After the auction for the construction of the Belo Monte power plant (11,233 MW installed capacity) in the state of Pará, which occurred in April, the dispute now is between equipment and services suppliers for the project, the third largest hydroelectric plant in the world — second only to China’s Three Gorges (22,400 MW) and Itaipu (Brazil/Paraguay, 14,000 MW). The companies are eyeing the fat project contracts, evaluated by the government at R$ 19 billion (US$ 10.1 billion), which according to market sources could rise to R$ 30 billion (US$ 16 billion). The fight in this case is within a new context, pitting strong Chinese and Russian manufacturers, newly arriving in the Brazilian hydroelectric power generation marketplace, against each other.

It is estimated that the contract for the supply of turbines and ancillary equipment will be on the order of R$ 6 billion (US$ 3.2 billion). The package includes 20 Francis turbines, rated at 550 MW each, and nine Bulb turbines (for low water flows), rated at 25.9 MW each. Besides the traditional European companies Alstom, Voith Siemens and Andritz Hydro, the business is awakening interest in China’s Dong-fang, which has the contract to supply 18 turbines Jirau hydroelectric plant (3,300 MW) in Rondônia, and the Harbin Turbine Company (HTC), which in Brazil is entering a partnership with Argentina’s Impsa, which already has business in the local market.

Recently, it was the turn of Russian companies, through Energo Mash Export Corporation (EME Corp.) and Power Machines, which demonstrated interest in this industry. The two E. European companies supplied the turbines for the Corumbá III (93.6 MW) hydroelectric plant, which came on stream at the beginning of this year in Mato Grosso do Sul.

Price

A survey made by investors before the Belo Monte auction was held indicated that the Chinese manufacturers presented costs that were 40% lower than the other competitors. According to one source, they are practically unbeatable. On the other hand, in favor of the European manufacturers is the fact that they have plants in Brazil, which gives them logistical advantages and an existing relationship with the market.

Because it is impossible for a single manufacturer to meet the needs of all of the Belo Monte demands, Andritz Hydro, Voith Siemens and Alstom have joined together to offer supply contracts through the Norte Energia consortium, which won the concession contract. According to an executive involved in the negotiation, Norte Energia made a counter proposal that an amount that was 30% lower than its original offer.

All indications are that, in order to guarantee the contract to supply the machinery for the plant, the European companies will have to give way on price. This is because the price factor will be of fundamental importance for Norte Energia, which picked up Belo Monte based on a electricity tariff of R$ 78/MWh (US$ 42/MWh), considered very low by specialists. According to one industry consultant, the rate of return on the project is about 8%.

In March, Alstom inaugurated, in partnership with Bardella, a plant in Porto Velho, Rondônia, to meet the needs of Jirau and Santo Antônio (3,150 MW). With an investment of R$ 90 million (US$ 48 million), the factory has the capacity to produce annually some 12,000/tons per year of equipment and already is building drying sluices and rolling bridges for the Santo Antônio powerhouse. Moreover, the company expanded its facilities in its Taubaté unit in São Paulo, expecting orders from Belo Monte.

Turbine

Over at Andritz Hydro, there are expectations of picking up the contract to supply the turbines for Belo Monte in order to keep its factory in Araraquara, São Paulo humming with work, after delivering orders for the machines for Santo Antônio and Jirau. The company, which today has a backlog of orders 40% higher than its total capacity, could find its factory idle in a few years if it does not win a supply contract for a piece of Belo Monte. In order to make the project more efficient, reducing costs and increasing productivity, the Norte Energia consortium will implement a number of improvements to the original project. “In a project as big as Belo Monte, many improvements can be achieved and it is absolutely certain we will introduce them. The engineering departments will deliver the details over the course of time,” said José Ailton de Lima, president of the consortium and director of Engineering and Construction at Chesf, an Eletrobrás subsidiary.

One of the consortium’s first ideas is to reduce to two the number of derivation channels in the Xingu River. This measure will make it possible to reduce the volume of excavation work by approximately 25%, which initially was to be 75.3 million m³ on land and 25.1 million m³ of rocks.

Outlook

It is not just one package of goods and services stemming from the Belo Monte project that is exciting manufacturers. The government’s 10-Year Energy Expansion Plan – 2019, which was disclosed in May, opens up the prospect of new business deals in the hydroelectric segment. The study, conducted by the Empresa de Pesquisa Energética (EPE), a state owned company linked to the Ministry of Mines and Energy, indicates the need for construction of another 35,245 MW from hydroelectric sources (triple the amount of power from a plant the size of Belo Monte) over the next 10 years, which would require investments on the order of R$ 100 billion (US$ 54 billion).

“We are indicating that the priority for expansion of the Brazilian power generation industry will be through renewable sources. We still need to contract 2,721 MW of new hydroelectric power this year, within the forecast of the 10-Year Plan,” explained the president of the EPE, Maurício Tolmasquim.

In August, the government intends to auction six hydroelectric projects. These are Santo Antônio do Jari (300 MW), Ferreira Gomes (153 MW) and Colíder 300 MW, located in the North Region; Cachoeira (63 MW) and Ribeiro Gonçalves (115 MW), in the Northeast Region; and Garibaldi (175 MW), in the South of the country. Furthermore, the EPE also is planning to conduct a second auction in 2010, giving priority to the contracting of new hydroelectric plants.

Auctions

Cachoeira and Ribeiro Gonçalves will be the two first hydroelectric projects in the Parnaíba River Basin to be auctioned off by the government. Overall, the region has five hydroelectric areas for development containing 493 MW. Colíder, for its part, is in the Rio Teles-Pires Basin, with an installed potential of 3.327 MW, involving four hydroelectric projects. Moreover, over the next few years, two large hydroelectric projects will be auctioned off in the Tapajós Basin, in the North Region, totaling 8469 MW. São Luiz do Tapajós (6.133 MW) should be put up for bid in 2011, while Jatobá (2.336 MW), will go on the block in 2014.

In order to minimize the environmental impacts of the Tapajós Basin, Eletrobras, which is responsible for the initial studies for the project, is thinking about adopting a new construction and operating model for these hydro plants. Known as a plant-platform, the new concept calls for a reduced area of deforestation for building such a facility. The idea is to deforest only what is necessary to put in the plant itself, without building a village for construction workers and supplemental installations. After the end of the construction work, the forest would be replanted and the plant itself operated remotely, requiring permanent occupation of very few workers at the site itself.