All posts tagged Energy

Venezuela: Trying to Stay Afloat

By Michael McCarthy* and Fulton Armstrong

Venezuela Oil Maduro

Photo Credit: Democracy Chronicles and Charles Henry (modified) / Flickr / Creative Commons

Venezuelan President Nicolás Maduro continues to receive increasingly bleak economic news, and his modestly positive policy responses seem unlikely to help.  Oil revenues dropped 293 percent from 2014 (US$37 billion) to 2015 (US$12.5 billion).  The value of oil exports, which account for 95 percent of the country’s export earnings, has dropped to a 30-year low ($30 a barrel), accelerating a recession, paralyzing shortages, and soaring inflation.  The Central Bank reported that inflation reached 180.9 percent in 2015, and that the GDP contracted for the second consecutive year (5.7 percent).  Maduro blamed an “imperialist strategy in a petroleum war” aimed at destroying OPEC.  He also asserted that Venezuela suffered from an “international financial blockade” that – by obstructing the country’s efforts to refinance its debt – was intended to force it “to its knees” and to “take over” its wealth.

Several days after celebrating a Supreme Court decision reaffirming his authority to declare an “economic emergency,” which the opposition challenged last month, Maduro this week announced several modest economic measures aimed at stemming the slide.

  • He ordered a 60-fold increase in gasoline prices – dramatic-sounding but preserving Venezuelan gas (about US$0.23 per gallon at the black-market exchange rate) as one of the cheapest in the world – but the decision is significant as the first increase in about 20 years. An increase in 1989 triggered riots – the famous Caracazo that most analysts cite as the beginning of the end of the old order that Hugo Chavez toppled definitively when elected President in 1998.  In allusion to this past, Maduro said he “hoped people on the streets would understand.”  (Caracas-based consultancy Ecoanalítica estimates that the existing fuel subsidy costs the Venezuelan government US$12 billion a year.)
  • Maduro also announced a 37 percent devaluation of the bolívar – from 6.3 to 10 to the U.S. dollar – for official exchange rates used for the essential goods like food and medicine. The bolívar trades at about 1,000 to one on the black market, but the decreased subsidy implicit of the official rate for necessities is nonetheless significant.
  • Venezuela’s proposal for an OPEC freeze in oil production, in hopes of driving oil prices back up, drew supportive remarks from Qatar, the United Arab Emirates, Russia, Saudi Arabia, and even Iran, but the scheme has lacked traction. Industry observers said one reason is that Tehran is eager to increase exports to regain market share as sanctions against it are lifted.
  • Maduro replaced economic czar Luis Salas – known as a hardline leftist – just five weeks after appointing him, and appointed in his place a more business-friendly economist, Miguel Pérez Abad, who had been serving as Minister of Commerce. Pérez Abad, whose appointment the President of the Venezuelan Chamber of Commerce described as a “friendly sign,” has publicly (and accurately) said that Venezuela must simplify its byzantine exchange rate system.
  • These changes come amid Maduro’s increasingly frank self-criticism about state corruption. He recently described a government food distribution company as “rotten” while calling for a restructuring of state-run food import and distribution outlets.

In a four-hour speech replete with foul language and insults against opposition leaders, the President argued that the measures are “a necessary action to balance things,” and he said, “I take responsibility for it.”  But his measures are piecemeal at best.  As opposition leaders have pointed out, he has not explained how he is going to pay Venezuela’s debt, obtain the foreign exchange to import sufficient amounts of basic goods, and guarantee food for the people.  With US$10 billion in bond payments coming due this year, the country has no clear path for avoiding default.  However painful for the population and politically costly for the government, measures such as gasoline price increases will have little impact.  The government wanted the opposition to share some of the costs for economic policy changes, but opposition politicians say that the gas price increase and devaluation are too little, too late. Most believe economic revival depends on dismantling the entire chavista system.  They are once again talking about removing Maduro through a referendum or other means – with one leader, Henrique Capriles, openly calling for a presidential recall, and another, Henry Ramos, the President of the National Assembly, calling for a constitutional amendment to cut the presidential term from six to four years.  The government’s measures suggest a welcome change from Maduro’s previous strategy of buying time through diversionary tactics.  However, the economic measures are likely to fail and, moreover, they increase the chances political temperatures will surge once again.

