Gp / mls - jfca Brazilian Development Bank BNDES BNDES - Brazilian Development Bank 18 th World Energy Congress Buenos Aires, October 24, 2001 Francisco

gp / mls - jfca

Brazilian Development BankBrazilian Development BankBNDESBNDESBNDES - Brazilian Development Bank BNDES - Brazilian Development Bank

1818thth World Energy Congress World Energy CongressBuenos Aires, October 24, 2001Buenos Aires, October 24, 2001

Francisco GrosFrancisco GrosPresident of BNDESPresident of BNDES

1818thth World Energy Congress World Energy CongressBuenos Aires, October 24, 2001Buenos Aires, October 24, 2001

Francisco GrosFrancisco GrosPresident of BNDESPresident of BNDES

Imperfections in the Energy Market:Imperfections in the Energy Market:The Brazilian Crisis and the Measures The Brazilian Crisis and the Measures

Adopted for Overcoming ItAdopted for Overcoming It

Imperfections in the Energy Market:Imperfections in the Energy Market:The Brazilian Crisis and the Measures The Brazilian Crisis and the Measures

Adopted for Overcoming ItAdopted for Overcoming It

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Brazilian Development BankBrazilian Development BankBNDESBNDES

Brazilian Electricity Sector Basic Characteristics

Electricity Sector Model

2001 Crisis

Plan of Action

Brazilian Electricity Sector Basic Characteristics

Electricity Sector Model

2001 Crisis

Plan of Action

INDEX INDEX

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Brazilian Electricity

Sector Basic Characteristics


Sector Basic Characteristics

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Hydroelectric: 93.2 %

Conventional thermoelectric: 4.2 %

Nuclear: 1.6 %

Imported: 1 %

Hydroelectric: 93.2 %

Conventional thermoelectric: 4.2 %

Nuclear: 1.6 %

Imported: 1 %

Electricity sector basic

characteristics in Brazil

Electricity sector basic

characteristics in Brazil

SourcesSourcesSourcesSources

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Present total generating capacity of 74,000 MW,

for an estimated demand of:

Before the crisis Today

44,000 MW (average) 33,000 MW (average)

56,000 MW (peak) 43,000 MW (peak)

Present total generating capacity of 74,000 MW,

for an estimated demand of:

Before the crisis Today

44,000 MW (average) 33,000 MW (average)

56,000 MW (peak) 43,000 MW (peak)

Electricity sector basic characteristics in BrazilElectricity sector basic characteristics in Brazil

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19951995 20012001

98 %98 %

37 %37 %

Public sector participation

on distribution

Public sector participation

on distribution

Private Market for DistributionPrivate Market for Distribution

State with privatized distribution systemsState with privatized distribution systems

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Public sector78 %

Public sector78 %

Private Sector22 %

Private Sector22 %

Present installed capacityPresent installed capacity

Generation: New Private Market Generation: New Private Market

Cesp Paranapanema

&Cesp Tietê

Cesp Paranapanema

&Cesp Tietê

Cachoeira DouradaCachoeira Dourada

GerasulGerasul

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Sector Model


Sector Model

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ELECTRICITY SECTOR MODEL (1995) ELECTRICITY SECTOR MODEL (1995)

Basic PrinciplesBasic Principles

ELECTRICITY SECTOR MODEL (1995) ELECTRICITY SECTOR MODEL (1995)

Basic PrinciplesBasic Principles

Market-based investments and privatizationMarket-based investments and privatization

Competition (generation and trade) and regulation (transmission and Competition (generation and trade) and regulation (transmission and

distribution)distribution)

Independent regulatory body to ensure adequate balance between Independent regulatory body to ensure adequate balance between

needs of utilities and consumers and high quality of services needs of utilities and consumers and high quality of services

Diversification of the energy matrixDiversification of the energy matrix

Market-based investments and privatizationMarket-based investments and privatization

Competition (generation and trade) and regulation (transmission and Competition (generation and trade) and regulation (transmission and

distribution)distribution)

Independent regulatory body to ensure adequate balance between Independent regulatory body to ensure adequate balance between

needs of utilities and consumers and high quality of services needs of utilities and consumers and high quality of services

Diversification of the energy matrixDiversification of the energy matrix

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Transition

Regulation

Coordination

Transition

Regulation

Coordination

ELECTRICITY SECTOR MODEL

Risks


Risks

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TransitionTransition

Long and not synchronized

Privatization not preceded by the implementation

of regulatory rules

Partial implementation of the privatization process

(on the generation side)

TransitionTransition Long and not synchronized

Privatization not preceded by the implementation

of regulatory rules

Partial implementation of the privatization process

(on the generation side)


