Multimedia Mania/abacus-multimedia-mania.iso/dp/0013/00133.txt

Text File | 1993-07-27 | 30KB | 479 lines

$Unique_ID{bob00133}
$Pretitle{}
$Title{Brazil
Chapter 3C.   Industry}
$Subtitle{}
$Author{Darrel R. Eglin}
$Affiliation{HQ, Department of the Army}
$Subject{percent
billion
alcohol
million
tons
brazil
production
project
fuel
oil}
$Date{1982}
$Log{}
Title:       Brazil
Book:        Brazil, A Country Study
Author:      Darrel R. Eglin
Affiliation: HQ, Department of the Army
Date:        1982

Chapter 3C.   Industry

     Contemporary studies point to the last decade of the nineteenth century
as the beginning of Brazil's industrialization, but such dating is
somewhat arbitrary. In the 1880s, for example, over 300 industrial firms were
established. By 1890 there were more than 50,000 industrial employees, and the
first hydroelectric power plant was in operation. In the earliest industrial
census-1907-there were over 3,000 industrial establishments with a total of
over 150,000 workers. The 1920 census recorded 13,000 plants and shops
employing about 275,000 workers. By 1920 manufacturing was well established,
providing 64 percent of the supply of manufactured goods; imports provided the
remaining 36 percent. Manufacturing was concentrated in textiles and food
processing, and imports of such products were below 10 percent of the total
supply.

     During the 1920s industrialization slowed. Between 1919 and 1932
manufacturing output increased about 1.5 percent a year. Government attention
and funds were concentrated on the support of coffee prices. Nonetheless, the
metallurgical and chemical industries made substantial gains. An integrated
steel plant, for example, began operation in 1925 to supplement the existing
charcoal-fired blast furnaces. In the mid-1920s the cement industry was
established. By the late 1930s Brazil supplied virtually all of its
requirements for pig iron and cement.

     Government policies during the Great Depression curtailed imports,
stimulating rapid industrial expansion. Between 1932 and 1940 manufacturing
output increased an average of 11.8 percent a year, but expansion slowed to
5.4 percent a year during World War II because of limited access to equipment
and raw materials. By 1950 the country had 83,000 industrial establishments
employing a total of nearly 1.3 million workers. Textiles and food processing
had declined to about 50 percent of the value of industrial production,
reflecting the expansion of the industrial base. The government established
some important firms in manufacturing-justified on the grounds of strategic
or national significance-such as the Volta Redonda steelworks, as part of the
long-term development of an integrated steel industry. A number of
multinational businesses established large manufacturing and assembly plants
in response to government efforts to adopt advanced technology and broaden
industrial capabilities.

     Industrial output has increased an average of about 9 percent a year
since shortly after World War II. Industrialization was the cause for much of
the impressive economic growth during this period. In the 1980s the growth
of industry will largely determine conditions in the rest of the economy and
the degree of prosperity for much of the population.

Energy

     Industrialization required a huge growth in energy consumption and a
drastic change in sources. At the end of World War II the bulk of Brazil's
energy was supplied by firewood, charcoal, and bagasse-the woody residue of
sugarcane processing. Industrialization, with particular emphasis on the
automobile and other internal combustion engines as well as a huge
roadbuilding program, was adopted in an era of cheap energy. In little  more
than a generation, compared with centuries in Europe, Brazil leaped from a
wood-burning to an oil- and electricity-based economy. The rapid rise of
energy costs in the 1970s caught Brazil in a vulnerable position because of a
deficiency in fossil fuels. In 1979 oil products supplied about 41 percent of
the country's primary energy; hydroelectricity, 28 percent; and coal, wood,
bagasse, and alcohol, 31 percent. Government energy policy after the first oil
crisis in 1974 focused on conservation and maximum efficiency in the use of
energy; search for and exploitation of domestic energy sources; and
substitution of domestic energy, particularly renewable sources, for imported
supplies.

