Identifier
Created
Classification
Origin
07LAPAZ3150
2007-11-30 21:45:00
CONFIDENTIAL
Embassy La Paz
Cable title:
GAS, GOVERNMENT, AND TAKEOVERS: ELECTRICAL
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C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 003150
SIPDIS
SIPDIS
E.O. 12958: DECL: 11/30/2017
TAGS: ECON PGOV PREL ENRG EPET EINV BL
SUBJECT: GAS, GOVERNMENT, AND TAKEOVERS: ELECTRICAL
COMPANIES WORRIED.
REF: LA PAZ 3098
Classified By: Ecopol Chief Mike Hammer for reasons 1.4 (b) and (d).
-------
Summary
-------
C O N F I D E N T I A L SECTION 01 OF 03 LA PAZ 003150
SIPDIS
SIPDIS
E.O. 12958: DECL: 11/30/2017
TAGS: ECON PGOV PREL ENRG EPET EINV BL
SUBJECT: GAS, GOVERNMENT, AND TAKEOVERS: ELECTRICAL
COMPANIES WORRIED.
REF: LA PAZ 3098
Classified By: Ecopol Chief Mike Hammer for reasons 1.4 (b) and (d).
--------------
Summary
--------------
1. (C) Summer rains and resulting hydroelectric production
will provide a seasonal buffer for Bolivian electricity
supplies, but come June or July the country will likely
suffer shortages, brownouts, and possible blackouts. Demand
should continue to grow over the following year, but supply
will not keep pace due to shortages of gas and a lack of
investment in a sector threatened by nationalization and
radical campesino takeovers. End Summary.
--------------
The Importance of Gas
--------------
2. (U) The electricity sector exemplifies how hydrocarbon
"nationalization" has sent negative ripples across the
Bolivian economy. While gas sales only represent around 9%
of GDP, stagnant supplies will have a much greater impact on
the overall economy. About 57% of domestic electrical
capacity is generated in gas-burning thermoelectric plants.
The remaining capacity is entirely supplied by hydropower.
Several hydroelectric plants that rely on water flow (as
opposed to dam fed generators) are able to provide an
additional buffer to electrical supplies over the current
rainy season; however, come June or July when both river
levels and temperatures drop, that buffer will be dangerously
thin. Generators believe that Bolivia will almost certainly
suffer significant shortages during these months, if not
before. (Note: There are 4 major electrical generators in
Bolivia, all of which are private: Valle Hermoso (Bolivian),
Corani Electrical Company (US/British),Cobee (Israeli),and
Guaracachi (British) End Note.)
3. (C) Jose LaFuente, General Manager of Corani, said that
electrical demand has been growing at about 4-5% a year, but
in 2008 he expects that rate to jump to 8% as three major
mining projects are scheduled to increase demand for
electricity. To put this in perspective, Bolivia has the
capacity to produce about 1,100 Mega Watts (MW) of
electricity and the largest mine, San Cristobal, uses between
45-50MW or around 6-7% of the total national production
(production does not equal capacity). Next year San Cristobal
is programmed to increase their electrical consumption by
around 25%. Overall, total demand in 2008 is estimated to be
around 950MW, leaving a gap between total capacity and demand
of only around 15% -- much less than a normal buffer of
between 40-50%. As LaFuente explained, such a low buffer
does not allow for necessary maintenance, inevitable
breakdowns, or water shortages.
4. (C) In an ideal situation for a country with such large
gas reserves, additional supply could be generated by simply
burning more gas; but in Bolivia, there is no excess supply
(Ref A). Moreover, Carlos Querejazu, General Manager at
Valle Hermoso, points out that even if the gas were available
to boost production at his largest plant, the pipeline which
supplies it currently operates at full capacity. Pipeline
operator Transredes is limited in the expansion projects it
can undertake because under "nationalization" the Bolivian
State must legally own over 50% of the company. To date, the
State has still not purchased the additional 16% needed to
comply with this law. As a result, Transredes cannot
effectively borrow money for large projects. To whom would
the bank be lending, Transredes or the Bolivian State?
