Regional Studies

index

Chapter 1

Energy in Latin America, a rich and heterogeneous continent

The Latin American energy sector is rich in natural resources (oil, natural gas, coal, biomass and other renewable sources) and has experienced strong growth in the last decades. From 1980-1995, energy production grew 70.6% in Mexico, 57% in Brazil and 184.9% in Colombia.

Figure 1 under construction

Energy production in Latin America is highly concentrated within four countries that produce more than 80% of the total. According to 1995 data, Argentina, Brazil, Mexico and Venezuela produce 81.26% in volume of primary energy and 81.23% of secondary energy of Latin America. Primary energy is energy that has not been chemically transformed; in secondary energy, such transformation has taken place.

Latin America has about 14% of world oil reserves, second only to the Middle East (64.5% of global reserves). The reserves/production ratio (an index of oil supply capacity) is 50 years, which is intermediate among figures for other oil producing regions.

Natural gas reserves in Latin America amount to 7.47 trillion cubic meters, 5.3% of the total global reserves. The main natural gas reserves belong to Venezuela with 3.9 billion cubic meters (tm3), followed by Mexico (1.9 tm3) and Argentina (0.5 tm3). Peru has a large reserve in Camisea on its frontier with Brazil. With its 312 billion cubic meters, it is the largest gas field discovered in South America and concentrates 90% of the country's total.

Figure 2 under construction

As long as present levels of production are maintained, it is estimated that for Latin American Integration Association (ALADI) country members—Mexico and most South American countries—the natural gas reserves detected would suffice for 56 years of steady exploitation.

Latin America has the highest percentage (35%) of renewable energy (hydroelectric, wind, solar, etc.) in the world energy basket. South America holds great hydropower potential, but there are big disparities in levels of electrification and hence in people's access to modern sources of energy. In some countries, such as Bolivia and Peru, half or more of the population does not have access to electricity. In others, such as Uruguay, Brazil and Chile, more than 90% of the population has access to electric power. Argentina and Venezuela are closer to the latter group. In the middle are countries, such as Paraguay, Ecuador and Colombia, where, despite huge energy resources, 20%-35% of the population is deprived of modern sources of energy. Paraguay is an outstanding case: despite its huge hydroelectric resources and exportation of power, 34.3% of its mainly rural population does not have access to electricity.

Levels of Electrification in South America. 1995
(Public Utilities, quantities in thousands)

Source: CIER/ e: estimate

The rates of population with access to electricity in Central America are low, with the global electrification index at around 40 - 45%.

A comparison of these figures with the incidence of poverty shows that most countries in the region are reaching their limits for electrification under current socio-economic conditions. Therefore, current rates of incorporating new users (low-consumers in general) will be maintained only if incomes in the lowest income sector are substantially increased, or if electrification of this sector is subsidized by the state.

Surplus and deficit countries

Energy resource availability is unevenly distributed in Latin America. While some countries are oil producers and exporters, others are net importers, and an intermediate group produces oil for its own use. Some countries in the region are energy surplus countries while others are deficit countries that import oil, oil derivatives, electricity or other energy sources. Energy sources vary from country to country. In mainly rural countries such as Haiti, Honduras, Paraguay, Guatemala and El Salvador, firewood and charcoal account for more than 50% of the energy used, while in other countries biomass sources barely reach 10%.

Surplus countries in primary and secondary energy are Argentina, Colombia, Ecuador, Paraguay, Trinidad and Tobago and Venezuela. Except for Paraguay, the most widely exported product (and in many cases the only) is oil and its by-products. Paraguay exports electricity, which is its only surplus. Paraguay exports 243% of its total demand (electricity) and imports 56% of the same demand (oil).

Colombia, a net exporter of oil and coal, imports gasoline due to its insufficient refinery capacity; Columbia does not use its energy raw materials in its own economic sectors, it simply exports them.