February 19, 2016

* Michael McCarthy is a Research Fellow with the Center for Latin American & Latino Studies.

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by clalsstaff on February 19, 2016  •  Permalink
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Posted by clalsstaff on February 19, 2016

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Mexico’s Petroleum Sector: Not Yet Out of the Woods

By Thomas Andrew O’Keefe*

Photo Credits: Ian Burt and Alex / Flickr / Creative Commons

Photo Credits: Ian Burt and Alex / Flickr / Creative Commons

The September 30 awarding of three contracts on five oil production blocks that the Mexican government opened for bidding has raised hopes that the Peña Nieto administration’s efforts to reform the country’s energy sector are back on track, but many challenges remain.  In contrast, an auction of leases on 14 blocks in July was a huge disappointment as contracts could only be issued for two of them.  The auctions are part of Mexico’s effort to reverse years of declining petroleum output by permitting private sector and foreign participation in an industry monopolized for decades by the state oil company, PEMEX.  Foreign and private sector firms are now allowed to enter into both profit- as well as production-sharing agreements with PEMEX and thereby retain a percentage of the gains on the oil they extract.  In some cases, outright concessions – termed “licenses” so as not to run afoul of the Mexican Constitution – are permitted.

A careful examination of the successful bids last month, however, leaves doubts as to whether the auction marks a change of fortune.  To entice a better response, the Mexican entity responsible for the auctions, the National Hydrocarbons Commission (CNH), relaxed many rules in a way that may be difficult to repeat and can be challenged politically.  Noticeably absent from the list of winning bidders are the major multinational oil giants.

  • The Italian state oil company, ENI International, won the block that attracted the most bids, while an Argentine-led consortium headed by Pan American Energy won a second block. They are well-known players in several South American countries – Argentina, Bolivia, Ecuador, and Venezuela – where the rules of the game are constantly changing and lack of transparency is a major issue.  The third block had only one bidder, a consortium made up of the U.S.-based Fieldwood Energy and Mexican Petrobal (whose director is PEMEX’s former director of exploration and production, Carlos Morales Gil).
  • The blocks awarded on September 30 are for already discovered shallow water fields, meaning lower geological risks for private operators. In order to make the auction attractive, the CNH lowered the fees required to bid and added the right to explore for new oil as well as pumping oil from existing reserves.

Mexican President Enrique Peña Nieto came to office in 2012 with an ambitious reform plan to revitalize the Mexican economy by focusing on structural reforms, including education, finance, telecommunication, transportation infrastructure, and energy.  While there have been noticeable changes in all five areas, the results have not yet led to significant improvements in Mexico’s economic performance.  The optimistic reform scenarios of three years ago are further clouded by corruption scandals – including one touching the President, his wife, and a finance minister who had houses built by prominent contractors who had won lucrative government contracts – the lack of progress investigating the Iguala Massacre (involving 43 students who disappeared), and high levels of citizen insecurity.  The real test for the Mexican energy reform – and the credibility of President Peña Nieto’s reform policies – will come next year when offshore deep water blocks in the Gulf of Mexico and extra-heavy oil fields are put up for auction.

October 19, 2015

* Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd.

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by clalsstaff on October 19, 2015  •  Permalink
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Posted by clalsstaff on October 19, 2015

https://aulablog.net/2015/10/19/mexicos-petroleum-sector-not-yet-out-of-the-woods/

A Post-Correa Ecuador?