     Oil was first discovered in Brazil in 1939. Proven oil reserves were
small, amounting to about 1.7 billion barrels in 1982, plus about 400 million
barrels equivalent of natural gas. The crude oil deposits were mainly located
in the Northeast and Southeast. In 1981 domestic oil consumption was about 1
million barrels per day (bpd). Domestic production averaged close to 250,000
bpd, leaving the country dependent on imported crude for above 75 percent of
total supply. The domestic production goal for 1983 was 300,000 bpd. In 1981
imported fuels (the bulk of which was crude oil) cost US$11 billion, 50
percent of total imports. Exports of small amounts of surplus refined products
amounted to about US$900,000.

     A near monopoly in hydrocarbons (exploration, production, importing,
refining, and transportation of petroleum and natural gas) was granted the
national oil company, Petrobras, created in 1953 in response to a wave of
nationalism. The largest Brazilian corporation, it was primarily a
government-owned (federal and other levels) holding company operating through
numerous subsidiaries. Petrobras, or its subsidiaries, conducted exploration
and oil field development at home and abroad; produced, imported, and refined
crude oil; owned petrochemical plants that produced a variety of products,
such as chemical fertilizer; and carried out transportation and distribution
of crude oil and products. In 1977 Petrobras began negotiating exploration
contracts with foreign oil companies to obtain technology and financing to
speed up the search for oil, particularly offshore. These contracts again
allowed foreign oil companies to operate in Brazil's territory, although
under controlled conditions and in limited areas. Modest new fields were
discovered, which permitted a gradual growth in crude oil production in the
early 1980s.

     After the formation of a national energy policy, officials managed small
reductions in petroleum consumption. Oil price increases were passed on,
diminishing the use of vehicle fuel. Conversion of some industries to the use
of coal or other oil substitutes contributed to lower consumption. The
combination of conservation, substitution, and greater domestic production
reduced the country's dependence on imported oil from around 80 percent in the
late 1970s to 75 percent in 1981, but it was recognized that the
possibilities in such programs were limited.

     Much more hope and effort went into a unique plan formulated in 1975 to
substitute domestic alcohol for imported fuel in vehicle use. The national
alcohol program (called Proalcool) was a bold attempt to use available skills,
equipment, and other resources to produce a substitute fuel from renewable
sources; it was the world's first large-scale substitution effort and was
watched by many other countries. The initial program concentrated on alcohol
as a substitute for gasoline, but in the 1980s research and experiments were
under way to produce a substitute for diesel-engine fuel from various
vegetable oils. Brazil had experience dating back to the 1930s in using
alcohol as a mix with gasoline for automobile fuel.

     Briefly, Proalcool planned the production of 10.7 billion liters of
alcohol by 1985 to substitute for the equivalent of about 148,000 barrels of
petroleum per day. Planned alcohol production would supply about 45 percent of
projected automobile-fuel consumption in 1985, compared with about 20 percent
achieved in 1980. According to the plan, the alcohol would supply about 5
percent of the nation's energy requirements in 1985. The program's estimated
cost between 1981 and 1985 would exceed US$7 billion in 1980 dollars. In 1980
an earlier goal was met in which 3 billion liters of alcohol would substitute
for about 20 percent of the gasoline used as automobile fuel.

     Brazil has long produced alcohol for chemical use and has the capability
to produce the required distillation equipment as well. After the first oil
crisis, alcohol production rose more than sevenfold-from 0.6 billion liters in
1973, to 3.4 billion liters in 1980, and to 4.3 billion liters in 1981. The
increase went into automobile fuel, which rose from about 14 billion liters in
1973 to over 16 billion liters in 1980. Projected consumption of automobile
fuel (gasoline and alcohol) in 1985 is over 20 billion liters, of which an
estimated 11 billion liters will be gasoline, 6.5 billion liters will be
hydrous alcohol, and nearly 3 billion liters will by anhydrous alcohol.
Hydrous alcohol is used in cars built or converted to burn an
all-alcohol fuel; anhydrous alcohol is blended (up to 20 percent with
gasoline.

     In the 1970s the government required that a portion of the cars produced
be capable of burning an all-alcohol fuel. Licensed garages were approved to
convert existing cars to use hydrous alcohol. Distribution facilities for
alcohol fuel were developed. For several years all-alcohol fuel was
substantially cheaper than gasoline, but in the early 1980s it was raised to
about 60 percent of the price of gasoline. Sales of cars to burn hydrous
alcohol increased sharply in the late 1970s, reaching 77 percent of all car
sales in December 1980. Sales of alcohol-fueled cars dropped precipitously in
1981 but picked up in 1982. An exact number was unavailable, but in 1982 about
one-half million cars were alcohol fueled.

