MDB & Energy Project: Regional Studies: Latin America Report

Energy and the Multilateral Development Banks in Latin America Contradictions between facts and discourse

Chapter 10
The MDBs could manage; but do they want to?

Although MDB energy policy includes social, environmental, conservation and efficiency considerations, in practice these are not prioritized by the banks. Rather, the MDBs give priority to strategic guidelines that contradict them.

The MDBs operate on the paradigm that competition and private-sector activity is always superior. Hence they have failed to note that privatization has replaced state monopolies in twenty Latin American countries by a private oligopoly of fewer than twenty large companies—mainly transnational enterprises. This has increased, rather than decreased, the trend of concentration and vertical re-integration. This same recipe is being imposed on countries with heterogeneous realities, through dogmatic implementation of an ideological paradigm.

Despite the MDBs' explicit statements on environment preservation and on the need for energy saving and efficiency strategies, little has been done on these aspects. On the contrary, the guidelines proposed for structural reform (competition, market logic and private capital precedence) contradict environmental and efficiency goals.

Likewise, little progress has been made on social equity and social involvement despite MDB statements on these issues. The prevalence of the competitive and short-term logic of private capital and the indulgence of government policies hamper any real protection of consumers or effective defense of groups that are negatively affected by energy sector operations. The recent Chilean power crisis is a clear example of how people become hostage to large, irresponsible private companies.

Nevertheless, the MDBs—with their resources and capacity to interact with governments in the region—are currently in an optimal position to foster a deep shift toward a socially and environmentally sustainable energy economy.

The policy implemented by the MDBs has given way to the substitution of private for state ownership in most of the energy sector. The huge economic and financial capabilities of those private enterprises (transnational companies or consortiums of transnational and local enterprises) is reducing the importance of MDB financing in the energy sector.

Thus, MDBs now have an opportunity to focus their resources (and political power) on developing areas that, being unattractive to the private sector, are of great social and environmental interest. The World Bank and the IDB could catalyze a gradual change from an energy economy based on fossil fuels to one based on clean, renewable energies with low environmental impact.

The MDBs could also lead a shift toward energy conservation and efficiency and guarantee equitable access to modern energy sources. Given their outstanding role in the development of other sectors (urban development, transport, industrialization) that influence the energy sector, the banks could help introduce deep changes in the energy matrixes of countries that accept their loans.

There are particular experiences in course that to date have received only marginal consideration. Such projects are within the capabilities of the MDBs and, with MDB attention, could gain the recognition they deserve.

The MDBs do not need to change their policies substantially to take on this new type of project; what must change is their action. Lending should be directed toward projects that are environmentally sustainable and socially equitable. But is this what the MDBs really want?

