Chile needs strong leadership for big projects: HidroAysen

SANTIAGO Wed May 22, 2013 3:14pm EDT

SANTIAGO (Reuters) - Chile needs a tighter political grip to help push forward embattled plans for crucial energy projects and avoid a power shortfall in the world's No.1 copper producer, the head of the massive HidroAysen power project said.

"Big projects require big leadership ... you need to explain to people what's needed to develop the country and the consequences of taking one decision or another, and in the end things get done," the company's executive vice president Daniel Fernandez said at the Reuters Latin America Investment Summit.

Environmental authorities and Chile's supreme court have given HidroAysen's five generating units the green light, but the giant complex planned in pristine Patagonia has faced stiff opposition by environmentalists who have brought it to a special ministerial group to be reviewed. That ministerial group has the project in a virtual limbo.

"We see no real reason for this not to get resolved," Fernandez said.

Opponents have slammed the project for its plans to flood large swaths of unspoiled land and have charged it will hurt the environment and tourism. Plans for a transmission line, which still have not been submitted to authorities, have also sparked public outrage over the potential environmental harm.

The 2,750 megawatt HidroAysen hydroelectricity project, several years behind its original schedule, has no chance of being ready in time to stave off a forecast power shortage in three years, but could do its part to meet growing demand and avoid another energy "crisis" in 2025, Fernandez said.

The Andean nation is seen needing to add some 8,000 megawatts of installed capacity by the end of the decade to its current 17,000 megawatts in order to keep up with rising demand.

Years of under investment in transmission lines and electricity generation, a destructive 8.8 magnitude earthquake in 2010, a long-running drought and drawbacks inherent to the country's long, string bean shape have compounded to debilitate Chile's power grid.

Large-scale energy projects also increasingly find themselves subject to a long-winded permitting process, as well as a tiresome series of lawsuits and legal proceedings, which often delay and even derail multi-billion dollar investments.

To name just some, Chile's top court rejected in August the planned $5 billion Central Castilla thermoelectric power plant, citing environmental reasons, nearly two years after President Sebastian Pinera asked to relocate France's GDF Suez's (GSZ.PA) planned $1.1 billion thermal power plant, a decision that all but killed the project.

The long delays also often contribute to inflated development costs.

HidroAysen, whose generating units alone were initially seen costing $3.2 billion, is now expected to require over $8 billion in investment, considering the transmission line, according to industry analysts.

"We don't give information on costs, but we're at a higher cost level, though that is still within limits that make the project feasible," Fernandez said.

Local industry chieftains have clamored for more energy to support growth plans, but popular discontent is high as some power projects are seen damaging the environment and aimed at supporting a copper mining industry which many feel has bypassed them.

A year ago, the board of Chilean power company and joint-venture partner Colbun recommended suspending the transmission line impact studies for HidroAysen amid challenging, unclear regulations. Generator Endesa Chile END.SN holds a majority 51 percent stake in HidroAysen, and Colbun COL.SN holds the remainder.

"If there is no grand political accord regarding (government plans for a state-owned transmission line) investments are going to remain paralyzed because no investor is going to start building if they don't know how energy is going to get carried to where it's needed," Fernandez said.

Chile's government has sent Congress a bill to create a public energy transmission line, which would make viable investments such as HidroAysen, or global miner Xstrata Copper and Australian energy retailer Origin Energy's $3.6 billion hydropower Energia Austral project.

"There has been no significant progress with the bill, it's been really slow and we're in an election year," Fernandez said.

Pinera's ruling right-wing coalition is seen as unlikely to deal with HidroAysen, a political hot potato, ahead of the November presidential election.

(Reporting by Anthony Esposito and Fabian Cambero; Writing by Anthony Esposito; Editing by Chris Reese)

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