By Raymond Colitt and Denise Luna
BRASILIA (Reuters) - Brazil on Tuesday holds an auction for a massive hydroelectric project in the Amazon that the government considers crucial to the economy but critics say is an environmentally hazardous money loser.
Activists dropped several tonnes of manure at the gates of a state electricity agency to protest the 11,000-megawatt Belo Monte dam that has sparked criticism by high-profile opponents including Hollywood director James Cameron.
Only hours before the auction was to begin, a judge lifted an injunction that had suspended proceedings -- the second such legal action in the last week.
The results of the auction were unlikely to affect Brazil's power markets or overall electricity rates because most of the electricity is already set aside for specific clients, with only a small remainder entering power markets.
President Luiz Inacio Lula da Silva has lobbied vigorously for Belo Monte, which could cost as much as $17 billion (11 billion pounds), calling it a source of clean energy needed for the major emerging market nation to maintain brisk economic growth.
Environmental group Greenpeace, which organized the manure dump, said it was "the only way to sum up, in an image, the legacy that the Lula government is leaving by insisting on this project."
Native Indians were planning to start building a village at the planned site of the dam, according to activists opposing the dam. Those groups are also planning protests in several cities including the capital of Brasilia.
Just days before the auction, the government added sweeteners including a 75 percent income tax write-off to woo companies after two of Brazil's biggest construction firms walked away from it on the grounds that it offers low returns.
Two consortia, each including subsidiaries of state-run electricity company Eletrobras, will put in bids for the project. One includes mining giant Vale and a second includes a group of smaller construction companies.
The winner will be the bidder that offers the lowest price for the energy to be generated by the dam.
Financial analysts say the project offers low returns given its risks, which include the use of relatively untested technology and the possibility for protest by local residents or environmental lawsuits halting progress.
Originally conceived 30 years ago, progress on Belo Monte has been slowed over the years by protests, including an incident last year in which Kayapo Indians armed with clubs and machetes attacked a state electricity official.
Official estimates put the construction costs at 19 billion reais (7 billion pounds) though private sector estimates go as high as 30 billion reais for the project.
(Additional reporting by Carolina Marcondes in Sao Paulo; Editing by Doina Chiacu)