By Catherine Conaghan*

Photo Credit: Thierry Ehrmann / Flickr / Creative Commons

Photo Credit: Thierry Ehrmann / Flickr / Creative Commons

What seemed like a certainty less than a year ago – Ecuadorian President Rafael Correa as a shoo-in for reelection in 2017 – now has given way to competing scenarios as the country’s economic crisis deepens.  The game-changer has been the collapse in revenues from Ecuador’s principal export: petroleum.  With prices for Ecuadorian crude hovering 50 percent below their 2014 average, Correa has had little choice but to slash the abundant government spending that has been the hallmark of his presidency.  Ecuador’s use of the U.S. dollar greatly handicaps its capacity to adjust.  Further aggravating the recession is the economic downturn of Ecuador’s principal external lender, China.  Over $2 billion have been cut from the 2015 budget, and plans to shrink the size of the public bureaucracy are now under way.  His decision in April to suspend the central government’s obligatory payments to the national social security system stoked anxiety about the fund’s future, and an announcement in June of plans to hike taxes on inheritance and real estate transactions sparked street demonstrations around the country.  Indigenous and labor organizations mobilized in mid-August to protest these and other aspects of Correa’s style of governing.  An estimated crowd of 100,000 people marched in Quito.  Scores of protestors were detained and face charges related to the August mobilizations.

The months ahead will not be easy for a president accustomed to buoyant budgets and strong polls.  As one of Latin America’s left-turn leaders, he pushed a state-centric economic model under which poverty declined and the middle class grew.  His approval ratings since he took office in 2007 consistently scored among the highest of any Latin American president.  (They dipped below 50 percent – as low as 42 percent – for the first time in 2015.)  While Correa waxes and wanes on whether he really will pursue reelection, his party is pushing to amend the Constitution through legislation – without a referendum supported by over 80 percent of the public – to allow him a third term.  The opposition strenuously opposes the move.  The National Assembly appears headed toward a final vote on the matter in December.

From now until December, the reelection maneuvering and two possible outcomes will dominate conversations.  Under one scenario, Correa and Alianza País will push ahead with the amendment, ignoring negative public reaction and repressing protests if necessary, and Correa will decide on his candidacy depending on his view of the economy and the state of the opposition.  In a second and perhaps less likely scenario, Correa and his party may just abandon the reelection plan, concluding that the political costs are just too high.  This would set off power struggles within Alianza País over who would head the ticket.  Among the prospective frontrunners are former Vice President Lenín Moreno, current Vice President Jorge Glas, Production Minister (and former Ambassador to the United States) Nathalie Cely, and former Industry Minister-turned-critic Ramiro González.  In the process, Correa will be looking to anoint someone loyal and capable of governing the country until he can return as a candidate in 2021.  Under both of these scenarios, Ecuador is bracing for a volatile year ahead.  Natural disasters – a possible volcanic eruption of Mount Cotopaxi and El Niño – could also fuel uncertainty, giving Correa a chance to shine and rally, or to fail and deepen doubts about his leadership.  After eight years of relative political stability and economic good times, Ecuadorians are pondering whether a post-Correa era could be at hand and what it would mean.

September 8, 2015

* Catherine Conaghan is the Sir Edward Peacock Professor of Latin American Politics at Canada’s Queen’s University and a former CLALS Research Fellow.

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by clalsstaff on September 8, 2015  •  Permalink
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Posted by clalsstaff on September 8, 2015

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Oil Scandal Besets Brazilian Politics … Drip-by-Drip

By Matthew Taylor and Luciano Melo*

Nestor Galina / Flickr / CC BY-NC 2.0

Nestor Galina / Flickr / CC BY-NC 2.0

Brazil’s oil scandal – the largest corruption scheme in Brazil’s history – probably won’t bring down the government of President Dilma Rousseff but will keep it in constant peril.  Since March 2014 the Brazilian Federal Police have been investigating the disappearance of tens of billions of dollars allegedly siphoned from the national oil company, Petrobras.  The company is a national symbol, founded by legendary President Getúlio Vargas in 1953, and a powerful economic force, especially in light of the discovery of massive deepwater oil off Brazil’s coast and the massive investments that have been undertaken to develop those fields.  No image captured Brazil’s triumphant resurgence over the past decade than a famous 2006 shot of President Lula holding up his hand covered in oil at a ceremony celebrating Brazil’s oil self-sufficiency.  (The picture itself was a takeoff on an iconic photo of Vargas.)

