Belo Monte's Public Finance: Red Hot & Risky

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Aluminum smelting Aluminum smelting(Aguirre/Switkes/Archive)

In a recent interview with the Financial Times, Brazilian Finance Minister Guido Mantega stated that the Brazilian economy is doing so well despite the global economic crisis that the government must limit public spending in order to avoid "overheating." Yet public spending for the hydroelectric and mining sectors is red hot, and risks burning a hole right through Brazil's public image as a leader on climate change. 

The Brazilian government is planning to finance as much as 80% of Belo Monte’s massive US$12-16 billion price tag using public funds. To do this, the government is moving capital from public pension funds Funcef, through the Service Time Guarantee Fund of the federal savings bank Caixa Federal; Previ, which provides pensions for workers of Banco de Brasil; and Petros, which manages pensions for workers of Petrobras.  In addition, they are injecting huge amounts of money from the Workers' Insurance/Compensation Fund and the National Treasury into national development bank BNDES.

Why is the government subsidizing a supposedly “private” project to such a huge extent with funds meant for the public good? It’s because private investors are too wary of Belo Monte’s incredibly high risks.  Because of the extreme seasonality of the Xingú river, the dam will only produce 10% of its capacity during the dry summer months in the Amazon. That’s a big risk for such a costly project. Then there’s the geological risk, a major pitfall for big dam projects. No one knows how the earth will react to the two massive 75km by 500m canals to be dug into the ground to divert water from the main reservoir to the secondary reservoir, since geological data are missing from the project’s environmental impact studies.  Meanwhile, the public image of companies and banks involved in building Belo Monte will be heavily tarnished since the project has gained international notoriety over its destructive impacts on indigenous people. 

Senator Flexa Ribeiro of Pará, President of the Senate Commission on Belo Monte and accused of corruptionSenator Flexa Ribeiro of Pará, President of the Senate Commission on Belo Monte and accused of corruptionarchive

To try to calm investors' nerves, the government has formed a Senate commission to "monitor Belo Monte" during its implementation.  Yet, 7 out of the 10 senators on the commission are in bed with industry and face corruption charges from previous development projects.  An independent monitoring team made of expert scientists is surely needed.

Another reason for all this public financing is that mining and energy companies had been accustomed to consuming large amounts of cheap Amazonian hydroelectricity to power mining operations such as iron, copper, gold, and bauxite, which provides the raw material for aluminumTucuruí dam was built to power the world’s largest iron mine, Carajás, operated by mining giant Vale.  And today is no different.  25% of all electricity in Brazil is consumed by eight mining and energy companies– Alcoa, ArcelorMittal, Camargo Corrêa Energia, CSN, Gerdau, Samarco, Vale, and Votorantim– and some of these same companies want in on Belo Monte to expand their extractive operations.

Yet because of the global economic crisis, demand for metals has fallen in the US and Europe, speculation on the spot market has made world metals prices unstable, and it’s no longer as cheap to produce aluminum in Brazil as it once was.  Vale recently sold off its aluminum manufacturing operations at Alumar, Alubrás, and Paragominas to Norwegian state-owned company Norsk Hydro.  With the sale, Vale will extract the bauxite and sell it to Norsk Hydro to produce aluminum for cans and cars.  The Norwegian government, meanwhile, is also the largest donor to BNDES' Amazon Fund, the bank's massive carbon fund that receives direct donations in exchange for funding conservation efforts.  What one hand gives, the other taketh away; while Norway buys green credibility by donating to the Amazon Fund, it also invests in aluminum production at some of the dirtiest mines in the entire world.

Let's be clear: Amazonian history has shown where large hydroelectric dams go, large mining operations follow.  With Belo Monte, the Amazon is going to look a lot more like the Alberta tar sands than the sea of forest and freshwater that so many cherish for its life-giving properties.  And with the possible approval of a law that would allow for hydroelectric dams and mining on indigenous and protected lands, Belo Monte will be just the first in this next phase of Amazonian destruction.

Oh yeah, the Brazilian economy is hot, alright.  And because of Brazil’s public spending on dams and the expansion of mining, risks to the Amazon and the climate will only get hotter.

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