Clearly, "nationalization" has not only scared away further
investment and development of gas resources, but the
LA PAZ 00003150 002 OF 003
inability of the government to "finish the job" and set clear
legal boundaries continues to hamper the entire economy.
5. (C) On a positive note for the companies, government
incompetence sometimes works in their favor. On November 1,
a 180 day period was set to expire in which new gas delivery
agreements were supposed to be negotiated with the generator
companies. Currently generators pay between US$1.3 to 1.5
per million BTU (Although Querejazu said that Valle Hermoso
was paying only $1.1MBTU) and charges were expected to be
increased to at least $1.8MBTU. Querejazu was becoming
increasingly worried as the deadline approached and he was
unable to communicate with government officials. In the end
(and to the delight of the companies),the government
extended the period of "negotiations" for an additional 180
days. Querejazu estimates that this will save the company
around $200,000 a month and believes it is solely the result
of the State not understanding how to go about negotiating.
--------------
Government Threats
--------------
5. (C) Over the past year, the electrical industry has
lived with the constant threat of nationalization. Last
August, the sector was moved back under the authority of the
Ministry of Hydrocarbons (which was seen as a move to give
authority to a Ministry with experience in nationalizations);
moreover, government rhetoric has been consistent in its
calls for state control. Under the November 26 ruling-Mas
Party Constitution draft, the State will not only seek to end
all private monopolies or oligopolies (which would apply to
the electrical generators),but it will also have exclusive
authority "in all productive and commercial activities that
are considered vital in the case of public necessity."
Perhaps no sector is more vulnerable that electricity.
6. (C) Under these circumstances, it is not surprising that
there has been little investment in the sector over the past
year. LaFuente says that Corani would like to invest in
another generator for its dam, but at the moment is unwilling
to make the 10-15 million dollar commitment. At Valle
Hermosa they have purchased a used generator for their
thermoelectric plant, but have still not bought the mounting
equipment. Querejazu says that for now plans are on hold and
the generator was purchased because it can always be used for
spare parts. One good example of the pressure that companies
are under comes from Valle Hermosa. They operate a small
hydroelectric plant jointly with the State. Control was
divided 59% for Valle and 41% for the State. Under pressure,
the company agreed to allow the government a 50% share. No
additional responsibilities were assumed by the State, but as
Querejazu said, "it was better to give them a 50% share than
risk loosing the whole operation."
7. (C) An alternative approach to the current situation is
being undertaken by Guaracachi, the largest electricity
generator for eastern Bolivia. Instead of holding back on
investments, they have heavily indebted themselves through
the purchase of used equipment. The logic being that in the
past the Bolivian State has refused to take over highly
indebted companies. While they believe this gives them a
hedge against nationalization, it also means that eastern
Bolivia and Santa Cruz are less susceptible to blackouts than
the highland areas and La Paz.
--------------
Peasant Threats
--------------
8. (U) On November 30, the campesinos of Choquetanga in La
Paz delivered an ultimatum to the workers of Cobee that they
LA PAZ 00003150 003 OF 003
were going to take over a thermoelectric plant. They gave 72
hours for employees to leave the plant and said that they
themselves would take over operations of the plant. Company
spokesman announced that the employees would be evacuated if
their security could not be guaranteed. Any disruption at
the Cobee plant would affect electricity supply to the city
of La Paz.
--------------
Comment
--------------
9. (C) Even more than most private sector actors in
Bolivia, those in the electricity sector feel under threat by
a hostile government and by a population being fed a constant
diet of anti private sector rhetoric. The recent threats
against the La Paz generator legitimate their concerns.
Producers fear that what they see as inevitable electricity
shortages will be used as an excuse for the government to
enact nationalization. However, given the strong wording in
the MAS constitution draft, nationalizations may also come
quickly as the government seeks to show that it is in control
of the economy and is effectively remodeling the country.
