Business Energy Response Brazil*

July 1, 2001

The Business World: Brazilian Industry Makes Do With Less

By JENNIFER L. RICH

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ÃO PAULO, Brazil -- On June 1 at 5:45 p.m., a steam whistle blew for the first time ever at a Unilever factory here that makes Omo laundry detergent and Comfort fabric softener.

Rather than signaling a shift change for the factory workers, this whistle had a much more urgent message for the 1,100 members of the administrative staff. They had 15 minutes to pack up and get out before the power was cut off.

At 6:01 p.m., disbelievers found themselves sitting in the dark, their computer screens black.

"You used to see people here at 1, 2 in the morning — the whole night really — catching up on work," said Ricardo Munno, a technician in the information technology department. "Now at 6 o'clock you have two choices — either you leave, or you leave."

The mandatory quitting time is part of the company's effort to drastically reduce electricity consumption from the national power grid, in accordance with the Brazilian government's emergency energy rationing plan. For Unilever's Brazilian subsidiary, which makes products ranging from Kibon ice cream to Close-Up toothpaste to Cica pasta sauce at 13 factories around the country, the cutbacks are tough to accomplish. The company thought that it was already energy efficient.

President Fernando Henrique Cardoso of Brazil warned in mid-May of a large-scale energy crisis. By then, it had become obvious that paltry rainfall this year would not fill the reservoirs that feed the country's hydroelectric power grid, the main source of electricity in Brazil.

The government then decreed that consumers and businesses had to reduce power consumption by 15 to 30 percent starting June 1. Violators face heavy surcharges in their monthly bills. Officials warned that without such conservation, Brazil would become the California of Latin America, with rolling blackouts that could hit everybody unpredictably or at short notice.

The Unilever subsidiary in Brazil has been required to reduce use of electricity from the national power grid by 15 percent in the company's food units and 20 percent in its personal-care and cleaning supply factories. That is the equivalent of shutting down all operations for around two months of the year.

How the subsidiary will accomplish the cutbacks without laying off large numbers of workers and significantly reducing production is the responsibility of José Lourenço, its director of supplies. Mr. Lourenço, whose bearded face and soft-spoken manner give no suggestion of the pressure he is under, is chairman of the energy crisis committee.

"The first thing we did was get out the huge risk-assessment manuals that we had prepared a couple of years ago to deal with the millennium bug," Mr. Lourenço said, referring to the year 2000 computer problem that many companies had feared might disrupt power supplies. "There was a fantastic amount of information in there that we could recycle."

The committee's priority is to guarantee employee safety and protect the public image of the company by avoiding problems that could arise from extended blackouts — sloppy maintenance, worker injuries, empty store shelves.

It also decided that conservation was not enough. It would need power from another source. So for about $300,000 a month, the committee rented 55 diesel generators to provide enough energy to run emergency lighting, waste treatment and shipping and stocking data systems. Mr. Lourenço said any blackout during the last few days of the month, when Brazilian supermarkets place orders for the next month, would loom as a disaster because the company would not know who had ordered what.

The generators, each about the size of a compact car and as loud as a jackhammer, were placed wherever they could fit on company property — the side of the road, in the middle of the sidewalk, or tucked in a corner of the factory floor. At the detergent and fabric softener plant, in Vila Anastãcio, an industrial neighborhood of São Paulo, Brazil's largest city, most of the generators have sat idle so far, waiting for use in emergencies.

Luciano Caligari, manager of security at the factory, said employees asked him nearly every day if they could use the generators to work after hours. But he is adamant. "I never grant special permission," he said.

To keep all generators running would cost the company $700,000 a month, so while the power is on, they are used only in places where supplemental power is needed to help the factory reach its 20 percent reduction goal.

During a recent interview, Mr. Lourenço pulled a paper from his pocket with a list of all the company's Brazilian factories, highlighted in the colors of a traffic light. Most were in green, signaling that their energy reduction targets had been met.

He pointed to some in yellow, signifying that they had nearly reached their goals. Those included the Kibon ice cream factory here, which normally cuts back anyway during the winter months of June to September as ice cream sales sag. How it will respond if the energy crisis lasts into the spring and summer, when demand normally rises, remains unclear.

The Vila Anastãcio plant was among the few still in red on Mr. Lourenço's list, as were the personal- care and food products factories, among the world's largest, in the interior of São Paulo state. At those plants, he said, managers were finding ways to cut power watt by watt.

In Vinhedo, where Unilever makes toothpaste, deodorant and other personal-care products, the company has installed switches or pull cords on florescent light bulbs so workers can turn them off.

Mr. Lourenço said the company might switch some factories from their normal six- or seven-day weekly production schedule to a five-day schedule of longer hours. He said the change would use power more efficiently.

If some factories still fail to meet the energy goals, Unilever plans to take advantage of rules the government is now developing that would let the company transfer any energy savings beyond the 20 percent goal to facilities that were less energy efficient. And last week, the government created a secondary power market, where Unilever and other companies can partly recoup costs of the energy rationing program by selling any excess savings to other industries.

Ultimately, though, Unilever's performance through the end of the year, and perhaps for the next two to three years, will depend on how its own Brazilian customers — supermarkets and shoppers — integrate power rationing into their own buying habits. Sales of ice cream and margarine, for example, may plummet if supermarkets do not stock them because they cannot keep them cold.

To avert such declines, the company has sought to educate the more than 20,000 small supermarkets in Brazil about how to make their freezers and refrigerators more energy efficient.

Unilever said it had taken some initial surveys to predict what consumers would do, but conclusions were still sketchy because the full impact of the power rationing had yet to be felt.

Until consumers start seeing the cost of power-rationing violations on their electric bills, Mr. Lourenço said, "we aren't going to know anything."

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