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SPIC muses over US$533 million stake in Brazilian hydro plant
Newly-appointed Brazilian President Jair Bolsonaro recently lamented China’s buying spree, and this latest move highlights deep-seated and interconnected commercial interests
Michael Marray 7 Nov 2018

State Power Investment Corporation (SPIC) is in advanced talks to acquire a stake in the Santo Antonio hydro facility in the northern Brazilian state of Rondonia, according to local press reports.

The Santo Antonio Hydroelectric Plant was one of the first major Growth Acceleration Program (PAC) projects to begin operation. The concession to build and operate the facility was awarded to Santo Antonio Energia. The existing shareholders are Furnas Centrais Eletricas (39%), Caixa FIP Amazonia Energia (20%), Odebrecht Energia do Brasil (18,6%), SAAG Investimentos (12,4%) and Cemig Geracao e Transmissao (10%).

It is located on the Madeira River, around 7 kilometres from state capital Porto Velho, and is one of the largest hydroelectric plants in the Amazon region. It was launched as a strategic project to develop the northern region of the country and the State of Rondonia in particular.

However, the project is heavily indebted, and there have been talks with Brazilian development bank BNDES to restructure US$10 billion out of a total of US$14 billion in loans. Though maturities are likely to be extended, the interest rate on the loans is also likely to inflate, making the asset less attractive to some of the shareholders, who have been at loggerheads over the best way forward.

Brazilian financial press report that SPIC is offering to buy the Odebrecht, Cemig and SAAG stakes.

The offer is valued at US$533 million, giving SPIC 41% of the project. The stakes owned by state-owned Furnas and Caixa are not up for sale.

Furnas is indirectly administered by the federal government, linked to the Ministry of Mines and Energy and controlled by Eletrobras. With projects under way in nine Brazilian states and the federal district, Furnas has a complex comprising eleven hydroelectric and two thermoelectric plants, producing 9,910 MW of power, representing around 10% of the country's energy generation.

Caixa Participation Investment Fund (FIP) Amazonia Energia is an investment fund for the project, administered by the Caixa Economica Federal bank and managed by Valora Investimentos.

Odebrecht Energia Brazil focuses on the Odebrecht Organization's investments and operations in the energy production segment. Created in 2011, Odebrecht Energia has already accumulated more than 1,400 MW of power in renewable source projects in Latin America. Its portfolio of assets comprises hydroelectric plants, wind farms, a solar plant, biomass projects and Small Hydroelectric Centers (PCHs).

SAAG Investimentos features as majority shareholder Andrade Gutierrez Participacoes S.A., a Brazilian company with international participation in 15 countries, which operates in engineering and construction, telecommunications, energy and public concessions, and develops and executes major ventures in the areas of urban sanitation, civil works and integrated irrigation.

Cemig is controlled by the State Government of Minas Gerais. Comprising 40 companies and seven consortiums, the group focuses on electrical energy generation, transmission and distribution, also having investments in natural gas distribution and data transmission lines. It is one of the largest business conglomerates in the Brazilian energy sector, being responsible for about 12% of the electrical energy produced in the country, as well as operating in Chile.

Chinese companies are heavy investors in Brazil, and a large part of their investment has been in the energy sector, including the 2017 acquisition of CPFL Energia by State Grid Corp of China.

Shandong Electric Power Construction Corporation 1 (SEPCO1) is currently working on two segments of an ultra high voltage (UHV) transmission network. It is on schedule to deliver its two tracts, in southeast Minas Gerais state and the northeastern Tocantins state by February 2019, around three months before the contract deadline. This is the second UHV line in Brazil.

The 2,518 kilometre line will transmit energy from the Belo Monte hydroelectric plant in northern Para state to Rio de Janeiro. SEPCO1 was also involved in completing Brazil's first UHV transmission line, a 2,000 kilometre line running from Belo Monte to Sao Paulo.

Earlier this year, China State Grid Corp said that it would invest 140 billion real (US$38 billion) in Brazil over the next five years, including investments in transmission and generation. Investments in transmission will total more than 90 billion real.

State Grid's Brazilian unit is also looking at potential solar and wind power projects in the northeastern states of Bahia and Rio Grande do Norte, and in the south. The UHV transmission technology is highly efficient in connecting power generation facilities with population centres over very long distances.

Brazil recently held elections, and Beijing will be hoping that new President Jair Bolsonaro continues with policies that welcome Chinese infrastructure investment.

Bolsonaro struck a nationalist tone during his election campaign, articulating in an interview last month that power generation was a strategic sector, and that he would be wary of seeing some assets sold to China, adding that "China isn't buying in Brazil, it's buying Brazil".

Nonetheless, despite his rhetoric, a good relationship with China looks to be to Bolsonaro's advantage. China is the biggest buyer of iron ore and soybeans from Brazil, and can complete big infrastructure projects such as rail, ports and power transmission with the help of debt from Chinese banks.

After the election, Chinese Foreign Ministry spokesperson Lu Kang said at a news briefing that China is ready to work together with Brazil to safeguard and develop the China-Brazil comprehensive strategic partnership.

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