The hydrocarbon nationalization remains very popular with the
public as a whole. Perhaps, however, the difficulties that
the State is experiencing in fully implementing it will give
them pause about undertaking another such endeavor.
Regardless, the one near certainty is that the electricity
sector is in for turbulent times.
GOLDBERG
SIPDIS
SIPDIS
E.O. 12958: DECL: 11/30/2017
TAGS: ECON PGOV PREL ENRG EPET EINV BL
SUBJECT: GAS, GOVERNMENT, AND TAKEOVERS: ELECTRICAL
COMPANIES WORRIED.
REF: LA PAZ 3098
Classified By: Ecopol Chief Mike Hammer for reasons 1.4 (b) and (d).
--------------
Summary
--------------
1. (C) Summer rains and resulting hydroelectric production
will provide a seasonal buffer for Bolivian electricity
supplies, but come June or July the country will likely
suffer shortages, brownouts, and possible blackouts. Demand
should continue to grow over the following year, but supply
will not keep pace due to shortages of gas and a lack of
investment in a sector threatened by nationalization and
radical campesino takeovers. End Summary.
--------------
The Importance of Gas
--------------
2. (U) The electricity sector exemplifies how hydrocarbon
"nationalization" has sent negative ripples across the
Bolivian economy. While gas sales only represent around 9%
of GDP, stagnant supplies will have a much greater impact on
the overall economy. About 57% of domestic electrical
capacity is generated in gas-burning thermoelectric plants.
The remaining capacity is entirely supplied by hydropower.
Several hydroelectric plants that rely on water flow (as
opposed to dam fed generators) are able to provide an
additional buffer to electrical supplies over the current
rainy season; however, come June or July when both river
levels and temperatures drop, that buffer will be dangerously
thin. Generators believe that Bolivia will almost certainly
suffer significant shortages during these months, if not
before. (Note: There are 4 major electrical generators in
Bolivia, all of which are private: Valle Hermoso (Bolivian),
Corani Electrical Company (US/British),Cobee (Israeli),and
Guaracachi (British) End Note.)
3. (C) Jose LaFuente, General Manager of Corani, said that
electrical demand has been growing at about 4-5% a year, but
in 2008 he expects that rate to jump to 8% as three major
mining projects are scheduled to increase demand for
electricity. To put this in perspective, Bolivia has the
capacity to produce about 1,100 Mega Watts (MW) of
electricity and the largest mine, San Cristobal, uses between
45-50MW or around 6-7% of the total national production
(production does not equal capacity). Next year San Cristobal
is programmed to increase their electrical consumption by
around 25%. Overall, total demand in 2008 is estimated to be
around 950MW, leaving a gap between total capacity and demand
of only around 15% -- much less than a normal buffer of
between 40-50%. As LaFuente explained, such a low buffer
does not allow for necessary maintenance, inevitable
breakdowns, or water shortages.
4. (C) In an ideal situation for a country with such large
gas reserves, additional supply could be generated by simply
burning more gas; but in Bolivia, there is no excess supply
(Ref A). Moreover, Carlos Querejazu, General Manager at
Valle Hermoso, points out that even if the gas were available
to boost production at his largest plant, the pipeline which
supplies it currently operates at full capacity. Pipeline
operator Transredes is limited in the expansion projects it
can undertake because under "nationalization" the Bolivian
State must legally own over 50% of the company. To date, the
State has still not purchased the additional 16% needed to
comply with this law. As a result, Transredes cannot
effectively borrow money for large projects. To whom would
the bank be lending, Transredes or the Bolivian State?
Clearly, "nationalization" has not only scared away further
investment and development of gas resources, but the
LA PAZ 00003150 002 OF 003
inability of the government to "finish the job" and set clear
legal boundaries continues to hamper the entire economy.
