For people opposing the construction of the Belo Monte hydroelectric dam in Brazil, the blockbuster film Avatar struck a chord. In the movie, a corporate-driven government from Earth threatens a lush, alien planet to extract precious metals. In real life, a government — in this case, that of Brazil — threatens to uproot thousands of people, mainly subsistence farmers and some Amazon tribes. It's not as dramatic, and surely not as violent, as the Hollywood blockbuster. But opposition to Belo Monte has been sufficient enough to stall the project for years.

Belo Monte has been on the drawing board since 1975. Back then, planners dreamed of a massive reservoir that would have flooded thousands of acres along the Xingu River in Para, a large Amazon state in the northern part of the country. Under the original blue print, it would have rivaled the Itaipu dam, the world's largest at the time, located in south Brazil along Iguassu Falls. China's US$15.5 billionThree Gorges dam is larger today, with nearly twice the generation capacity of Itaipu's 14,000 megawatts. In 1994, government energy planners in Brazil, pressured by various indigenous tribes, reduced the size of Belo Monte and the project sat in a drawer for four years.

But it recently started looking attractive again. In 2009, following an environmental impact study, Ibama, the environmental protection agency, granted a preliminary license to allow the project to be auctioned, on the condition that the winning bidder guaranteed to build it at the lowest possible energy cost to consumers. After numerous fits and starts, which included a few big companies like power company Cemig and construction majors Odebrecht and Camargo Correa opting out of bidding, the energy regulator Aneel held the auction in April last year.

An 18-member consortium called Norte Energia, comprising government-owned electric power holding company Eletrobrás and a handful of state pension and private investment funds, won the auction that lasted less than 10 minutes. Norte Energia agreed to build the dam based on R$78 per megawatt hour, or US$45.88 per mw/h.

On April 20, the day of the auction, a Folha de Sao Paulo poll of the public showed a slim 52% majority in favor of the dam. But in late August, when Aneel made Norte Energia's 30-year operation of the dam official, the dam wasn't looking like a shoo-in after all.

Non-governmental organizations (NGOs) attacked. Avatar actress Sigourney Weaver got involved. James Cameron visited the region. And local bishop Erwin Krautler — subsequently awarded an alternative Nobel Prize called the Right Livelihood Award for his opposition to the dam — called Belo Monte a "death sentence" for the 20,000 people forced to move or see some of their farmland flooded.

In October, federal prosecutors, like Felicio Pontes, requested that Ibama not grant the all-important installation permit until all of the agency's 40 conditions were met. "The vast majority of Ibama's conditions have not been met and I doubt they can be met because Norte Energia doesn't yet have the money to meet them," Pontes stated. Indeed, according to a report Ibama published in October, at least 23 conditions have not been met.

As it stands currently, Belo Monte has nine civil suits in federal courts in an attempt to stop Ibama from granting the second permit. There's also an anti-Belo Monte movie out by James Cameron, called Message from Pandora, which was released in November. But proponents, such as the region’s biggest development bank, Brazil’s National Economic and Social Development Bank (BNDES), says the 11,200-megawatt hydroelectric dam is “important” for the country’s future energy needs. The government also cites its ability to provide energy security for the poor northern state.

Banking on a Cleaner Future

Nelson Siffert, BNDES’s director of infrastructure, says Belo Monte points out that energy demand has been growing beyond the country’s gross domestic output — so if GDP rises 7% annually, energy consumption has risen an average of one percentage point higher, or 8%. He says the bank is conducting its own economic feasibility and environmental impact studies on Belo Monte. If the project comes in too costly, the bank could use project finance bonds to tap the private debt market. By law, BNDES cannot fund more than 75% of a project.

Brazil’s geography is perfect for hydroelectric dams, with many plateaus and plains that force strong rivers at higher elevations to race down to lower elevations. There are a lot more opportunities to build hydroelectric dams in Brazil, and most of them, Siffert says, are along the rivers of the Amazon. “Ibama has rigorous environmental standards. We have our own rigorous standards. We are not going to finance Belo Monte until Ibama says Norte Energia has its installation permit,” he says.

