U.S. Position on IDB Investments in

TermoMaranhão and Pécem Thermoelectric Power Plants, Brazil

March 20, 2009

The United States commends Brazil for an energy matrix that relies mainly on renewable,

clean resources. We support the country’s efforts to diversify its energy mix in order to

reduce its vulnerability to power supply shortages, such as the electricity crisis the

country faced in 2001-2002. We recognize that Brazil is a leader in developing clean

energy technologies, particularly in biomass production.

However, the United States abstains on both operations on energy and environmental

policy grounds.

The Bank proposes to finance subcritical technology coal power plants at a time when

cleaner, more energy efficient technology exists at little or no extra overall cost.

However, putting forward a subcritical coal power plant is fundamentally inconsistent

with the IDB’s recently unveiled energy vision as well as the IDB’s desire to increase

resources to support green growth in the region. This inconsistency is not resolved by the

agreement to offset a small fraction of the project’s carbon emissions.

The IDB says that the auction process through which the generation contracts were

awarded skewed the selection to subcritical designs and that the Bank entered too late to

influence project design. However, this raises the question of whether a development

bank should finance such projects if it cannot influence the design. A development bank

should be able to help overcome the policy failures that lead to the adoption of inefficient

technologies. In this case, IDB staff did not engage with the project sponsor and host

country government before project appraisal stage and determine whether any viable

supply- or demand-side alternatives would have met projected power demand.

While there are some important mitigation measures, notably requiring the plants to use

high-quality coal so that they can meet IFC emission standards for NOx and SOx, the

IDB has not fully developed monitoring and enforcement measures, nor does the plan

address mercury emissions. These measures are important because the IDB’s assessment

shows that the IFC emissions standards are barely met, so any change in the quality of

coal would mean the standards would be exceeded, with negative health consequences.

The United States is also concerned that the projects have not undergone sufficient

environmental and social due diligence. Surprisingly, the projects were originally

considered Category B, despite the fact that large thermal power plants are almost always

Category A, at least under World Bank guidelines. The projects only recently were

changed to Category A, and the project document says that the only difference concerns

public consultations. As a result, each project received only two public hearings, fewer

than the six required by the IDB for Category A projects. Moreover, the discussion of

alternative technologies in the EIA summary is not meaningful because it focuses on cost.
We would have voted no on these projects if not for Management’s efforts to fix what it

recognized as a serious problem in the technology choice and, moreover, Management’s

assurances to us that the Bank moving to end its financing of such projects in this

context. Therefore, we call on Management to confirm these intentions to the Board so

that it can truly embark on its new mission of green growth.