Changing energy policies in South America create opportunities for U.S. suppliers and investors - includes related article

Business America, May 17, 1993 by Rebecca Hunt, Paul Moore, Laura Zeiger-Hatfield

Last year's severe drought in many parts of the Andean region exposed the area's heavy dependency on hydropower and in some cases the need for better efficiency of electricity generation and distribution. Due to power shortages and other reasons many governments in the region are considering greater private sector participation in the electricity sector, which will mean new business opportunities for U.S. investors and equipment suppliers.

The following country summaries offer an overview of the market opportunities in Bolivia, Colombia, Peru, and Venezuela.

Bolivia. Several key projects and investments are being planned in Bolivia. The Bolivian government's estimated expenditures for power generation during the next three years will be $90 million annually. In addition, ENDE (the state-owned national electricity company which generates electricity for all of Bolivia except La Paz and Oruro) has applied for a $20 million loan from the World Bank to connect the existing eastern and western grid systems. COBEE (the privately owned subsidiary of the U.S. firm Leucadia, which services La Paz and Oruro) plans to invest $120 million to substantially increase its power generation capacity, and it has already purchased some transmission equipment. These projects alone present promising trade and investment opportunities for U.S. companies.

Plans are also under way to build a natural gas pipeline from Santa Cruz to Sao Paulo, Brazil, a total of at least 1,807 kilometers of 28- or 30-inch pipeline. Energy Minister Muller estimates the total cost of the pipeline to be at least $1.4 billion. The Japanese Export-Import Bank along with the World Bank and Inter-American Development Bank will supply much of the capital for this project. Private-sector participation and financing is also highly desirable for this project. After these plans are finalized, the Bolivian government will begin substantial work on proposals to create a natural gas pipeline to Chile.

A consortium of U.S. firms has proposed to build a natural gas pipeline from Bolivia to Tocopilla in Chile, plus an electricity plant at Tocopilla. The pipeline would be approximately 800 km, with 20-inch diameter pipe, at a total cost of $1 billion. Bolivian officials will not make a commitment to export additional gas via this pipeline until YPFB (the state-owned oil company) has signed a contract for the supply of gas to Brazil. Pipelines to both Paraguay and Peru are also being considered.

Colombia. The government of Colombia acted quickly to find solutions to the drought-induced energy crisis that, at its worst, led to 10 hours of blackouts per day in 1992. Emergency decrees facilitating private power generation and equipment import, and acceleration of delayed energy projects have reduced rationing to two hours per day, with full power availability expected by late spring.

With the immediate crisis now abating, authorities are focusing greater attention on medium- to long-term energy goals. Colombia will need an estimated 2,500 megawatts of additional installed capacity, which will require an estimated investment of $2.6 billion. Of this amount, $2.2 billion would be spent on generation, $350 million on transmission, and $80 million on studies of new alternatives and project design. The government believes that 30 percent of these financial requirements could be financed with resources from the local electric power sector, while additional financing will have to come from international organizations and the private sector.

Government-endorsed energy projects include up to 840 additional mw in gas-fueled projects, 600 additional mw generated by eight coal-fueled projects with a combined capacity of 1,650 mw, and 800 mw generated from three to four identified hydroelectric projects. In addition to expansion projects, the government is considering a law to privatize some of its electric utilities.

Regardless of the extent of privatization, the opportunity for U.S. exporters of energy generating equipment is very promising. The U.S. Embassy in Bogota estimates the import market will grow an average of 8 percent per year during 1993-95. This translates to imports of electric power equipment from $130 to $150 million per year. Best prospects include electric generator sets, combustion piston engines, DC and AC generators, steam turbines and parts, gas turbines, and commutators.

Peru. Over the last two decades, investment in Peru's electricity sector has been negligible, due to the state's monopoly on power generation since 1972. Past protectionist policies and curtailed lending from the international financial community, due to the previous administration's decision to suspend debt payments, have long hampered expansion and rehabilitation plans.

The substantial trade and investment reforms initiated by the Fujimori government have considerably opened up the economy and improved the overall business climate. In addition, the current administration successfully concluded arrears clearing programs with the international financial institutions, thus clearing the way for new credits to facilitate development.