BNDES’s loans are based on long-term revenues, and Siffert says studies so far show that Belo Monte will be a money-maker. Projects can’t run over a 1.2 debt-service ratio during their operational lifetime.

BNDES has funded R$140 billion of development loans in 2009 and again in 2010, more than the Inter-American Development Bank and the World Bank combined, Siffert says. Infrastructure projects like Belo Monte account for 35% of its credit portfolio. Between 2003 and 2010, it financed 400 energy projects, 300 of them on the generation side and over 30 in wind power and biomass. Around half were project finance deals. Belo Monte will not get built without BNDES.

“We know Belo Monte is a big endeavor, but if we go ahead with it, it is because it is going to have a return on investment and be good for society,” he says. “None of our investments in power generation have ever defaulted. Hydropower is where BNDES prefers to be.”

Until the 40 conditions required by Ibama are met, Siffert says the bank is considering a bridge loan. Norte Energia needs R$2 billion just to start meeting the installation license demands, according to the company. It’s having trouble finding that money.

Norte Energia's CEO, Carlos Nascimento, spoke with Para state officials and Brazilian senators in early December, asking for a “temporary solution” to its funding problem. The opposition, mainly Para federal prosecutors, local tribes and subsistence farming groups, like the Xingu River Forever Movement, and big international NGOs, like International Rivers and Amazon Watch, are worried that Ibama will be forced by ministerial heads at the executive level to grant Belo Monte a partial installation license. As of mid-January, that had not happened.

But on January 12, Ibama president Abelardo Azevedo resigned unexpectedly after less than a year in the job. His predecessor, Roberto Messias, had also stepped down, citing in April last year pressures from both government and environmentalists in the Belo Monte debate.

The Big Promise

For the most part, Brazil takes the Amazon and its preservation seriously. Deforestation is happening, but less and less thanks to more non-farm jobs and greater patrol and control by Ibama as well as federal and state police authorities, according to Ibama. Yet the region is home to millions, including the 1.8 million people who live along the Amazon River in Manaus, according to the country's 2010 census. Over the last 10 years, some 400,000 people have moved to that city, putting pressure on the environment and energy resources. Brazil's government has to power their homes somehow, and it prefers hydroelectric power.

"Our priority is hydroelectricity and always will be," interim Energy and Mining Minister Marcio Zimmerman told reporters in May. "Cheap energy is going to be a key driver to developing the region."

Brazil's energy policy is often touted as one of the cleanest in the world. Around 75%of the country’s generation capacity comes from hydroelectric dams. The Itaipu dam is so large and efficient, it powers around 18% of Brazil and 77% of Paraguay, according to Itaipu Binacional, the dam's owners. On average, around 90% of Brazil energy consumption is provided by low-cost hydroelectric dams, Siffert of BNDES says.

Belo Monte is part of the government's big picture strategy: To develop the north, mainly through mining, connect the northern power grid to the rest of the country (it is now separate) and increase cheap hydroelectricity in a region accounting for nearly all of Brazil's extreme poverty.

The wild west Para towns of Altamira, Anapu and Vitoria do Xingu — which will be most affected by Belo Monte in terms of number of habitants forced to relocate and cities that will see an influx of new residents as development becomes plausible — are relatively poor and highly uneducated.

In terms of the socioeconomic conditions where Belo Monte will be built, roughly 15% of the people in those regions have between nine and 11 years of schooling. Only 2.5% graduated high school in Altamira, the largest city with over 105,000 inhabitants calculated by the census this year, 35% more than in 2000. Smaller schools often have children of various grade levels in the same classroom. Most homes do not have functioning sewage. One of Ibama’s conditions is for Norte Energia to improve healthcare infrastructure and build basic sanitation like running water and sewage.

