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Uncertainties in Amazon hydropower development: Risk scenarios and environmental issues around the Belo Monte dam

Wilson Cabral de Sousa Junior
Professor, Instituto Tecnologico de Aeronautica, São José dos Campos, SP, Brazil;
John Reid
Executive Director, Conservation Strategy Fund, Sebastopol, CA, USA;

ABSTRACT: The Amazon region is the final frontier and central focus of Brazilian hydro development, which raises a range of environmental concerns. The largest project in the Amazon is the planned Belo Monte Complex on the Xingu river. If constructed it will be the second biggest hydroelectric plant in Brazil, third largest on earth. In this study, we analyse the private and social costs, and benefits of the Belo Monte project. Furthermore, we present risk scenarios, considering fluctuations in the project'€™s feasibility that would result from variations in total costs and power. For our analysis, we create three scenarios. In the first scenario Belo Monte appears feasible, with a net present value (NPV) in the range of US$670 million and a rate of return in excess of the 12% discount rate used in this analysis. The second scenario, where we varied some of the project costs and assumptions based on other economic estimates, shows the project to be infeasible, with a negative NPV of about US$3 billion and external costs around US$330 million. We also conducted a risk analysis, allowing variation in several of the parameters most important to the project'€™s feasibility. The simulations brought together the risks of cost overruns, construction delays, lower-than-expected generation and rising social costs. The probability of a positive NPV in these circumstances was calculated to be just 28%, or there is a 72% chance that the costs of the Belo Monte dam will be greater than the benefits. Several WCD recommendations are not considered in the project, especially those related to transparency, social participation in the discussion, economic analysis and risk assessment, and licensing of the project. This study underscores the importance of forming a participatory consensus, based on clear, objective information, on whether or not to build the Belo Monte dam.