Total production of primary and secondary energy. Primary energy includes: crude oil, natural gas, mineral coal, hydroenergy, nuclear energy, firewood, cane products. Secondary energy refers to energy sources that have undergone some form of "industrial" transformation and includes: electricity, liquefied gas, gasoline/alcohol, kerosene and turbo, diesel oil, fuel oil, coke, charcoal, gases, non-energetic products (asphalt and solvents)
Transference pricing refers to prices used in intra-firm transactions between enterprises belonging to the same economic group. Lower or higher prices with respect to market prices permit the transfer of revenues from one company to others of the same group, according to the interests of the owners, and sometimes to the detriment of the minority shareholders
After 1974, some political problems arose between the Bank and the Mexican Government in reference to the financial management of the CFE. This resulted in a complete withdrawal of the support from the power sector, which lasted almost fifteen years. In Colombia, a serious problem arose between the WB and the Government due to discrepancies on tariff levels, which led to the cancellation of the last disbursement of a loan for the sectorial adjusment of the power sector (US$ 75 million out of US$ 300 million total) The cause for the discrepancy was that the Colombian government did not allow the acceleration of subsidy dismantling in view of the associated social, political and economic impacts.
In Uruguay, for example, project "Reform of the Energy Sector" was approved in 1996 by the IDB for US$ 630,000 with local funding of US$ 310,000. This loan provided by the MIF is intended for the study of a proposal for deregulating the fuel and natural gas sectors and a draft law on hydrocarbons. The main objective of this program is to generate favorable conditions for private investment in the sector.
Guio Torres, Diana Milena (1997) The Energy Sector and the Multilateral Development Banks, The Colombian Case.
Bernstein, Sebastián (1998). Different approaches to facing the changes in the regulatory framework of the electricity sector.
Ibidem.
Ibidem.
See the chapter on Colombia.
See the chapter on Uruguay.
Bernstein, Sebastián (1998). Op.cit.
Ibidem. However, the complex Mantaro, the most important of the country, will probably remain in state hands, or if it is privatized, it will be done through very special mechanisms that would grant its future return since it represents almost half of the system of the central-northern region.
Ibidem.
Ibidem.
Ibidem.
Ibidem. A generator may use CFE’s lines to supply clients that are somehow related or even not related, simply through this widening of the self-generator concept, if CFE agrees to accept them.
Ibidem.
Prices, both on the spot market and on the contract market. The spot market price is the marginal price or, in other terms, the variable cost of the additional unit required for satisfying the additional demand. In most countries, transactions made in the electricity market include a capacity price which corresponds to the power capacity, including back-up (alternative plants, for example).
The San Jose Agreement (1995) created the Energy Cooperation Programme for Central America and the Caribbean. Its goal is to find secure sources of hydrocarbon supplies for importer countries in the region and to diminish the weight of oil billing on their econommies. The agreement involves Barbados, Belize, Costa Rica, El Salvador, Guatemala, Honduras, Jamaica, Nicaragua, Panama and Dominican Republic. Mexico and Venezuela are the supplier signators of the agreement.
So-called "Memorandum of Understanding between Argentina and Brazil on power interchange development and future power integration."
See chapter on Brazil.
Data from Gazeta Mercantil (27/8/98) and Gazeta Mercantil Latinoamericana (9-15/8/98).
Based on data from El Cronista (25/08/98 - 27/08/98).
Based on data from Fortune America (13/05/98).
Based on data from El Cronista (19/08/98).
Based on data from El Cronista (28/05/98).
Based on data from Gaceta Mercantil Latinoamericana (9-15/08/98) and America Economia (31/12/98).
Ibidem.
According to declarations by EDF’s President, Alphandery.
Since 1995, Repsol has invested over US$65 million in gas stations in Ecuador; its overall investment in Ecuador amounts to nearly US$100 million with the recent acquisition of Duragas stock (El Cronista, 01/12/98)
Enersis-Endesa controls among others the Peruvian power distributor Edelnor and Brazilian Cerj which operates in the interior of the state of Rio de Janeiro.
