Bright prospects for Brazilian utilities

Like many other Latin American countries, years of neglect have left Brazil suffering from power outages. The good news for investors is that the government is that the Brazilian government has been forced to create a more business-friendly utilities sector.

Earlier this year, while he still had his health, Fidel Castro declared that 2007 would be "the year of the energy revolution". The Cuban government had just imported 4,158 electric generators at a cost of $800m in an effort to end the power cuts and blackouts that have plagued Cuba for years. The same story is being played out across Latin America. In Argentina, where the power grid and fuel systems are collapsing, ministers made a similar desperate bid, assuring the public that "it will rain diesel" as soon as they got the power system back online. Governments in the region are finally realising they will have to bite the bullet on infrastructure investment. After years of neglect, it looks like the companies building and supporting Latin American's power system are set to be jolted back into life.

The issue is particularly important for regional powerhouse Brazil, where the big worry is that power outages will short-circuit economic growth. Brazil's economy grew 3.7% last year and demand for power is surging as industry booms and an emerging middle class fills their homes with fridges, televisions and washing machines. Acende Brasil, an electricity industry body, predicts a 28%-32% chance of blackouts by 2012. Unsurprisingly, President Lula da Silva has made dealing with power outages the top priority of his second term, agreeing to the building of two huge hydroelectric dams at a cost of $9.5bn in the Amazon (Brazil relies on hydro power for 80% of its electricity) and setting out plans to back up its thermoelectric plants with 20 million cubic metres a day of liquefied natural gas by 2009.

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Eoin came to MoneyWeek in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.