July 20 (Bloomberg) -- Five of the biggest wind-turbine makers have been shut out of Brazil's $3.5 billion market by the national development bank BNDES after failing to meet local- content requirements.
Vestas Wind Systems A/S, Suzlon Energy Ltd., Siemens AG, Acciona SA and Fuhrlaender AG aren't getting at least 40 percent of their parts from local suppliers and are no longer eligible for BNDES financing, the country's only source of loans for turbines, said Elbia Melo, executive president of the wind- industry trade group, Associacao Brasileira de Energia Eolica.
Developers can't tap BNDES loans for 2,000 megawatts of turbines they agreed to buy from the suppliers, and will either suspend construction on some projects or switch vendors, Melo said. The world's top turbine makers are setting up Brazilian plants to meet surging demand and haven't established the domestic supply chain they pledged to create, according to government officials.
"BNDES and the turbine makers agreed on a timeline to develop factories and turbine makers didn't keep to it," Henrique Tinoco, a director at state development agency Superintendencia do Desenvolvimento do Nordeste, said in a telephone interview. "This is a public bank with limited resources. Of course it's going to prioritize the acquisition of capital goods produced nationally."
Wind-turbine installations in Brazil may almost triple to 1,695 megawatts this year from 2011, making it the fifth-largest market, according to Bloomberg New Energy Finance, and the country is promoting policies to ensure the boom benefits other parts of its economy.
Vestas, based in Aarhus, Denmark, dropped 57 percent this year through yesterday. Pune, India, based Suzlon increased less than one percent over the same period compared with the Bloomberg Wind Energy Index of 64 companies that's lost 13 percent.
Surprise Audit
BNDES, formally Banco Nacional de Desenvolvimento Economico e Social, conducted an unannounced audit last month of companies in Brazil providing turbines to developers that use government loans, according to a bank press official who didn't want to be named because of a company policy.
The audit found that Fuhrlaender and Acciona have yet to build factories, while Siemens, Vestas and Suzlon have facilities but aren't meeting the 40 percent requirement, Melo said.
"Some sites had no employees, no machines, not even guard dogs," she said. With BNDES financing cut off, development on some projects may grind to a halt within two weeks.
Industrias Metalurgicas Pescarmona SA, an Argentinean turbine company that's building a second Brazil plant, still qualifies for BNDES financing, as do General Electric Co., Gamesa Corp. Tecnologica SA, Wobben Windpower - Industria e Comercio Ltda. and WEG SA. BNDES offers wind developers 16-year loans with interest rates as low as 6.8 percent, less than the central bank benchmark rate of 8 percent.
Local Suppliers
Turbine makers are initially required to get 40 percent of their components, which may include towers and blades, from Brazilian suppliers. The local-content requirement eventually rises to 60 percent on a schedule that varies by supplier, and BNDES may decide to extend those shifts, Melo said.
Vestas, the world's biggest turbine maker, was approved for BNDES loans in 2010 and has asked the agency to explain why it's no longer considered compliant, Maria Jose Vazquez, senior manager for communication and branding, said in an e-mail.
Suzlon, India's biggest turbine company, hasn't been notified about the suspended financing and asked BNDES for more information, according to a press official who didn't want to be named because of company policy.
New Factory
Acciona will build a hub factory in Bahia state by October and source blades from a factory in Fortaleza "to meet the requirements established by the BNDES" to qualify for loans, Elisa Banos, a spokeswoman for the Alcobendas, Spain-based company, said in an e-mail.
Siemens, based in Munich, is asking BNDES to explain why its turbines no longer qualify for financing. Liebenscheid, Germany-based Fuhrlaender didn't reply to calls seeking comment.
Vestas, with more than 550 megawatts of announced deals with developers in Brazil, may struggle to meet the requirements, Brian Gaylord, an advisor at Make Consulting LLC, said in a telephone interview. Unlike other suppliers, Vestas plans to import blades from outside the country.
"Everyone else is sourcing blades" in Brazil, he said. "I'm not sure how you can meet the 60 percent index without producing parts of the nacelle" domestically, he said of the unit that houses a turbine's power-generating components, if it isn't using local blades. Wind companies are unwilling to manufacture turbines in Brazil when they have factories idle in their home countries, he said.
'Completely Wrong'
BNDES's move to cut financing may undermine the nation's efforts to diversify its energy matrix, according to Ricardo Izar Jr., a Social Democrat deputy who represents Sao Paulo in Brazil's lower house.
"BNDES is completely wrong," he said in a telephone interview. "It's a development bank so that's what it should be doing -- facilitating the development of strategic industries" and creating a stable investment environment.
The finance restrictions will delay projects and payment for turbine-makers, who don't get fully compensated until wind farms comes online, Philip Totaro, principal at the Santa Barbara, California-based consulting company Totaro & Associates, said in a telephone interview. Turbine makers may lose "tens of millions of dollars a project" in revenue if developers choose to switch suppliers.
Next Auctions
Foreign turbine-suppliers rushed to set up factories in Brazil after the government organized an auction in 2009 for contracts to sell wind power, said Eduardo Tabbush, a wind analyst with New Energy Finance in London. Countries in other regions were ratcheting back renewable-energy subsidies following the economic downturn.
Brazil auctioned contracts for 2,905 megawatts of wind farms in three auctions last year, according to the national energy agency Empresa de Pesquisa Energetica. Those turbines will cost about $3.5 billion, Tabbush estimated.
The five turbine companies are seeking to requalify for BNDES financing before two energy auctions set for October when developers will apply for loans to buy turbines. They are competing for a limited, and possibly inadequate, supply of local components, Melo said.
"For some suppliers it's going to be practically impossible to meet their requirements," she said. It can take eight to 10 years to create a local supply chain. "Brazil's industry is very new. You can't create a whole supply chain overnight."
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