Risks


Risks

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RegulationRegulation Uncertainties associated with the regulatory

framework, e.g. environmental licenses

Non-enforcement of clauses of pass-through costs

Indefinition concerning methodology applicable to the

Ordinary Revision of the concession contracts

Difficulties on the operation of the wholesale market of

energy

RegulationRegulation Uncertainties associated with the regulatory

framework, e.g. environmental licenses

Non-enforcement of clauses of pass-through costs

Indefinition concerning methodology applicable to the

Ordinary Revision of the concession contracts

Difficulties on the operation of the wholesale market of

energy


Risks


Risks

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CoordinationCoordination

Need to articulate the reform of the three main

segments of the energy sector: natural gas,

electricity and oil

CoordinationCoordination

Need to articulate the reform of the three main

segments of the energy sector: natural gas,

electricity and oil


Risks


Risks

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2001 Crisis 2001 Crisis

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Immediate cause: extremely unfavorable rainfall patterns in 2000/1

San Francisco River Basin: worst year since 1930

Grande River Basin: 4th worst year since 1930

Other causes:

Independent commission created to investigate the crisis’ origins

concluded that there were significant delays in implementing new and on-

going projects (41% of the storage capacity of Northeast, Southeast and

Midwest regions)

Immediate cause: extremely unfavorable rainfall patterns in 2000/1

San Francisco River Basin: worst year since 1930

Grande River Basin: 4th worst year since 1930

Other causes:

Independent commission created to investigate the crisis’ origins

concluded that there were significant delays in implementing new and on-

going projects (41% of the storage capacity of Northeast, Southeast and

Midwest regions)

2001 Crisis2001 Crisis

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Reservoirs levels Southeast/Midwest and Northeast - 1997-2001

(% capacity)

Reservoirs levels Southeast/Midwest and Northeast - 1997-2001

(% capacity)

12,812,8

00

1010

2020

3030

4040

5050

6060

7070

8080

9090

100100

JanJan FebFeb MarMar AprApr MayMay JunJun JulJul AugAug SepSep OctOct NovNov DecDec

19971998199920002001

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Other causes (cont.):

Insufficient private investments in generation due to the lack of

correct signaling

Complexity of the transition from the state-model to the competitive-

model

Lack of policy for maintaining safety back up capacity of generating

thermal plants

Other causes (cont.):

Insufficient private investments in generation due to the lack of

correct signaling

Complexity of the transition from the state-model to the competitive-

model

Lack of policy for maintaining safety back up capacity of generating

thermal plants

2001 Crisis2001 Crisis

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Generation projects: Private sector x Public budget

Generation projects: Private sector x Public budget

ProjectsProjects

Installed Energy (MW)

Installed Energy (MW)

Private Private PublicPublic Cost Cost

US$ mmUS$ mm

US$/MW

US$/MW

US$ mmUS$ mm

US$/MW

US$/MW

Serra da Serra da MesaMesa

Serra da Serra da MesaMesa 1.2931.2931.2931.293 779779779779 603603603603 1.6901.6901.6901.690 1.3071.3071.3071.307 ––54%54%––54%54%

ItáItá ItáItá1.4501.4501.4501.450 620620620620 428428428428 1.3991.3991.3991.399 965965965965 ––56%56%––56%56%

MachadinhoMachadinho MachadinhoMachadinho 1.1401.1401.1401.140 514514514514 451451451451 1.4611.4611.4611.461 1.2821.2821.2821.282 ––65%65%––65%65%

TotalTotal

TotalTotal

1.9131.9131.9131.913

4.5504.5504.5504.550

––58%58%––58%58%Source: BNDES and Plano Decenal de Expansão/ELETROBRAS Source: BNDES and Plano Decenal de Expansão/ELETROBRAS

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Plan of Action for

Overcoming the Crisis

Plan of Action for

Overcoming the Crisis

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1) 20% reduction in consumption, as required by the National System

Operator

2) Emergency program for immediate increase in energy supplies

3) Structural program for more durable increase in energy supplies

4) Revitalization of the model for the electricity sector

5) Conservation and Rationalization

1) 20% reduction in consumption, as required by the National System

Operator

2) Emergency program for immediate increase in energy supplies

3) Structural program for more durable increase in energy supplies

4) Revitalization of the model for the electricity sector

5) Conservation and Rationalization

PLAN OF ACTIONPLAN OF ACTION

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20% reduction in consumption, in reference to May-July 2000 average,

as required by the National System Operator

Results:

Extraordinary enrollment of the population

Reservoirs accumulation above expectations (close to 8% above

the estimated levels in the Southeast)

Dealing of consumption rights reduced the economic impacts of

rationing

20% reduction in consumption, in reference to May-July 2000 average,

as required by the National System Operator

Results:

Extraordinary enrollment of the population

Reservoirs accumulation above expectations (close to 8% above

the estimated levels in the Southeast)

Dealing of consumption rights reduced the economic impacts of

rationing

1) Reduction of the Consumption1) Reduction of the Consumption

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2) Emergency Supplies

Aims


Aims Obtain additional energy supplies, mostly of foreign

origin, on a temporary basis

Set up a public energy trader to:

buy electricity from independent producers

lease or buy generating equipment

purchase the consumption rights of larger

consumers

Obtain additional energy supplies, mostly of foreign

origin, on a temporary basis

Set up a public energy trader to:

buy electricity from independent producers

lease or buy generating equipment

purchase the consumption rights of larger

consumers

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New energy sources: operating in 4 to 12 months

