China brings financial, political clout to large LatAm hydro portfolio

As the world's largest hydroelectric power market after China, Latin America is being targeted by Chinese dam-building firms, with three projects already up and running and another 19 in the pipeline in six countries. 

China's participation is a sign of its firms' expertise and the country's financial clout, with loans to Latin America in exchange for oil being channeled into hydro projects. 

The Asian giant is also expanding its dam-building in Latin America for geopolitical reasons, according to Patricia Adams, executive director of Probe International, a Canada-based non-governmental organization (NGO).

In Honduras, for example, Chinese state-owned firms have elbowed out Taiwan to build three dams, in response to Tegucigalpa's recognition of Taiwan as an independent state, she said.

Chinese firms have so far built three dams in Belize and Ecuador, with a total installed capacity of 47MW and which implied a US$30mn investment. Seven more are under construction in Costa Rica, Ecuador and Honduras, with a US$2.53bn investment to create a total of 2,087MW capacity.

Those projects include the US$1.7bn Coca Codo Sinclair dam in Ecuador being built by state-owned listed builder Sinohydro and financed by the Export-Import Bank of China.

Another 12 dams are at the design stage in Costa Rica, Ecuador, Guyana, Honduras, Peru and Argentina, with a total installed capacity of 5,069MW and a US$12.25bn budget, which includes funding from Latin American sources, according to International Rivers, a US-based NGO.

Two dams in Argentina are to be built by Shanghai-listed China Gezhouba in collaboration with local firms, drawing investments of US$4bn with funding from China Development Bank and Bank of Communications.

"China's involvement in hydropower development in Latin America has grown significantly since 2010," according to Grace Mang, China program director at International Rivers.

"It's no surprise that Chinese companies want to take a share of the Latin American market," Mang said. "The Chinese government's desire to build better bilateral relations has resulted in dam projects such as the Coca Codo Sinclair project."

China has loaned Ecuador US$10bn since 2009 in return for oil, and at least half of that financing has been earmarked for hydroelectric projects. Seven of Ecuador's 11 projects are being developed by Chinese companies.

However, the rise in Ecuador's debt to China, which now tops US$7bn, has sparked concerns over an erosion of Ecuador's sovereignty.

"There is great resistance to dam-building in Latin America and special worry about Chinese dams because of the opaque nature of China's decision-making and poor quality in these dams," Adams said.

There is also concern about how China-backed projects are developed. In November 2012, for example, local workers at Sinohydro's Coca Codo Sinclair dam project complained to Ecuador's labor relations minister Francisco Vacas and the national congress over outstanding pay and abusive treatment by the project's management.