5. (C) On a positive note for the companies, government
incompetence sometimes works in their favor. On November 1,
a 180 day period was set to expire in which new gas delivery
agreements were supposed to be negotiated with the generator
companies. Currently generators pay between US$1.3 to 1.5
per million BTU (Although Querejazu said that Valle Hermoso
was paying only $1.1MBTU) and charges were expected to be
increased to at least $1.8MBTU. Querejazu was becoming
increasingly worried as the deadline approached and he was
unable to communicate with government officials. In the end
(and to the delight of the companies),the government
extended the period of "negotiations" for an additional 180
days. Querejazu estimates that this will save the company
around $200,000 a month and believes it is solely the result
of the State not understanding how to go about negotiating.
--------------
Government Threats
--------------
5. (C) Over the past year, the electrical industry has
lived with the constant threat of nationalization. Last
August, the sector was moved back under the authority of the
Ministry of Hydrocarbons (which was seen as a move to give
authority to a Ministry with experience in nationalizations);
moreover, government rhetoric has been consistent in its
calls for state control. Under the November 26 ruling-Mas
Party Constitution draft, the State will not only seek to end
all private monopolies or oligopolies (which would apply to
the electrical generators),but it will also have exclusive
authority "in all productive and commercial activities that
are considered vital in the case of public necessity."
Perhaps no sector is more vulnerable that electricity.
6. (C) Under these circumstances, it is not surprising that
there has been little investment in the sector over the past
year. LaFuente says that Corani would like to invest in
another generator for its dam, but at the moment is unwilling
to make the 10-15 million dollar commitment. At Valle
Hermosa they have purchased a used generator for their
thermoelectric plant, but have still not bought the mounting
equipment. Querejazu says that for now plans are on hold and
the generator was purchased because it can always be used for
spare parts. One good example of the pressure that companies
are under comes from Valle Hermosa. They operate a small
hydroelectric plant jointly with the State. Control was
divided 59% for Valle and 41% for the State. Under pressure,
the company agreed to allow the government a 50% share. No
additional responsibilities were assumed by the State, but as
Querejazu said, "it was better to give them a 50% share than
risk loosing the whole operation."
7. (C) An alternative approach to the current situation is
being undertaken by Guaracachi, the largest electricity
generator for eastern Bolivia. Instead of holding back on
investments, they have heavily indebted themselves through
the purchase of used equipment. The logic being that in the
past the Bolivian State has refused to take over highly
indebted companies. While they believe this gives them a
hedge against nationalization, it also means that eastern
Bolivia and Santa Cruz are less susceptible to blackouts than
the highland areas and La Paz.
--------------
Peasant Threats
--------------
8. (U) On November 30, the campesinos of Choquetanga in La
Paz delivered an ultimatum to the workers of Cobee that they
LA PAZ 00003150 003 OF 003
were going to take over a thermoelectric plant. They gave 72
hours for employees to leave the plant and said that they
themselves would take over operations of the plant. Company
spokesman announced that the employees would be evacuated if
their security could not be guaranteed. Any disruption at
the Cobee plant would affect electricity supply to the city
of La Paz.
--------------
Comment
--------------
9. (C) Even more than most private sector actors in
Bolivia, those in the electricity sector feel under threat by
a hostile government and by a population being fed a constant
diet of anti private sector rhetoric. The recent threats
against the La Paz generator legitimate their concerns.
Producers fear that what they see as inevitable electricity
shortages will be used as an excuse for the government to
enact nationalization. However, given the strong wording in
the MAS constitution draft, nationalizations may also come
quickly as the government seeks to show that it is in control
of the economy and is effectively remodeling the country.
The hydrocarbon nationalization remains very popular with the
public as a whole. Perhaps, however, the difficulties that
the State is experiencing in fully implementing it will give
them pause about undertaking another such endeavor.
Regardless, the one near certainty is that the electricity
sector is in for turbulent times.
GOLDBERG