OCTOBER 1997 · VOLUME 18 · NUMBER 10

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T H E    W O R L D    B A N K

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PRIVATIZATION'S RELENTLESS SPREAD continues. The latest scheme of the privatization advocates: privatize rivers, by letting large corporations build, operate and own megadams traversing major waterways. In Latin America, governments are looking to private schemes to finance and operate a new generation of mega-dams. But plans for the first huge, privately financed hydroelectric dam in the region now appear to be running aground in a sea of growing political problems, raising questions about the viability -- and desirability -- of private dams.

The first privately financed mega-dam in Latin America is planned for the middle Paraná River in Argentina. The Paraná Medio Dam would be the thirteenth largest dam in the world, and would create the world's second largest reservoir, turning a rich wetlands ecosystem into a massive shallow inland sea of stagnant water and rotting vegetation. First proposed by a team of Soviet engineers in the 1970s, including those who supervised the construction of the Aswan Dam in Egypt, the proposal was revived in March 1996 by a consortium of U.S. companies called Energy Developers International (EDI). Now, determined local opposition and a new provincial law declaring the Paraná River a "dam-free zone" may mean rough water ahead for the Paraná Medio dam project.

THE CONSORTIUM, THE CONNECTIONS

The EDI proposal, received enthusiastically by President Menem, calls for the consortium to build a dam with a generating capacity of 3,000 megawatts. Paraná Medio would require construction of a 8.5 kilometer frontal dike over inhabited Chapeton Island, and a lateral "megawall" 240 kilometers long and 15 meters high between the cities of Santa Fe and Goya. Two north-south toll roads would be built, and the cities of Santa Fe and Paraná would be joined by a bridge crossing the river.

Menem issued a decree in December 1996 placing the project in the hands of the EDI consortium without public bidding, also awarding the environmental studies to the Jacksonville consulting firm Taylor Engineering.

Banks and private investors would put up the approximately $5 billion to $8 billion required for construction; Argentine taxpayers would not pay a cent, EDI claims. In exchange for building the dam, EDI would be granted a 50-year concession for electricity sales, principally to industries in Buenos Aires. EDI would also receive a 30-year license to charge tolls on the bridge it would build across the Paraná River, and the right to charge for passage of barges and other vessels through a series of navigation locks that would be part of the dam. After 50 years, the dam and its infrastructure would be turned over to the government of Argentina.

Energy Developers International (EDI) is based in Metairie, Louisiana. The consortium partners are New Orleans-based Avondale Industries, which would construct prefabricated steel modules for the plant; Houston-based Brown and Root, which would build roads, bridges, levees and infrastructure for the dam; and Baton Rouge-based Forte and Tablade, an engineering firm which would provide engineering design and project coordination.

To secure the Argentine government's support for the project, the consortium has employed high-level officials of the Bush administration, according to Argentine press reports. Among the consortium's lobbyists: former Treasury Secretary Nicholas Brady, now chair of Dillon Read, which would coordinate financing for the project; former Defense Secretary Richard Cheney, chair of the board of Halliburton, Brown and Root's parent company; and the ex-president's son, Texas Governor George Bush, Jr.

The consortium's political connections are more impressive than its construction qualifications. There are serious questions about Avondale's capacity and qualifications to construct the enormous Paraná Medio Dam. As a guarantee of the consortium's ability to carry out the project, an EDI brochure states that "the government of the United States will guarantee Avondale's investment since it is a Navy contractor which is transferring its technology to civil use." U.S. House of Representative Armed Service Committee officials say that no such guarantees exist.

To demonstrate its technical prowess, Avondale points to Sidney Murray, a much smaller structure it built in Louisiana using prefabricated modules. However, Avondale's reliance on its Sidney Murray experience to demonstrate its mettle for the Paraná-Medio Dam is something akin to a graduate engineering student applying to build a skyscraper based upon the fact he once assembled a backyard toolshed. The U.S. Army Corps of Engineers says that Sidney Murray "is an addition to an existing project [and] may be incomparable on an environmental impact level with the EDI project which will create an impoundment and change water levels in the river to generate power."

ENVIRONMENTAL INSANITY

The project is "madness," says Hector Dalmau, former Argentine environmental sub-secretary.

He and other project opponents cite an array of concerns to justify this claim. Flooding hundreds of fluvial islands, the project would create a several hundred kilometer long lake, the longest in the world, more than 15 meters deep. The lake would flood 760,000 hectares, inundating the habitat of 250 bird, 200 mammal and nearly 400 reptile and amphibian species. Flooding would also interfere with the reproductive cycle of 300 fish species. Currently, fish hatchlings are carried by the current to the middle Paraná, where they grow in sheltered wetlands until carried downstream by subsequent floods. The loss of reproductive areas could permanently affect fish populations along hundreds of kilometers of the river.

It is also likely that productive agricultural lands on the west bank of the river would become more saline, as a result of the rising water table, according to a study by the UN Food and Agricultural Organization.

The dam, which would submerge the wetlands along the middle Paraná, may create new flood problems in the area. The dam project would close the river behind a system of dikes, a flood control system far inferior to allowing wetlands to absorb high water. Recent experience with the Mississippi and Rhine rivers, where torrential spring downpours led to catastrophic flooding, largely because of the elimination of wetlands which absorb excess flood waters, illustrate the danger.