The biggest growth in population, and the biggest demand for electricity, according to the agency, Aneel, and the EPE, a government energy research organization, is in the north and northeast. By comparison, the population of Brazil's largest city of São Paulo grew 8% between 2000 and 2010 to 11.4 million. The north is growing faster as north-friendly politicians invest in development.

The environmental impact study estimated that 41,000 jobs will be created during the 10 years of construction, including 18,700 direct and 25,000 indirect jobs, according to a government fact sheet on Belo Monte. People are already moving in, registering for employment, according to the National Employment Service offices in Altamira, Para.

"Any kind of project of this magnitude has trade-offs. Cleaner fuel is a positive that goes on one side of the ledger, but social and environmental impact goes on the other side," says Eric W. Orts, professor of legal studies and business ethics and director of the Initiative for Global Environmental Leadership at Wharton. "You can't say all hydroelectric dams are good, or all hydroelectric dams are bad. Brazil has to do its checks and balances to see if the tradeoffs are mostly positive than negative."

Belo Monte is arguably the most important project in the government's Accelerated Growth Program, a development program consisting of public-private partnerships to develop infrastructure. Belo Monte is the biggest of them all, with a budget no one seems able to agree on.

Building Belo Monte

Belo Monte requires three super structures to be built: The main dam, where a seasonally full Xingu River will pass through 18 turbines to generate electricity, a power station and a spillway. According to the EPE, it will need over 827,000 metric tons of cement and inundate around 516 square kilometers of land. No indigenous lands will be flooded. Others will, and its inhabitants will have to be relocated and compensated for their loss of property. Two large canals will be excavated to pull the river in a different direction, away from the dam.

The diversion of the Xingu will cause around 100 kilometers of the river, where the dam will flood water through its turbines, to be greatly reduced. Norte Energia will have to guarantee that the waterways, which connect Amazon tributary Bacajá River to the Xingu, have a minimum amount of water to keep the river from drying out in the dry season. This will render Belo Monte non-operational for a number of months throughout the year, says Siffert. That means, on average, Belo Monte will produce around 4,300 megawatts and nowhere near its operational capacity of more than 11,000. However, even when not firing at full capacity, Belo Monte will have the capacity to power all of Para state, according to a 2009 study by Eletrobrás, Odebrecht, Camargo Correa and Andrade Gutierrez.

Norte Energia has to build at least 500 homes in Altamira for some out-of-state workers during the estimated five-year construction phase. In Vitoria do Xingu, another 2,500 homes as well as three warehouses are required to house an estimated 16,000 local workers laboring deep along the river, hours from home. They also have to build four power sub-stations to keep the power on in the areas in the vicinity of the construction. What's more, Norte Energia has to find a place to dump around 150 million cubic meters of dirt and 60 million cubic meters of rock.

Estimated social and environmental reparations are nearly R$4 billion. It’s not a small amount, but Belo Monte is not a small endeavor. In early November, the country’s Finance Ministry was granted a provisional measure — known as MP 511 — that permits the Treasury to guarantee deep-pocketed BNDES loans that may be too risky. It was used immediately for BNDES’s funding of the Sao Paulo-to-Rio de Janeiro bullet train. “The recent measure … could be hiding the fact that there are worries about BNDES's high credit risk related to Belo Monte, too,” says Zachary Hurwitz, an Amazon program consultant at International Rivers in California. International Rivers opposes Belo Monte.

“You can see the pension funds involvement in Norte Energia as a major step in moving some of the risk," he says. "From a management and loan perspective, there are a lot of positive lessons to be learned in how Brazil managed to survive the global recession so well, but also negative lessons in terms of when to take their foot off the pedal — too much spending is not a good thing. And much less when it utilizes retirement accounts to back a project of this enormity."

Would this project ever have seen the light of day had the government not been so heavily vested? "My concern is that there's a very high risk classification for Belo Monte that nobody's able to see due to the huge government spending,” he says.