Cablegate: Brazil: Acting Mines and Energy Minister Hubner

DE RUEHBR #2176 3271904
R 231904Z NOV 07




E.O. 12958:N/A

1. (U) In a meeting with EconCouns, Acting Minister of Mines and
Energy Jose Hubner Moreira described his agency's role in energy
supply contracting, discussed mining concession processes, and
touched on the challenges of environmental legislation and working
with the states at the federal level.

2. (U) Hubner noted his ministry lets all contracts for thermal (15
year term) and hydroelectric (30 year term) supply projects. He
noted a 2004 law guides planning for future electricity needs
(following the 2001 electricity supply crisis). Supply is through
two models - regulated, through distribution companies that do
market projections for five-year supply needs, then the ministry
contracts for needed supply; and free, where a certain amount is
reserved for the private market to distribute. Contracts contain a
range of two to three percent flexibility in prices that may be
charged to account for market movements. Hubner asserted that, due
to better five-year planning (within the current Ten-Year Plan
2007-2016) under the requirements of the 2004 law, aversion of a
future crisis was assured. Planning is based primarily on
hydroelectric power and expanding existing facilities. He noted a
major drought could affect projections, but the Ministry attempts to
plan toward multiple scenarios. (2007 plan is on-line). (NOTE -
other experts widely predict a serious energy crisis, including
blackouts, somewhere between 2009 and 2016 in Brazil).

3. (U) On biofuels, Hubner noted his Ministry plays a role, along
with the Ministries of Agriculture, Science and Technology, and
others, but that the issue is actually centralized and organized in
the Casa Civil, who coordinates work of the ministries and organizes
the network of research efforts.

4. (U) On mining, the federal government owns all resources and does
not share revenues with the states. However, companies that win
mining concessions have to pay royalties (e.g. Petrobras pays the RJ
Government for oil exploration in the Campos basin) directly to the
state and/or municipality where the resource is located. Specific
rates are determined by the resource mined, rather than contract by
contract. Hubner noted that Congress is currently analyzing the
rates paid to states. Australia and Canada pay more to states;
Congress is interested in considering these models according to
Hubner. Hubner noted he had a meeting with the Congo (Kinshasha)
Mining Minister, who was seeking advice how to organize the mining
sector more effectively in Congo. Hubner was not enthusiastic about
Brazilian participation in the Extractive Industry Transparency
Initiative (EITI), saying too few countries are implementing to make
intensive Brazilian participation worthwhile.

5. (U) Hubner noted that unpredictable environmental legislation,
and the politics of energy and the environment, were challenges for
his agency. He mentioned a upcoming meeting with the governor of
Parana State, who had given and rescinded permission for the Tibagi
river hydroelectric project. Hubner hoped to convince him to let
the project go forward, but noted that the ability of many levels of
federal, state and municipal governments to block projects
previously approved at a higher level was a continuing challenge.

6. (SBU) COMMENT: Jose Hubner Moreira was previously the deputy
minister and before that was the chief of staff. He has been Acting
Energy Minister since May 2007 but is expected to be replaced
eventually by a Lula political appointee. He has a great deal of
technical expertise and also realizes fully the political need to
assert all is well in the sector in terms of future energy needs,
despite researchers and press analysis revealing a crisis remains a
possibility in the next several years. The Ministry's 10-year plan
states that the Ministry will contract sufficiently to cover energy
needs, but this does not guarantee that the infrastructure to
deliver these MWh will actually be in place if PAC power plants
projects are delayed. END COMMENT

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