The Rio Madeira was the next Amazonian tributary to attract the attention of Brazil’s hydropower developers. The river is free of rapids as it flows along the western edge of the Brazilian Shield for about 1,300 kilometers between Porto Velho (Rondônia) to its junction with the Amazon River near Itacoatiara (Amazonas). Upstream, the watershed is drained by four massive tributaries (Itenez/Guaporé, Mamoré, Beni and Madre de Dios); the upper and lower basin are separated by approximately 250 kilometers where four groups of rapids provide a unique opportunity to generate energy from an enormous volume of water collected from a watershed of approximately one million square kilometers.

Between 2005 and 2015, during the administrations of President Lula da Silva and his successor, Dilma Rousseff, the Brazilian state built two mega-scale dams: (1) Santo Antônio, which is located just above Port Velho; and (2) Jirau, which is located 110 kilometers further upstream near the border with Bolivia. Eventually, the Madeira hydropower complex may include two additional dams: (3) Binacional, which would be located 150 kilometers upstream from Jirau on the border with Bolivia; and (4) Cachuela Esperanza, which would be located another fifty kilometers upstream on the Madre de Dios within the national borders of Bolivia.

All of these facilities are, or will be, R-o-R facilities because the sites are not well suited to high dams and large reservoirs. Each will be located just below the rock rapids where a low dam will drive a power plant with small reservoirs between 20,000 and 25,000 hectares.

The Brazilian government fast-tracked the design, environmental review and construction of both Santo Antônio and Jirau. Environmental licenses were approved in 2008, and the first turbines were operating by 2012; the inauguration of the last fleet of turbines was finalized in 2017. In order to manage the financial and operational risks inherent in two massive projects constructed simultaneously, the government created parallel bidding processes. Each dam was built and is now operated by different consortia: Energia San Antonio and Energia Sustentable do Brasil.

Financing was spread among multiple domestic banks with BNDES acting as the main source of investment capital; both were included within the IIRSA portfolio due to their potential to facilitate the development of the Madeira waterway. The original combined cost was projected at R$ 25 billion, but technical challenges caused the budget to balloon to an estimated R$ 43 billion by the end of the project.

The two facilities are considered to be the most expensive hydropower energy on the continent. The cost of energy is exacerbated by the distance from consumer markets, which required an additional investment of $US 3.8 billion for a 2,400-kilometer high-voltage direct-current (HVDC) (600 kV) transmission line between Porto Velho and Araraquara (São Paulo). Construction of the HVDC line was completed in 2013; however, a technical audit in 2017 revealed a design flaw that reduced transmission capacity by 25%. Ironically, the power plants had never operated at full capacity and, consequently, the system avoided damage that could have been caused by an imbalance between generation and transmission capacity.

Both the bidding and the construction oversight processes have been called into question by allegations – and eventually proof – of corruption in the Lava Jato scandal. Evidence provided in court indicates that (at least) two per cent of the original contracts were paid in bribes by the construction companies to individual politicians and their parties. However, this amount does not capture the inflated cost of the actual construction that is reflected in the eighty per cent cost overruns. Theoretically, these losses should be assumed by the concessionaires operating the power stations, but, as regulated utilities, they will probably be allowed to pass on the total (non-penal) cost to the consumer through inflated electricity bills.

Similarly, the costs associated with environmental impacts are not likely to be assumed by the operating companies. For example, the height of the dams was increased after the conclusion of the formal environmental review, which led to a miscalculation in the capacity of the spillway and the size of the water body located between the two dams. This design flaw led to unanticipated flooding in wet years with extreme levels of waterflow. Although funds were allocated to assist families to rebuild or relocate, the companies have managed to avoid legal liability for the irregularities in the environmental review process.

During the planning and construction phase, the Brazilian government essentially ignored the legal issues related to the potential environmental impacts on an international river. The Bolivian government declined to protest or request an international environmental impact study, which would have been amply justified considering the well-known potential impact on migratory fish.

Four consecutive Bolivian governments remained silent during the planning stages, presumably because they all hoped for the eventual completion of the two upstream dams that would include Bolivia as a partner. The collaboration of the Brazilian and Bolivian governments to complete the two remaining hydrodams is an explicit component of the IIRSA portfolio of investments. The two projects on the Bolivian border remain on hold, in part because the supply of energy in Brazil currently satisfies regional and national consumption, but this will inevitably change as the Brazilian economy grows. The existing HVDC transmission line can be expanded to provide additional capacity, which enhances the feasibility of the Bolivian projects.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

Read the other excerpted portions of chapter 2 here:

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