     Hydrous alcohol has about 40 percent fewer calories than gasoline, but
motors using it burn only about 20 percent more fuel because it is more
efficient. It is corrosive, however, requiring special treatment of the
components of the fuel system. By 1982 research reportedly had developed
processes that remedied most of the problems. Experts expected that sales of
alcohol-fueled automobiles would remain around 200,000 a year in 1982-84,
about one-third of annual new car sales.

     In 1982 a slowdown in the alcohol program appeared likely. Not all
officials were convinced of its practicality. When funds became tight, help
for industrial and agricultural projects related to the program was slowed.
Expansion of the sugarcane acreage was less than that needed to meet the 1985
goal. By 1982 contracts for alcohol production facilities had been approved
for a total capacity of only 8.9 billion liters. As a result, experts believed
that alcohol production in 1985 would probably amount to about 7 to 9 billion
liters instead of the planned 10.7 billion liters.

     Proalcool experienced considerable criticism, partly because sugarcane
provided over 90 percent of the raw material for the production of alcohol up
to 1982. Numerous other crops and woody plants could yield alcohol, although
the technology for some was not ready for commercial application. Considerable
research was being devoted to improve processing of biomass feedstocks for
alcohol yields. The more immediate and threatening problem was that Proalcool
was attracting fertile farmland away from food production. Manioc, a tuber
believed to come originally from the Amazon region, supplied a minor part of
the alcohol feedstock. Greater use of manioc would have been more satisfactory
in social terms. It grows in poor soils, would provide small farmers a cash
crop, would allow distilleries to work a full year instead of only a half
year, and would not add to the regional disparity of incomes that sugarcane
did; but valid economic and practical reasons made sugarcane the original
predominant feedstock (see Agriculture, this ch.). Critics also argued that
sugar would be exported when world prices were high, diminishing the material
for and supply of alcohol for fuel.

     According to critics, the alcohol program was introduced quickly in
response to a serious threat to the economy and the country's development
strategy and with inadequate preparation and research. It proved costly in
terms of incentives and subsidies for the retail price of alcohol fuel, but by
1983 substantial substitution had been achieved for imported petroleum.
Adjustments and refinements in the program seemed likely in the 1980s, based
on the experience gained. Scrapping the program seemed less likely, however,
if national security considerations were as important in adopting the program
as many observers believed.

     The country's numerous rivers provided the greatest potential energy
source. By 1980 hydroelectric sites had been located that were capable of
powering generators of about 213 million kilowatts of capacity and that could
produce about 933 billion kilowatt-hours per year. By 1980 about 24.1 million
kilowatts of hydro-generating capacity had been installed. Another 23 million
kilowatts of capacity was scheduled to be installed by 1990. In 1980 some 86
percent of installed electric-generating capacity and 92 percent of the total
electricity produced (137 billion kilowatt-hours) were from hydroelectric
generators. Brazil had slight opportunity to conserve on the use of petroleum
products in the production of electricity since hydro stations were the
overwhelming source.

     The world's largest hydroelectric project, the Itaipu Dam, was scheduled
to begin operation in late 1983. The dam, a joint project between Brazil and
Paraguay, blocked the Rio Parana where it becomes the border between the two
countries (see fig. 3). The dam, nearly 10 kilometers long and 200 meters
high, was completed in 1982 after seven years of construction. It will begin
operation in late 1983 with two 700-megawatt generators. Additional generators
will be installed later in the 1980s with an eventual capacity of 12,600
megawatts. Total cost was expected to be above US$18 billion (in early 1980
dollars). Brazil provided much of the equipment for the project. Brazil and
Paraguay will share the electricity produced, but it was expected that Brazil
would purchase a considerable part of Paraguay's share. Half of the power
generated will be at 60 cycles per second for Brazil's system and half at 50
cycles for Paraguay's system.

