With electricity rationing imminent, Volkswagen Brazil, an affiliate of Volkswagen AG, warned if Brazil’s anticipated power shortages affect production it will move its plant to Argentina and export cars to Brazil from Argentina.

Under the Mercosur trade pact (Brazil, Argentina, Paraguay, and Uruguay), export tariffs from Argentina to Brazil are almost zero.

Following 2 years of poor rains that failed to refill water reservoirs at many hydroelectric plants, Brazil is bracing for power rationing and blackouts because some 90% of Brazil’s power comes from these plants. Brazil generates just over 70,000 Mw, not enough for industry needs and a growing economy.

Brazilian companies, shopping centers, and hospitals are racing against the clock to implement solutions to the electric power rationing announced by the government to begin in June. The government’s rationing plan will include a consumption quota system for homes, industry, and commerce.

If a consumer uses more electric power than his monthly quota, he will be penalized in the form of higher electricity bills. The quotas and penalties are still being determined by government technicians.

In preparation for shortages, some executives are planning production cuts, and have declared war against air conditioners which are responsible for up to 35% of a company’s monthly electricity bill. Sergio Mota, president of Valesul Aluminio SA, a major aluminum producer in Santa Cruz, Rio de Janeiro, has a rationing plan ready, projecting a reduction to 82,500 tonnes/year of aluminum from 95,000 tonnes/year, if the government plan requires a 15% cut in power usage.

Pan-Americana SA, a major chlorine producer, invested $400,000 (US) to save 3% in power this year. In 2002 the plan is to invest $7 million to reduce power consumption by 17%. Both companies will also shut off air conditioners during peak power consuming hours.

Several companies are setting up their own power generation systems. Companhia Siderurgica Nacional (CSN), Brazil’s largest steel producer and the country’s third largest power consumer, invested $450 million in power generation. Besides having reached power self sufficiency, the company said it slashed electric power bills by two thirds.

Most of CSN’s power supply comes from a thermoelectric plant fed by gases generated in the steel production process. The remaining power comes from two hydroelectric plants in which CSN has a stake.

The hospitals Copa D’Or and Barra D’Or in Rio de Janeiro will use their own power generators during peak power consumption periods. The hospitals will also reduce use of air conditioners, despite Rio de Janeiro’s high temperatures.

The Mines and Energy Ministry estimated about 25 million households will be affected by power rationing.