INTERVIEW - Brazil aluminum industry needs to invest in energy

PlanetArk.org BRAZIL: April 28, 2003

RIO DE JANEIRO, Brazil - Investment in new electricity generation projects is important for the growth of Brazil's primary aluminum sector, the head of the Brazilian aluminum association (Abal) said.

It's also necessary also for the continuing presence of this energy-intensive sector in Brazil, said the association's president Joao Beltran Martins.

"Without competitive energy, Brazil's producers can't survive. We are investing to keep our facilities operational. I see no other options," Beltran told Reuters in an interview this week.

Due to the $5 billion investments underway in energy generation in the sector, it's unlikely Brazil's aluminum production will fall in the near future, he said.

"But it is possible output will not grow further once current expansions are completed," Beltran said.

Brazil's aluminum sector should produce a record 1.45 million tonnes of primary metal this year, following the conclusion of expansions delayed by energy rationing in 2001-2.

The sector generates only 13 percent of its own electrical energy, although once the various new projects are completed, self-sufficiency should exceed 50 percent, according to Abal.

LACK OF ENERGY RULES

Beltran however pointed out some projects are being slowed down or complicated by lack of government regulation of the energy sector, transmission costs from remote areas and regional differences in environmental legislation.

"The government still needs to regulate everything to do with the energy sector," he said. "The cost of energy in the free market could change."

Local free-market spot energy costs fell after Brazil ended energy rationing to a fraction of international costs.

However, many smelters are reported to be unable to benefit from low spot market prices because, being intensive users, they are obliged to buy from utilities at contracted prices.

In addition, investment in energy generation is costly.

"The cost of energy also depends on the generator's location. Transmission fees can make certain locations unviable," said Beltran, also president of producer Alcan Aluminio do Brasil, a unit of Canada's Alcan Inc. (AL.TO).

The average cost of energy used by Brazil's existing aluminum smelters is $20-22 per megawatt hour, Beltran said, adding that more than $22 is considered unviable by the sector.

"Energy costs for the aluminum sectors in Venezuela, Iceland, the Middle East and China are all cheaper than in Brazil, although we do have the advantage of having internationally competitive manpower," he said.

"We also need adequate federal environmental legislation," Beltan said. Some new hydro projects are being held up by local environmental lobbies despite having gained operating licenses from federal electrical energy regulatory agency Aneel, he noted.

Brazil has excess electrical energy due to recent heavier than usual rainfall, which has filled the country's reservoirs and ensured full operation at the country's hydroelectric plants, accounting for 90 percent of total electricity output.

However, Beltran admitted speculation is rife in government circles that a new period of rationing could occur in 2005. "Everything depends on rainfall levels. But we have to remember we have thermoelectricity as well," he said.