GOE STRUGGLING IN FACE OF ENERGY CRISIS

UNCLAS QUITO 001110 SENSITIVE SIPDIS DEPT FOR WHA/AND, WHA/EPSC AND EEB/ESC/IEC E.O. 12958: N/A TAGS: ENRG ECON EINV EC SUBJECT: GOE STRUGGLING IN FACE OF ENERGY CRISIS REF: QUITO 1026 ¶1. (SBU) Summary. Shrinking reservoirs caused by a delay in the start of seasonal rains have reduced output of Ecuador's hydroelectric plants, causing a severe electrical power shortage and prompting the government to ration electricity usage throughout the country. The government is negotiating to obtain energy from Peru, to finalize purchase of around 70 small generators from Cuba, and is reportedly buying U.S. power generating turbines. President Correa has laid blame for the current predicament on a lack of foresight and investment by previous administrations, and global warming, for which he also blames the standard of living in the United States. Commercial losses, estimated as high as $20 million per day, are exacerbating Ecuador's economic recession, putting the government increasingly on the defensive. End Summary. And Then the Lights Went Out ¶2. (U) On November 5, for the first time in twelve years, the GoE began a series of on-going programmed power cuts throughout the country in response to a severe, nation-wide power shortage. No warning of a potential energy shortfall was given to the public prior to the energy cuts, prompting widespread criticism as families and business scrambled to cope with the loss of electricity. Local power companies have been posting information daily on their websites regarding scheduled outages by neighborhood, but they have not been reliable and outages are lasting as long as eight hours per day. ¶3. (U) Despite announcements that the cuts would be targeted on residential, instead of industrial areas, businesses have been hard hit. Quito's Chamber of Commerce has estimated the country could lose as much as $20 million a day as a result of the power rationing, with commercial output cut by 30-50%. Businesses complain that a lack of timely, reliable information regarding the electricity rationing has made it impossible to plan and adjust operational/employee schedules. Traffic and communication problems stemming from the power cuts, as well as safety concerns at night, have also dampened commercial activity. ¶4. (U) The immediate cause of Ecuador's power shortage is a drought in the southern province of Azuay which has led to low water levels in reservoirs that feed the country's hydroelectric plants. Hydroelectric plants account for about 45% of the country's installed power generation capacity, but actually supply most of its energy. In 2008, of the 19,109 Gigawatt-hours of electricity generated in Ecuador, 59.1% was supplied by hydropower, and 38.3% from thermal electric power plants. Currently, only about 834 Megawatts (MW) out of a total of 2056 MW installed hydroelectric capacity are reported to be operational. The massive 1075 MW Paute hydroelectric power plant in Azuay, which supplied 33% of the nation's power last year, is only operating one of its ten turbines due to low water levels. The relatively new San Francisco hydroelectric plant, seized from Brazilian firm Odebrecht in September 2008 for alleged construction flaws, is currently operating at only 90 MW of its 230 MW nominal potential capacity. ¶5. (SBU) To make matters worse, the country's antiquated thermoelectric plants are running far below maximum capacity. There is about 2500 MW of thermoelectric power installed in the country, but only about 1880 MW are connected to the national grid, the remainder being private generation facilities usually for industrial purposes. Of the thermoelectric power available for public use, news reports claim that 500 MW of capacity are totally off-line, with the rest operating below capacity. Most of these thermoelectric plants are state-owned, run on fuel oil or diesel, and have long suffered from a lack of resources for purchasing replacement parts, fuel and needed maintenance. Noble Energy's 130 MW Machala Power and Duke Energy's 180 MW plants are considered two of the most efficient thermoelectric plants in the country (septel). ¶6. (U) Last year Ecuador imported around 500 GWh of energy from Colombia, to supply about 2.5% of the country's total energy needs. However, imports from Colombia typically vary over the year depending on demand, and at times have accounted for 5-10 % of Ecuador's energy supply. The GoE lost this important source of energy when at the end of September this year, Colombia announced it would restrict sales of electricity to Ecuador and Venezuela due to an impending shortage of energy in its domestic market caused by a