Chile OKs divisive mega hydroelectric dam project

SANTIAGO (Reuters) - Chile gave the green light on Monday to the divisive $3.5 billion HidroAysen hydro-power dam project that promises to ease energy squeezes, despite objections that it will ruin pristine Patagonian valleys.

Chile, the world's top copper producer, is seeking to boost and diversify its power grid to confront rising energy needs and drought-induced energy squeezes, which this year prompted the government to reduce voltages to fend off the specter of blackouts.

Regulators at Chile's regional environmental commission approved the project almost unanimously in a vote in the southern city of Coyhaique, around 1,000 miles south of Santiago, broadcast live on television.

HidroAysen, a joint venture between generators Endesa Chile and Colbun, comprises five power stations and plans to generate 2,750 megawatts by damming two major rivers.

But it must first seek separate approval for a more than 1,250 mile transmission line to channel power from the remote south to the capital Santiago.

Rowdy protesters chanted, threw rocks and waved black flags of mourning outside the building where regulators voted on the project. The government had tightened security ahead of the vote, from Coyhaique to Santiago.

Endesa and Colbun were among the day's most heavily-traded stocks on the Santiago stock exchange. Each rose more than 2 percent in anticipation of the decision, then pared gains.

The environmental rubber stamp is seen helping President Sebastian Pinera regain the trust of energy investors after the conservative leader struck down a thermal project over environmental concerns last year.

Pinera's government has urged prompt approval of other energy projects to meet growing demand for power. Some see the approval of HidroAysen paving the way for other controversial energy projects.

In February, regulators approved the environmental study for the $4.4 billion coal-fired Castilla thermal power plant planned by Brazilian billionaire Eike Batista.

Quake-hit Japan's nuclear crisis doused nuclear power ambitions in Chile, one of the world's most seismically active countries, which was battered last year by a massive earthquake and ensuing tsunamis.

Finance Minister Felipe Larrain said on Sunday Chile desperately needs to boost energy output over the next decade to meet growing demand and maintain economic growth at around the government's forecast of 6 percent a year.

Daniel Fernandez, executive vice president of the joint venture, told Reuters last month he expects to submit a transmission line study by December.

He said Endesa and Colbun would then decide in 2014 whether to push ahead with the overall project and whether to invite new partners into the project before beginning construction by the end of that year.

Given outcry over the plan to run power lines from the hydroelectric dams in far southern Patagonia to the central grid, some have suggested that HidroAysen route transmission through Argentina, but Fernandez dismissed the idea.

Ecologists say the project will inundate large swaths of Chile's scarcely populated southern region and cut down thousands of trees to set up the transmission line.

(Reporting by Fabian Cambero, Antonio de la Jara, Alonso Soto. Editing by Simon Gardner and David Gregorio)