Flooding is also likely in Paraguay. The raised Paraná will prevent the neighboring Paraguay River from draining, says Hector Dalmau. Backed up, the Paraguay River is likely to flood bordering land.

All megadams bring enormous environmental costs, but the toll would be particularly high and unjustified for Paraná Medio, because it would flood such a large area and produce such a low proportion of energy relative to amount of land flooded. The dam would produce only 3.57 kilowatts per hectare flooded, a very small quantity of electricity compared to the enormous area of impact. By way of comparison, the controversial Yacyretá Dam upstream would produce as much as 19.77 kilowatts per hectare and the Itaipú Dam, also on the Paraná, would generate more than 93 kilowatts per hectare, if they operated at design capacity. Project proponents say the dam would bring advantages besides the energy generated, claiming for example that the project would create 10,000 construction jobs. However, as many as 30,000 permanent jobs in ranching, rice farming, fishing tourism and forestry might be lost as a result of ecological changes resulting from the construction of the dam. Forty percent of the lands to be submerged are currently used for cattle grazing during the low water season. One hundred thousand tourists visit the river area annually, pouring $5 million to $10 million into the regional economy annually. They are likely to stay at home, or travel elsewhere, however, after construction of the project's 15-meter-high dikes, which would block the river's visibility from coastal towns.

There would be other social and economic costs. Ports along the river would have to be rebuilt or moved. The public treasury would have to pay for health, sanitation, education and welfare expenses caused by changes in the social fabric of the region. Recent studies have linked the spread of previously controlled diseases such as dengue fever, schistosomiasis and malaria with the construction of dams in the Paraná basin.

A BREACH IN THE DAM PROJECT

"Paraná Medio has been, for us, a story without end," says Jorge Cappato, of the Fundación Proteger, one of the environmental organizations which has led the growing and increasingly successful movement against the project. "What has been noteworthy," explains Cappato, "is that many of those people who have taken part in the campaign against Paraná Medio live near the Yacyretá and Salto Grande Dams, and recall the promises made when the dams were built. Now, they are forced to live every day with the perverse results of these projects."

In 1996, a group of fisherfolk from the area made a 1,000 kilometer journey in canoes from the problem-ridden Yacyretá Dam upstream to Santa Fe to protest the proposed Paraná Medio project. Later, thousands rallied at public events in Santa Fe and Paraná, Argentina to call for a halt to the dam plan.

In February 1997, the opposition began to make itself noticed and the Paraná Medio juggernaut began to spring leaks. In response to a suit brought by environmentalists and legislators, an Argentine federal judge suspended the presidential decree which had given the go-ahead for project studies. The judicial order has since been upheld by a federal appeals court.

Following months of lobbying by environmentalists and fisherfolk associations, the parliament of Entre Rios, one of the two Argentine provinces which would be affected by the dam, passed a law this past September forbidding new dams on the Paraná and neighboring Uruguay Rivers. A similar law is now being debated in the Santa Fe provincial legislature.

"This has thrown a real boomerang into the business" says H.W. "Bill" Bailey, president of Energy Developers International. "It will be necessary for the government of Argentina to get the three provinces into line. Unless a firm hand is applied, ... it will be impossible to go ahead." According to Bailey, the timetable for Paraná Medio is now "indeterminate," but he says that EDI is proceeding with selection of the firms that will carry out the engineering and environmental feasibility studies.

THE STRUGGLE TO BLOCK
THE DAM INDUSTRY

Whatever the ultimate fate of the Paraná Medio project, dozens and perhaps hundreds of new private dam project proposals in Latin America are just around the bend. Aluminum and other energy-intensive industries are expected to attempt to take advantage of weak environmental regulations and the lack of enforcement of environmental protection laws to seek to dam some of South America's major river systems.

Brazil, which currently gets 95 percent of its electricity from large dams, plans to offer 116 new dam projects to private bidders over the next seven years. One of the most controversial of these projects is the 11,000 megawatt capacity Belo Monte Dam on the Xingu River in the Brazilian Amazon, which would flood the Kayapó and Arara indigenous reserves. Shelved in the late 1980s following an uprising by the Kayapó and an international mobilization against the project, Belo Monte is scheduled to be re-offered to private investors in 1999.

There is considerable uncertainty as to the financial viability of the new private dam projects. Given that large dams may take 10 to 20 years to be completed, it remains to be seen whether investors will be willing to bank on the current explosive growth in energy demand continuing.

There is little doubt, however, that the future private dam projects will generate grassroots opposition similar to that which appears poised to defeat the Paraná Medio project. With decisions on how to manage, use and protect rivers and river ecology systems consigned to the marketplace and removed from the at least ostensibly democratic political sphere, opponents will face difficult challenges. Local opponents of large dams not only need to develop the technical capacity to provide sound arguments against future projects, they must campaign to keep rivers under public and democratic control. Ultimately, to undercut the privatization impulse, they will need to develop proposals for alternatives to the current model of electrical energy generation in Latin America.