The agreement ends a long impasse during which the US$400M, 695MW hydro project was threatened by blockades from local people affected by the dam and court proceedings brought by environmental groups. The judge had ordered all interested parties, including the federal environmental licensing authority, IBAMA, to work out a mutually acceptable solution to the stalemate.

MAB played a crucial role in halting the project by mobilising hundreds of farmers from the region to blockade logging crews trying to enter the dam site last year, while environmental attorneys filed lawsuits to save the forests.

According to the agreement, MAB have agreed to lift their protest after Baesa agreed to the payment of increased compensation to the affected people.

Baesa will now pay an extra 200 families who had previously been left out of the compensation package. The company has also promised to use the wood collected from the cleared area to construct new homes for families displaced by the reservoir.

Prior to the agreement, a Brazilian Federal District Judge had upheld a restraining order prohibiting the clearing of the forest in the area to be submerged by the dam, effectively preventing Baesa from filling the reservoir behind the nearly complete dam. In his ruling the Judge said ‘serious omissions’ had been made in the Environmental Impact Study (EIS). Areas of high relevance to the EIS appeared to have been omitted in the study – such as the existence of more than 2000ha of primary Atlantic Coast forest.

Although the 180m high dam on the Pelotas river, forming the border between the Brazilian states of Santa Catarina and Rio Grande do Sul, is virtually complete, environmental groups have so far prevented the impounding of the reservoir behind dam by not allowing the clearing of about 40km2 of Brazilian pine – or Araucaria. Experts say just 1% of Brazil’s araucaria forests now survive. The impounding is expected to take place after clearing the forest.

The consortium developing the dam, Baesa is spending considerable sums of money planting new native trees and relocating some of the wildlife displaced by the proposed reservoir. But environmental groups argue that an irreplaceable ecosystem is being sacrificed by impounding the reservoir, and the courts had so far agreed.

The new deal has however left Brazilian environmental groups vowing to continue their fight in the courts to prevent the remaining forest upstream of the dam from being felled or flooded.