     A second large hydroelectric project, the Tucurui Dam on the Rio
Tocantins in the Amazon Basin some 500 kilometers southwest of Belem, was
scheduled for operation in 1984. The first stage called for 4 million
kilowatts of generating capacity to be installed between 1983 and 1985 with a
possible doubling of capacity by the 1990s. Total cost for the first phase
was estimated in the early 1980s at nearly US$3 billion. The dam is located in
an isolated part of the country, far from urban centers and in difficult
terrain. Electricity from the dam will go to urban centers and mining
developments in the Greater Carajas project (see Mining, this ch.).

     Construction schedules on both the Itaipu and Tucurui dams reportedly
were being met. It was particularly important for the latter because a few
months' slippage could cause a year's delay resulting from the rainfall
pattern. Several large-scale metallurgical projects in the Amazon area were
scheduled and dependent on the availability of large amounts of electricity.
The shortage of funds and the low level of economic activity in 1981 and 1982
resulted in a stretching out of the completion of ancillary facilities on both
the Itaipu and the Tucurui power plants; but officials attempted to minimize
or avoid disruptions to other large development projects.

     The Central Electric Company of Brazil (Centrais Electricas
Brasileira - Electrobras), organizationally under the Ministry of Mines and
Energy, has primary responsibility for coordination of planning in the power
sector of regional expansion by subsidiaries and long-term orderly growth of
the national electric power supply and distribution. Since the 1930s federal
and state governments have increasingly taken over private power companies,
including some that were foreign owned. Electrobras was created in 1962 as the
holding company and financial agency for the sector and to centralize
management. It held the federal government's half-share of the Itaipu project,
for example. Electrobras has generally formulated sound policies and carried
them through in one of the world's largest and more complex electric power
systems. An integrated grid existed for the more populous areas, and the grid
was being expanded. Although electricity was available in many rural areas of
the more developed states, electrification was available to less than
one-fifth of the rural population nationally. About 85 percent of urban areas
had electricity. Electrobras was a mixed company, but in the early 1980s over
99 percent of the firm's stock was owned by the federal government.

     Looking to the future when fewer hydroelectric sites would
remain-particularly located relatively close to population and industrial
centers of the Southeast-Brazilian officials began to lay the base for
nuclear power plants. The country has uranium deposits to provide a domestic
fuel source, provided that processing facilities are constructed. In late
1982 Brazilian uranium reserves were officially estimated at 301,500 tons. In
1982 a yellow-cake plant and a plant to produce nuclear fuel elements were
completed. Additional processing plants were under construction, or planned,
which would provide uranium enrichment and would reprocess spent fuel. The
technology and much of the equipment were being imported from the Federal
Republic of Germany (West Germany) under a 1975 agreement calling for that
country to supply up to eight nuclear power reactors and to assist in
establishing a complete nuclear fuel cycle in Brazil. The agreement roused
opposition from the United States and some other countries because it would
provide Brazil-which had not signed the Treaty on the Non-Proliferation of
Nuclear Weapons-with the facilities and technology that could be used to
fabricate atomic bombs (see Foreign Relations, ch. 4).

     The first nuclear power plant, Angra I, located on the coast 120
kilometers southwest of Rio de Janeiro, began trial runs in 1982, but
defective parts postponed operations until 1983. Angra I was started in
1972 and was supplied by Westinghouse Electric Corporation. It had a capacity
of 625 megawatts and cost about US$1.5 billion. By 1982 work had started on
one of the nuclear power sites to be supplied with West German reactors.
Brazil had stretched out the construction schedule for nuclear power because
of lower growth of demand for electricity and a tightness of investment
funds. The 1,245-megawatt-capacity West German nuclear power plants would not
be completed until the 1990s, assuming all eight were ordered. In 1982 only
two such plants-Angra II and III-reportedly had been definitely contracted.

     In 1982 coal reserves were an estimated 22.8 billion tons, primarily
located in Santa Catarina and Rio Grande do Sul. The coal was low quality
and contained considerable ash and sulfur. Costly facilities were required to
process the coal before use, resulting in a loss of more than 50 percent of
the coal mined. In 1979 production of usable coal amounted to 4.5 million
tons, accounting for about 4 percent of the country's primary energy. The
government encouraged substitution of coal for other fuels, particularly
petroleum, in industrial uses, such as coal-fired boilers in the few thermal
electric power plants and in the production of cement. Officials hoped that
the mines would produce 12 million tons of usable coal by 1985. In 1973 Brazil
formed a joint company with Colombia to mine high-quality coal for export to
Brazil.