Countries with primary energy surplus and secondary energy deficit are Bolivia and Surinam. According to 1995 data, Mexico has only a marginal deficit in secondary energy, producing 136.4 % of what it needs in primary energy and 97.8% of what it needs in secondary energy.

The countries with a deficit greater in primary energy than in secondary energy are: Chile, Panama, Dominican Republic and Uruguay.

Another group of countries produce all the primary energy they need, but have important secondary energy deficits, and are therefore forced to import. These are Grenada, Guyana, Haiti and Honduras

The country with the greatest self-sufficiency is Venezuela, which exports all of its surplus and does not import any energy. Venezuela is followed by Argentina, Bolivia, Colombia, Ecuador, Mexico and Trinidad and Tobago.

The countries with the greatest dependency on imports of primary and secondary energy are: Barbados, Costa Rica and Jamaica, with more than 50% of their imported supply of both types of energy.

The countries with the greatest dependency on imports of primary energy are: Chile, Panama, Dominican Republic and Uruguay. These countries have the greatest deficits in primary energy.

The countries with greater dependency on imports of secondary energy are: Guyana, Honduras, Granada and Surinam with over 80% of this energy imported. They are followed by Haiti and Guatemala, which import at least 50% of their secondary energy.

Institutional structures with similarities

Institutional structures in the Latin American energy sector were characterized by some features that were common to all countries on the continent. It was precisely against these features that the process of restructuring (de-regulation, privatization, etc.), which was started or intensified in the 90's, was directed.

In the oil, gas and electricity subsectors, the main roles were played by state-owned utilities. State-owned companies, such as Pemex and CFE in Mexico, YPF in Argentina, Petrobras in Brazil, Ancap and UTE in Uruguay, were among the largest companies in almost every country of the region. Private companies or cooperatives played a secondary role in almost every country, and these were mainly restricted to the distribution phase of fuels, fuel derivatives or electricity.

The organizational structures of these publicly owned companies—mainly in electricity—were, in general, more complex in countries that are larger and/or have federal political structures, such as Argentina and Brazil. Thus, there were public companies at the national level (dependent on the national government), at the state or provincial level, and at the municipal level, and there were also some state holding companies. Brazilian Electrobras is a typical example.

Public companies have, in general, displayed a monopolistic character in these energy subsectors. Market logic was frequently subordinated to political and social criteria and to a conception of public service, particularly in the case of electricity. In most countries, power supply has always been conceived as a public service, and, in some cases, this conception justified the existence of barriers to private capital participation and the constitution of state monopolies with a high degree of vertical integration.

State-owned utilities tended towards vertical integration, which placed the various phases of electric production (generation, transmission and distribution) or oil production (exploration, exploitation, refining, industrialization, commercialization, etc.) under the same enterprise structure.

In the biomass subsector, private agents have played the main roles.

In the coal subsectors, situations vary with participation of the state, private agents or joint enterprises (with private and public agents)

The state has played a major role in the electric power sector, not only as owner and operator, but also as market regulator and a service provider. The regulating function was assigned, in some cases, within the scope of state ministries or of some specific sectorial bodies (autonomous, in some cases), or to the public utilities that provided the service, in which case these utilities were both judge and party.

The involvement of the state in the energy sector had to do not only with the operation requirements of the sector, but frequently also with fiscal considerations, given the importance of oil and electricity as fiscal income sources.

The strong intervention of the state in the Latin American energy sector enabled broad access of the population to modern energy and the application of redistribution policies that benefited the poorest sectors. In some cases, it also generated corruption and negative redistribution that only benefited small groups—such as in the cases of Mexico and Brazil presented later in this work. In several countries, government administration of the energy sector led to the definancing and de-capitalization of energy enterprises.

Based on criticism of the above characteristics, the Multilateral Development Banks (MDBs) and supporters of the neoliberal paradigm have encouraged—and imposed—radical changes in the organization and regulation of the energy sector.

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