Mobile thermoelectric plants: ships, containers, trucks and other equipment

Fuel: oil and diesel

Cogeneration and biomass (gas)

2 to 3 year contracts : “ bridge” to return to normalcy

New energy sources: operating in 4 to 12 months

Mobile thermoelectric plants: ships, containers, trucks and other equipment

Fuel: oil and diesel

Cogeneration and biomass (gas)

2 to 3 year contracts : “ bridge” to return to normalcy


Characteristics


Characteristics

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2001 2002 2003 Total

HYDROELECTRIC ( 22 ) HYDROELECTRIC ( 22 ) 1,0161,016 3,5133,513 3,1633,163 7,6927,692

THERMOELECTRIC ( 32 )THERMOELECTRIC ( 32 ) 1,6301,630 3,7683,768 5,4095,409 10,80710,807

COGENERATION COGENERATION 160160 300300 500500 960960

WIND / SOLAR WIND / SOLAR 5050 500500 500500 1,0501,050

IMPORTS ( 6 )IMPORTS ( 6 ) 1,0481,048 900900 800800 2,7482,748

TOTAL (MW) 3,951 9,381 10,772 24,104

TRANSMISSION LINES - Km TRANSMISSION LINES - Km 505 1,191 4,530 6,226

SUBSTATIONSUBSTATION 3,525 MVA 3,525 MVA

Supply IncreaseTYPE ( Projects )

SMALL PLANTSSMALL PLANTS 4747 400400 400400 847847847847

3) Program for Increasing Energy Supplies3) Program for Increasing Energy Supplies3) Program for Increasing Energy Supplies3) Program for Increasing Energy Supplies

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Investment Forecast (2001 - 2003)Investment Forecast (2001 - 2003)Investment Forecast (2001 - 2003)Investment Forecast (2001 - 2003)

3) Program for Increasing Energy Supplies3) Program for Increasing Energy Supplies3) Program for Increasing Energy Supplies3) Program for Increasing Energy Supplies

Private

HYDROELECTRICHYDROELECTRICHYDROELECTRICHYDROELECTRICTHERMOELECTRICTHERMOELECTRICIMPORTED ENERGYIMPORTED ENERGYTRANSMISSION NETWORKTRANSMISSION NETWORKOTHER SOURCES (*)OTHER SOURCES (*)

TOTAL

ObsObs: : The above figures include work carried out and still to be performed under the Electicity Emergency Strategic Program The above figures include work carried out and still to be performed under the Electicity Emergency Strategic Program (*) Cogeneration, wind, solar and small hydro plants(*) Cogeneration, wind, solar and small hydro plants

Type of ProjectEstimated Value (2001 - 2003)

(US$ million)

2,7362,736 1,2431,243 3,9783,9784,5584,558 2,7552,755 7,3147,314

488488 -- 488488851851 432432 1,2841,284

2,1162,116 178178 2,2942,294

10,749 4,608 15,358

State Total

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Economic cues to stimulate private investmentEconomic cues to stimulate private investment

Government management: eliminate overlaps and gray Government management: eliminate overlaps and gray zones among public agencieszones among public agencies

Action to correct market failuresAction to correct market failures

Clear and transparent rules of the gameClear and transparent rules of the game

Elimination of regulatory uncertaintiesElimination of regulatory uncertainties

Solution to pending issues (pre and post-crisis)Solution to pending issues (pre and post-crisis)

FOCUS

4) Committee for the Revitalization of the 4) Committee for the Revitalization of the

Electricity Sector ModelElectricity Sector Model

(under BNDES coordination)(under BNDES coordination)

4) Committee for the Revitalization of the 4) Committee for the Revitalization of the

Electricity Sector ModelElectricity Sector Model

(under BNDES coordination)(under BNDES coordination)

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ObjectivesObjectives

Efficient allocation of energy resources / environmental Efficient allocation of energy resources / environmental

preservationpreservation

Establishment of maximum levels of specific Establishment of maximum levels of specific

consumption and minimum levels of energy efficiency consumption and minimum levels of energy efficiency

for machines and equipment for machines and equipment

FOCUS

5) 5) Conservation and Rationalization5) 5) Conservation and Rationalization

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Specific Program for the support of small and medium Specific Program for the support of small and medium

enterprisesenterprises

InformationInformation

CapacitationCapacitation

Consultant servicesConsultant services

CreditCredit

Management and assessmentManagement and assessment

FOCUS

5) 5) Conservation and Rationalization5) 5) Conservation and Rationalization

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www.bndes.gov.brwww.bndes.gov.br

BNDES BNDES – – Brazilian Development BankBrazilian Development Bank BNDES BNDES – – Brazilian Development BankBrazilian Development Bank

Presentation prepared by the Office of the President of BNDESPresentation prepared by the Office of the President of BNDES

Documents

Gp / mls - jfca Brazilian Development Bank BNDES BNDES - Brazilian Development Bank 18 th World Energy Congress Buenos Aires, October 24, 2001 Francisco