Brazil Table of Contents
The unfolding of Brazil's current difficulties in the energy arena constitutes a classic example of distortions arising from misdirected regulation combined with the action of interest groups. When import-substitution industrialization began in the early 1950s, the country's main sources of energy were firewood, charcoal, and bagasse (the dry residue from the processing of sugarcane). Because modern industrial expansion could not be based on these, a decision had to be made regarding the sources of energy to be used. Not surprisingly, electricity and petroleum products received special attention.
In 1950 Brazil's capacity to generate electricity was only 1.9 million kilowatts, and most of the required petroleum products had to be imported. An adequate supply of electric energy became critical, both for production and for a rapidly growing urban population. Petroleum requirements expanded quickly because of the decision to make the automobile industry the mainstay of import-substitution industrialization and because of the heavy reliance on trucks for short- and long-distance transportation. Ambitious road-building programs were implemented, and the domestic automobile industry quickly expanded the stock of motor vehicles, reaching 1.05 million units in 1960, 3.1 million units in 1970, and 10.8 million units in 1980.
Low electricity prices stemmed from the substitution policy and from the attempt to control inflation by restraining the increase in public-sector prices in nominal terms. Thus, the capacity of the electricity sector to generate resources for investment was affected considerably. As a result of federally induced borrowing in the late 1970s and early 1980s, the sector was also heavily indebted. Intermittent adjustments in electricity prices allowed the sector to generate profits and thus some resources for investment. However, on occasion, the government returned to the practice of manipulating consumer prices to contain inflation.
Although the federal treasury initially assumed many of the cost distortions of the energy policy, by the end of the 1980s the virtual bankruptcy of the public sector precluded this approach. In the early 1990s, the government implemented a series of measures to reduce its role. It introduced deregulation, market reforms, and privatization, but these reforms did not change the essence of the energy policy. Interest groups prevented the adoption of measures that would drastically alter the liquid combustible policy, and the agency controlling electric energy continued to lack resources for investments. Thus, the energy price structure was altered only marginally.
Low electricity prices induced a considerable substitution of electricity for other sources of energy and the expansion of electricity-intensive production, such as aluminum. The heavy investments in hydroelectricity of the 1970s and 1980s matured, creating a considerable generating capacity (50,500 million megawatts or 93.3 percent of the total generating capacity of electricity in 1993). One of the world's leading producers of hydroelectric power, Brazil has a potential of 106,500 to 127,868 megawatts, or, according to the World Factbook 1996 , 55,130,000 kilowatts. The country's two largest operating hydroelectric power stations are the 12,600-megawatt Itaipu Dam, the world's largest dam, on the Rio Paraná in the South, and the Tucuruí Dam in Pará, in the North Region (see fig. 3).
In principle, an increase in the generating capacity for electricity should have been easy to achieve. Brazil has enormous hydroelectric potential, and investments in the sector were forthcoming, although with an initial delay. However, until 1995 nationalistic considerations excluded foreign capital from the electric energy sector, and regulatory obstacles prevented domestic private investment. The federal and state governments were therefore left with the task of expanding the generating capacity. As of the early 1990s, the government continued to control the sector's production end, as well as transmission and distribution, although privatization of the sector is under consideration.
Data as of April 1997
Brazil Table of Contents