UPDATE 3-Brazil hit by new blackout, infrastructure in spotlight

Fri Oct 26, 2012 2:23pm EDT

* All of northeast left in the dark for up to four hours

* Blackout is latest in recent string of power shortages

* Business blames government for poor grid maintenance

* Brazil investing heavily to increase energy capacity

By Anthony Boadle

BRASILIA, Oct 26 (Reuters) - A massive blackout left as many as 53 million Brazilians in the dark late Thursday and early Friday, the latest in a string of energy shortages that have raised questions about whether Brazil's infrastructure is keeping pace with economic growth.

Officials said a fire in a substation in the Amazon knocked out the whole northeastern electricity grid in the region's worst blackout since 2001. The outage, which follows two other big blackouts in Brazil in as many months, lasted up to four hours in some places and brought major industries to a halt.

The blackouts come as soaring use of Brazil's old infrastructure is congesting cities and major highways, causing delays and shutdowns at some of its biggest airports, and creating chronic logjams at seaports and railyards.

The problems have cast doubt on the country's ability to accommodate economic growth in recent years and are prompting concerns Brazil will not be ready to host two major global sports events - the World Cup soccer tournament in 2014 and the 2016 Olympic Games.

"This is unacceptable for modern industrial production," said José de F. Mascarenhas, head of the Federation of Industries of Bahia State, in the region darkened by Thursday's failure. "It's a disaster and it's happening repeatedly."

Bahia's largest industry, petrochemicals, will not be able to restart for days, he added, lambasting the government for poor maintenance of transmission lines.

Meanwhile, residents across the 11 states hit by the blackout were left without air conditioning and ventilators. Many complained they could not sleep due to heat and mosquitoes.

Energy Minister Marcio Zimmerman, in comments to reporters on Friday, called the failure "a total collapse of the northeastern grid." He said the recent woes are "not normal" and called the second emergency meeting in five weeks.

Two previous blackouts darkened Brasília, the capital, and much of Brazil's southeast, including parts of São Paulo, the country's industrial and financial center. Though some government officials sought to characterize each outage as "isolated," both blackouts created shortages that affected consumers in areas beyond the site of malfunction.

As such, critics are once again questioning the strength of an overall system that President Dilma Rousseff, as energy minister in a predecessor government, helped oversee and which she promotes in her bid to modernize Brazil's economy.

SUPPLY AND DEMAND

Brazil went through a so-called "blackout crisis" in 2001 and 2002, when a drought limited the output of hydroelectric dams. In response, the government rationed electricity in certain regions, severely crimping economic growth.

While Brazil has invested heavily in electricity generation since then, it still has a long way to go. The government plans to build as many as 48 new hydroelectric plants by 2020 to keep up with the energy demands of rapid economic growth.

A decade of rapid expansion during the previous government of Luiz Inacio Lula da Silva saw many new industries built in northeastern Brazil, plus the lifting of 30 million Brazilians from poverty. The surge in usage of millions of new TVs, refrigerators and other domestic appliances strained supply.

Shortages of electricity have become more harmful for Latin America's largest economy since it slowed down a year ago.

"If you want the economy to grow at 5 percent per year you need to increase provisions of electricity by 5 or 6 pct per year. When you don't, you end up with blackouts and that's what's happening recently," said Neil Shearing, chief emerging markets economist with Capital Economics in London.

Energy policy has been at the forefront of Rousseff's efforts to boost growth. Last month she announced a major cut in electricity taxes in a bid to help boost industry and address the so-called "Brazil cost" - a mix of high interest rates, labor costs, onerous taxes and infrastructure bottlenecks that hamper competitiveness.

But critics say lowering energy costs for consumers could discourage private investment needed to increase Brazil's generating capacity by hurting the profits of electricity producers.

One sign of tight power supplies came last week, when authorities feared the grid could not cope with demand during the final episode of a popular soap opera. To be ready, they had thermoelectric plants on standby, ready to increase generation.

"Imagine what would happen if the lights went out in the middle of a World Cup soccer game," said a government official in Pernambuco, a northeastern state whose capital, Recife, is one of 12 cities that will host the tournament.

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