     Although wood was no longer the important energy source it had been
before 1950, it still accounted for 15 to 20 percent of the country's primary
energy supply. It was used in isolated small industries and for cooking in
rural and low-income urban houses. Charcoal accounted for about 2 percent of
the energy supply. It was used in some blast furnaces and for household
cooking. Bagasse provided about 5 percent of the energy supply, almost
completely in the production of sugar and alcohol. The lack of a woody residue
in processing cassava into alcohol, which could provide a fuel source for the
processing, was one of the reasons sugarcane was the dominant feedstock.

Mining

     Brazil has large deposits of numerous minerals, the full range and extent
of which were still unknown in 1982. The country had not been completely
surveyed because of the difficulty of access in many areas. Mining of known
deposits (excluding petroleum) contributed about 2 percent of GDP but
accounted for about 10 percent of exports in the early 1980s. When ore
extraction, metal processing, and metal fabrication were combined, mining and
metallurgy contributed about one-sixth of GDP. Mineral production was valued
at US$5.4 billion in 1980 and US$6.5 billion in 1981.

     The country's iron ore deposits (about 60 billion tons) were the second
largest in the world, and in 1980 Brazil was second only to Australia in
exportation of iron ore and pellets. Production in 1981 was 110 million tons
(valued at US$2.3 billion), and exports were 81 million tons (valued at
US$1.8 billion). Almost all of present production was from mines in Minas
Gerais. Extensive deposits in the Amazon Basin were scheduled to begin
producing in 1985.

     Brazil has the ingredients for a very large aluminum industry: abundant
bauxite deposits, a huge hydroelectric potential for cheap electricity, and a
large and expanding domestic market. Bauxite production increased from 1
million tons in 1976, to 2.9 million tons in 1979, and 5 million tons in 1981
as new mines were opened. Additional sizable deposits in the Amazon were being
developed in the early 1980s that could more than double output by the end of
the decade. In 1979 exports of bauxite were substantially smaller in value
terms than exports of aluminum products.

     Manganese deposits were large, and Brazil was one of the world's largest
producers, providing an important domestic raw material and substantial
foreign exchange earnings. Potentially the world's richest gold deposit had
been discovered and was being worked by rudimentary means; the value of gold
production was US$355 million in 1981. Tin, lead, nickel, chromite, beryllium,
and copper, as well as many lesser known metallic minerals and a wide variety
of nonmetallic minerals, were produced in significant quantities (see table 7,
Appendix).

     In the 1980s the focus of mining activities was shifting to the Greater
Carajas project in the eastern Amazon region. The project was massive, costly,
and risky but offered substantial rewards to investors and the country under
favorable conditions. The project area covered some 800,000 square
kilometers-roughly the size of France and West Germany together-south and
east of Belem and Sao Luis and on the Tocantins and Araguaia rivers. The
difficult, isolated, and sparsely inhabited terrain had few, if any,
facilities. Initial development costs were estimated at over US$60 billion
(in 1980 dollars), of which US$39 billion was for mining development and
US$22 billion was for infrastructure costs. The project would not be
completed in the 1980s. The pace of development would depend on foreign
financing, the availability of Brazilian funds-particularly from the
government-market conditions at home and abroad, and numerous other factors.
In 1981 and 1982 the adverse situation in Brazil and in developed countries
imposed constraints that slowed the project. Yet most of the separate
undertakings were interrelated; slowing one affected others.

     The Greater Carajas Council, an interministerial body, was created in
1981 to oversee and coordinate the project. Public sector companies
provided a guiding hand. The government-owned Companhia Vale do Rio Doce
(CVRD) was a major actor, branching out from its primary role as an iron ore
company into mining and processing bauxite into aluminum and mining other
ores. Electrobras and its subsidiaries were building, the large Tucurui
hydroelectric dam and transmission facilities. Other public sector
organizations, such as the railroads and shipping, as well as government
agencies for Indian affairs, agriculture, and banking, were involved. Yet much
of the money, technology, and development effort came from the private sector,
largely foreign companies in the individual mining and processing
undertakings.