lack of rain to fuel its hydroelectric plants (ref A). GoE Action: Too Little Too Late ¶7. (U) On November 6, President Correa signed a presidential decree which established a 60-day "state of exception" for the electricity sector and outlined general measures to deal with the crisis, but fell short of a substantive solution to the problem. Decree 124 allows for the use of public funds to pay for imports of fuel for thermoelectric plants and calls for the Ministries of Defense, Transport and Public Works to prioritize the transportation of fuel to power generation plants. The decree also calls for the relaxation of government procurement rules to allow for the timely purchase of goods and services needed to overcome the emergency. Entities within the public sector which have generators are obligated to use them, as are private sector firms with generating capacity. The government has restricted the hours of operation of nighttime businesses such as bars and discotheques, limited nighttime public events, and suspended sporting events in the evening, as well as instituted other energy savings programs. ¶8. (SBU) According to the Minister of Electricity and Renewable Resources Esteban Albornoz, daily energy demand in Ecuador is running about 42,000 Megawatt hours per day (MWh/d) and the country is experiencing a generation shortfall of about 7,000 MWh/d, or around 17%. The GoE is scrambling in a number of different directions to cover the gap. In addition to touting the purchase of around 70 small generators from Cuba for use in the countryside (to be delivered in January),the GoE is negotiating the purchase of electricity from Peru, trying to lease power barges, and a delegation that traveled to Houston on November 11 is reported to be purchasing U.S. power generating turbines. There is widespread expectation that the power shortage will continue in some form until the end of the year. ¶9. (U) Once the rains start in earnest the immediate crisis may fade, but Ecuador will still be facing a tight energy picture through the next year. The government has 17 energy projects in various stages of development which will eventually add 1,115 MW of additional capacity. However, the large-scale projects, such as the 1500 MW Coca-Codo Sinclair hydroelectric plant and the 487 MW Sopladora plant are not expected to be operational until 2015 and 2014, respectively, and energy demand has been growing at about 5% per year. Four hydroelectric projects are currently under construction: Mazar, Baba, Toachi-Pilaton, and Ocana. The first to come on-line will be Mazar (February-March 2010) and Baba (end of 2010),but these will add only 160 MW and 42 MW, respectively. During his recent trip to Russia, President Correa signed an MOU for cooperation in the electric sector, more specifically for help with the construction and purchase of equipment for the Toachi-Pilaton hydroelectric plant. The GoE is also reportedly seeking an agreement with Iran for construction of the Quijos-Baeza and Rio Luis hydroelectric plants to supply a combined 115 MW of energy by 2014. ¶10. (SBU) During his weekly address on Saturday, November 7, President Correa said the country was facing its worst drought in 40 years, and blamed the negligence of past administrations and global warming -- in part caused by the standard of living in the United States -- for the country's current energy predicament. However, analysts in the media have been critical of the government for not taking preventive measures during its close to three-year tenure, pointing out that the frail state of the country's power generating system has been well known for a long time. COMMENT ¶11. (SBU) The Correa administration is clearly on the defensive, and for good reason. Its approval ratings were already dropping due to a faltering economy, rising unemployment and crime, and allegations of government corruption. Now the daily electricity outages, which are an inconvenience affecting all Ecuadorians and which are exacerbating the country's economic problems, could further reduce Correa's poll numbers. The government has its spin machine running full tilt, extolling the Administration's efforts to deal with the crisis and casting blame on others. However, we seem to have reached the point where government propaganda is losing its impact. Coupled with the current, strong opposition to administration policies from university professors, students and indigenous groups, the administration is increasingly being called to account for its policies and actions. The government's desperate scramble to improve the electricity picture indicates that it recognizes this political reality. CHRITTON CHRITTON