BOLIVIAN INFRASTRUCTURE: ELECTRIC INERTIA

C O N F I D E N T I A L LA PAZ 001166 SIPDIS E.O. 12958: DECL: 08/10/2019 TAGS: EMIN ECON EFIN EINV ETRD PREL BL SUBJECT: BOLIVIAN INFRASTRUCTURE: ELECTRIC INERTIA REF: A. 09LAPAZ968 ¶B. 08LAPAZ2614 Classified By: Acting EcoPol Chief Holly Monster for reasons 1.4 b,d -------------- Summary -------------- ¶1. (C) The Government of Bolivia (GOB) began negotiations in late July with the country's electric generation and distribution companies to reportedly nationalize the sector by the end of the year. As negotiations move forward, the GOB will find it is acquiring a sector that received no investment or upgrades since Morales' election. It will need a strong jumpstart to serve the future needs of the country. -------------- Still in the Dark -------------- ¶2. (C) In October 2006, the Ministry of Public Works released the "Electricity to Live with Dignity" plan. The strategy outlined five year plans through 2025 to increase the nation's electric coverage. The Ministry cited a survey which showed that in 2004 only 65% of all Bolivians had access to electricity. This compared to 75% in Peru, 85% in Paraguay and over 90% in Ecuador, Colombia and Chile. The coverage for rural Bolivians was only 30%, compared to 35% in Peru, 64% in Colombia, just below 80% in Paraguay and Ecuador and 90% in Chile. ¶3. (C) The proposal called for coverage in urban areas (at least 2000 homes) to increase from 87% in 2005 to 98% in 2010 and to universal coverage by 2020. Rural coverage was to expand from 33% in 2005 to 53% in 2010 with universal coverage by 2025. The plan calls for an investment of $190 million and criticizes the previous administration for only allocating $20.3 million for energy needs. The GOB has not released data on the progress of the plan, but according to Juan Carlos ((Queregazu)),General Manager of Valle Hermoso, an electricity generating firm, the lack of investment in the energy sector assures that any progress has been minimal. -------------- Untapped Potential -------------- ¶4. (C) There are no projects in the development of Bolivia's gas sector, according to Gustavo ((Assad)), Director of Norberto Odebrecht, an energy and transportation construction company based in Brazil. The current level of investment is sufficient to maintain the status quo, not to generate growth (Ref A). By law, Bolivian gas must first satisfy domestic demand. Contractual obligations and any remaining gas can then be sold to foreign customers (Ref B). In recent years, rising domestic consumption without additional investment has limited Bolivia's ability to supply foreign customers other than Brazil. Through the first seven months of the year the Bolivian Hydrocarbons Company (YPFB) utilized only one percent of its 2009 investment budget. Assad claims that in 2008 only four wells were drilled in Bolivia and despite plans in 2001 for 97 wells in the Prefecture of Tarija, today there are only seven. ¶5. (C) The Madeira River Hydroelectric Complex is a plan developed with Brazil to construct four hydroelectric plants; one in Northern Bolivia (just north of Riberalta),one along the Bolivia/Brazil border (between the Bolivian Prefecture of Pando and the Brazilian State of Rondonia) and two in Brazil (southwest of the city of Porto Velho). The Brazilians are moving forward with the construction of the dams in their territory, but protests from environmental NGO's have put the Bolivian dams on hold. ¶6. (C) In late July, a survey of the wind-power potential throughout Bolivia was released by Transportadora de Electricidad (TDE). After studying 10 years worth of records from 210 meteorological stations, TDE determined that a large region in southwestern Santa Cruz and a few other small pockets around the country are strong candidates for wind-powered electricity. The report is being hailed by some as a significant step towards reaching the goal of providing electricity for 210,000 rural homes by the end of next year. Queregazu cautions against the euphoria however, noting that there are a number of steps, and investments, between studying wind patterns and harnessing that energy. -------------- Shining Light on the Economy -------------- ¶7. (C) Also in July, the Ministry of Industry reported that Bolivia's average electricity consumption had stagnated at 890 MW after growing at 6% per year in recent years. This allayed the fears of previous years that rising energy demand would overtake the country's 1000 MW capacity. The GOB claims consumption leveled off as a result of energy-saving light bulbs being distributed around the country. Experts skeptical of the impact of the light bulbs point out that energy consumption is one of the most sensitive indicators of economic performance, and more likely reflects the slowing Bolivian economy. -------------- Evaluating Priorities -------------- ¶8. (C) Assad believes that Bolivia's first priority should be to reinvigorate its hydrocarbon sector. The price of gas, coupled with Bolivia's extensive reserves, would give the GOB the resources to finance many projects. The second priority should be the hydroelectric sector, according to Assad. The generation of power in Beni, Pando and La Paz, coupled with the increased irrigation created by a well designed dam, could help to even the economic playing field between the traditionally poorer West and more economically vibrant East, potentially defusing some regional tensions. Finally, Assad calls for upgrading Bolivia's roadways to attract foreign investment, increase commerce and boost tourism. -------------- Comment -------------- ¶9. (C) The lack of investment in recent years in Bolivia's energy sector is taking its toll on the entire country. Lack of production in the hydrocarbons sector has the industry simply running in place while potential revenues go unrealized. The GOB's inability or unwillingness to negotiate a compromise with environmental NGO's while Brazil moves forward on hydroelectric projects will probably result in Bolivia becoming increasingly dependent on natural gas, while their biggest foreign customer diversifies. The economic slowdown seems to have given YPFB a reprieve, causing energy consumption in Bolivia to level off. However, as the global economy rebounds, the pressure on Bolivia's electic capacity is likely to return. A return to 6% growth in consumption would give the GOB two years before demand would exceed capacity. Without investments in hydrocarbons, alternative energies, electric capacity and electricity coverage, Bolivians may find brownouts and blackouts a regular occurance. CREAMER