     The initial focus of the Carajas project is exploitation of the area's
mineral wealth, which amounted to an estimated US$543 billion in 1980 dollars.
Creation of farms and cattle ranches was reportedly in the early plan, but by
1982 little agricultural activity was noted. Presumably, limited funds
constrained farming development. The Tucurui Dam was nearing completion in
1982, but installation of some transmission lines was slowed by a year because
of the tightness of financing. The hydroelectric potential in the Carajas area
was above 24 million kilowatts.

     Mining of iron ore was a major aspect of the Carajas project. Iron ore
reserves were estimated at about 18 billion tons. Mining was scheduled to
start in 1985 with production of 15 million tons and to stabilize at about
35 million tons annually from 1987 on, although capacity could be increased
to 50 million tons a year. A 890-kilometer-long, specially built railroad
would carry processed ore to a major port to be built near Sao Luis in the
state of Maranhao. Initially, the railroad will use diesel engines, which
may threaten the short-term economic return of ore mining. The railroad will
be electrified later when more of the area's hydroelectric sites have been
developed. The ore will be exported for the foreseeable future; purchase
agreements for 25 million tons of ore a year were a prerequisite of
international bankers for development loans. CVRD owns the deposits for the
initial mine and is overseeing the railroad and port construction.

     The world's largest bauxite deposits are thought to be in the Amazon.
Some 2.2 billion tons of reserves have been found, of which 1.1 billion tons
were in the Carajas area. Another 1.1 billion tons of proven reserves were
in the Trombetas region north of the Amazon River but usually included in the
Greater Carajas project. CVRD had varying degrees of ownership in the bauxite
deposits a long with large private domestic and foreign firms. The Trombetas
mine began producing in 1979 and may export 4 million tons by 1985.

     In 1982 Brazil had three alumina refineries and four aluminum smelters.
Additional refining and smelting capacity was being constructed at Sao Luis
and near Belem to process Carajas bauxite. The US$1.4 billion Alumar project
(capacity of 500,000 tons of alumina and 100,000 tons of aluminum) at Sao
Luis was scheduled to begin operations in late 1984. A Japanese consortium,
participating with CVRD in the giant Belem Albras refinery and smelter, was
reportedly backing out of the smelter project in late 1982 because of low
Brazilian and world demand for aluminum and its consequently low price.

     Substantial reserves of other minerals are known in the Greater Carajas
area. One manganese deposit contained 44 million tons of ore with 42 percent
manganese content. This deposit was scheduled for development, but
difficulties arose between CVRD and foreign participants, and its status was
unclear in late 1982. One copper deposit contained 415 million tons of ore
with 0.92 percent copper content, and an additional 600 million tons of
reserves existed in other sites in the Carajas area. No copper exploitation
was known to have been started, although Brazil imported most of its copper.
Nickel reserves of 45 million tons with 1.5 percent nickel content had been
confirmed. Gold-bearing ore amounted to an estimated 100,000 tons and was
being exploited, although by small-scale operations.

     The decision to proceed with the Carajas project came at an unfortunate
time. A Brazilian and a world recession had reduced demand and lowered prices
in world markets for many products, including aluminum and iron and steel.
Considerable excess capacity existed. Interest rates were high. Investors were
hesitant to tie up funds in large undertakings in the Carajas project that
might be slow to earn a return in an uncertain future. Some Brazilians
argued that these minerals would be needed later in the 1980s, and a start
had to be made to exploit the area's obvious mineral
wealth. Critics charged that Antonio Delfim Netto, the minister-chief of the
Planning Secretariat, launched the Carajas project because the large loans
that mineral development would attract would ease balance of payments
pressures through much of the 1980s, but that the project would not be
able to pay for itself in the long run. Much would depend on world market
conditions in the next decade or two.

     Another setback to the Carajas project was the slippage in completing
individual undertakings. The original plan carefully scheduled construction so
that various phases would be completed for the next stages. The shortness of
funds, particularly government and public sector investments, upset the
scheduling. In 1982 journalists reported that contractors were slow to be paid
by government organizations and had to cut back work because of cash-flow
difficulties. In other instances the government announced delays in completing
specific construction projects. How serious the disruptions have been to the
schedule of phased construction was not clear in late 1982. Government
critics claimed that production and export of minerals had been delayed
considerably.