In February 1999, shares of Eletricidade e Serviços S.A. (Elektro) were offered to the public. This company resulted from the separation of the distribution part of CESP. Enron International, the controlling stockholder in Elektro, purchased the shares. Controlling stakes in the generation companies, resulting from the separation of Companhia Energética de São Paulo (CESP), Paranapanema and Tietê, were also sold. In 1999, the U.S. Duke Energy Corporation acquired the company Cia. de Geração de Energia Elétrica Paranapanema and the U.S. company AES (Applied Energy Services, Inc.) acquired the company Cia. de Geração de Energia Elétrica Tietê.

Electricity generation and transmission have been operated by ELETROBRAS subsidiaries, which have been partly privatized and some of the state-owned utilities within the geographical limits of the states. The states have a mix of state and privately owned companies for the distribution of electricity. The exception is the state of Tocantins, recently founded, where electricity is supplied by a private utility. The national electrical transmission grid has 61,539 km of 230 kV lines and 91,000 km of lines lower than 230 and higher than 34 kV.

Due to several reasons, the privatization process has been slowed down after year 2000 and some of the large state-owned utilities are no longer in the privatization process. About 75% of the generating capacity in the country is still government owned.

TABLE 2. PRIVATE AND STATE-OWNED ELECTRICITY GENERATION COMPANIES

Source: ELETROBRÁS 2002

Electricity generation and consumption

Brazilian electric system presents as its main peculiarities a large extension of transmission lines and an electricity generation system predominantly hydraulic. Consumer market (47.3 millions of units) is concentrated in the more industrialized South and Southeast regions of the country. North region is supplied mainly by small generating plants, the majority being thermoelectric (oil).

Tables 3 and 4 show the more relevant data concerning Brazilian electricity production and installed capacity. Electricity output in 2002 amounted to 363.14 TWh - 85.4% originated from hydroelectric sources, 10.8% from fossil fuelled plants and 3.8% from nuclear plants. In 2002, the electricity production/energy production rate was about 42%. Electricity consumption per capita increased from 1,653 kWh in 1990 to 2,235 kWh in 2002 and the nuclear energy share over the total electricity production increased from 1% to 4% during the same period.

During the last decade, residential, rural and commercial electricity consumption has had an expressive increase, however the industrial segment experienced a much lower growth mainly due to the use of more efficient technologies and rationalization measures imposed to the use of electricity.

TABLE 3.ELECTRICITY PRODUCTION AND INSTALLED CAPACITY