See chapter on Colombia.
See chapter on Mexico.
Campodónico, H. (1996b). Cambios en el régimen de contratación petrolera en América Latina en la década de los noventa. CEPAL, Santiago de Chile. Quoted by Sáncez, Albavera Fernando (1997) Reformas petroleras: las opeciones en juego, In: Revista de la Cepal No. 62. Santiago de Chile.
Sáncez, Albavera Fernando (1997). Reformas petroleras: las opeciones en juego, In: Revista de la Cepal No. 62. Santiago de Chile.
Nova Corp. is member of GasAndes, owner of one of the gas pipelines which connects Argentina with Chile.
See Chapter 3.
CEUTA (1998). Banca Multilateral de Desarrollo y Energía, Montevideo.
See chapters on Brazilia, Colombia, Mexico and Uruguay*
OAS, Program for integrated energy development*
See chapter on Mexican.
Operational Policy for the Electric Energy Sector (OP-733) in Colombia.
See Chapter 2.
Guio Torres, Diana Milena (1997). El sector energético y la banca multilateral de desarrollo. El caso colombiano.
Equipo Pueblo (1997). La Banca Multilateral de Desarrollo (BMD) y la energía en México.
Ibidem.
Ibidem.
This lack of access to power services, which limits regional development was the motivation for implementation of a "program for power supply to rural population". This program aims to provide a minimal service to 315,000 users and 6,000 public services in the various provinces, with an investment of US$315 million and the use of alternative energy sources.
See chapters on the Colombian and Mexican cases.
See chapter 3.
See chapter on Brazil.
Gazeta Mercantil, 9 February 1998.
Las Ultimas Noticias, 22 November 1998.
El Mercurio, 17 November 1998.
El Mercurio, 18 November 1998.
Las Ultimas Noticias, 22 November 1998.
El Mercurio, 18 November 1998.
This journal belongs to the economic group Edwars.
El Mercurio, 18 November 1998.
Bermann, Celio (1997). Projeto Energía e Bancos Multilaterales de Desenvolvimiento. Informe Nacional, Brasil. See chapter on Brazil.
See chapter on Mexico.
CEUTA (1997)
Based on Bermann, Célio (1997), Projeto energía e Bancos Multilaterais de Desenvolvimento, Informe Nacional, and other sources.
Bermann, Célio (1997), Projeto Energía e Bancos Multilaterais de Desenvolvimento, Informe Nacional: Brasil.
See Chapter 3.
Based on Guio Torres, Diana Milena (1997). The energy sector and the Multilateral Development Banks. The Colombian case.
May, Ernesto (General Coordinator). La pobreza en Colombia. Un estudio del Banco Mundial. Tercer Mundo Editors. January 1996.
The total amount of all the economic resources that remain in the country as a result of hydrocarbon exploitation, such as royalties, direct or indirect taxes, remittances and transference payments.
World Bank 1996 Annual Report. Washington. World Bank, 1996.
Based on Equipo Pueblo (1997), La Banca Multilateral de Desarrollo y la Energía en México, and other sources.
Quintanilla Martínez, Juan. Demanda de Gas Natural en México. En: Integración de mercados, UNAM, Mexico, 1995.
Arriola Valdés, Eduardo (CFE). Planeación del Sector Eléctrico en México en el Nuevo Marco Regulatorio. In: Integración de mercados. UNAM, Mexico, 1995.
Ibidem.
Interview with Dr. Manuel Martinez, Energy Research Center, March, 1997.
Arriola Valdés, Eduardo, Op.cit.
Ibidem.
Silver, Daniel, "Mexico’s FIDE: A Leading Light for Energy Efficiency", E-notes, vol. V. Nº 1, Jan-March 1995, p.5; and Cardona, Carlos, "Mexican Energy Efficiency: Public Inerest and Private Initiative", E-notes, vol. VI, Nº II, November 1996, p.4.
Biller, Dan and Suzanne Maia, "Pursuit of Sustainable Energy Development in the Americas: A Look at Recent Progress", The World Bank, November, 1996, p.18.
Programa de Desarrollo y Reestructuración del Sector de la Energía, 1995-2000, p.65.
Source: "Staff Appraisal Report: Mexico Transmission and Distribution Project", March 20, 1990, p. 21-22.
Along these lines, part of the Transmission and Distribution Bank loan, approved in 1989, was to help in the adjustment of prices.
The 1996 Country Assistance Strategy (CAS) is very clear: "...the Bank shall provide technical assistance to improve the regulatory framework for private participation" (CAS of the World Bank Group for the United Mexican States, 15 October 1996, p.14).
Interview with a resident of the town, April 26, 1997.
Based on CEUTA (1997). Energy and Multilateral Development Bank Project. Uruguay Report.
Data on the emission of gases have been taken from the "Inventario Nacional de Gases de Efecto Invernadero" (National Inventory of Greenhouse Gases) of the Ministry of Environment for 1990.
Oil exploitation and use have similar effects.