President Dilma Rousseff – who had close ties to the company as chairwoman of its board (2003-2010) and Minister of Mines and Energy (2003-2005) – is now confronting the dark underside of Brazil’s oil dream.  She is respected for her personal probity; nobody has suggested that she gained personally from the brazen corruption within Petrobras.  But critics point out that she was either cognizant of corruption or woefully incompetent.  As a result, the scandal weakens her considerably, just as she faces a revitalized opposition, a restive group of political allies, an economy grinding to a near halt, and a very real possibility that Brazilian debt will be downgraded to junk status.  Indeed, the scandal increases the chances of each of those four outcomes considerably.

The good and bad news from Dilma’s perspective is that the courts are very slow in Brazil.  If this case moves as quickly as the vote-buying mensalão scandal of 2005 – which was actually relatively efficient and effective by the standards of the Brazilian court system – final legal resolution of the case is unlikely before 2021.  Furthermore, for now there seems to be little appetite among the opposition for impeachment, possibly in part because some opposition members are rumored to be implicated as well.  So Dilma seems likely to survive politically, even as the scandal threatens to remain part of the political geography for the remainder of her second term.  This will be excruciating, as each week brings further revelations.  Indictments against a host of politicians are expected as soon as next month.  Perhaps most damaging in the long-term, though, will be the realization that nearly a decade after the mensalão scandal, legislative coalitions continue to be held together by the glue of pervasive corruption, and campaign finance appears deeply rooted in the misappropriation of public resources.

*Matthew Taylor is an associate professor at American University’s School of International Service and currently a fellow at the Woodrow Wilson Center for International Scholars.  Luciano Melo is a Ph.D. student in the School of Public Affairs.

January 22, 2014

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by clalsstaff on January 22, 2015  •  Permalink
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Posted by clalsstaff on January 22, 2015

https://aulablog.net/2015/01/22/oil-scandal-besets-brazilian-politics-drip-by-drip/

The Impact of Falling Oil Prices on the Western Hemisphere

By Thomas Andrew O’Keefe*

L.C. Nøttaasen / Flickr / CC BY-NC 2.0

L.C. Nøttaasen / Flickr / CC BY-NC 2.0

The sharp drop in the benchmark Brent crude price of oil from just under US$115 per barrel in June 2014 to its current perch around US$50 has important ramifications for the Western Hemisphere.  For Venezuela, which earns some 95 percent of its foreign exchange from petroleum exports, it is a potential disaster.  Underlying political tensions will be exacerbated if there is no money to continue funding social welfare programs or heavily subsidizing gasoline.  It probably also spells the end of PetroCaribe’s generous repayment holidays and what are in essence below-market interest loans for Caribbean and Central American nations.  Sharply lower oil prices also put at risk major energy projects such as the development of Brazil’s pre-salt reserves, which require a minimum price of $50 to $55 to be economically viable.  Equally tenuous are Argentine efforts to regain energy self-sufficiency by exploiting its vast shale oil and gas reserves and Mexican plans to attract foreign investors to participate in deep-water oil exploration and drilling.  The minimum price for a barrel of oil below which new investment projects in Canada’s oil sands are no longer attractive is around $65.  Shale oil producers in the United States are also being squeezed by low petroleum prices.

On the other hand, net energy importers such as Chile, Paraguay and Uruguay benefit from sharply lower oil prices.  Although being weaned off  PetroCaribe will be painful for the Caribbean and Central America in the short term, they will be able to seek oil at the lower prices elsewhere.  The pressure on the Obama administration to lift the ban on U.S. crude oil exports, in response to a glut of domestic shale oil production, could also redound in favor of the Caribbean and Central America by lowering international oil prices further through increased global supply.  Already, 2015 began with U.S. companies authorized to export an ultralight crude called condensate.

In hopes of rallying OPEC to stabilize oil prices, Venezuelan President Maduro last weekend rushed off to lobby Saudi Arabia, which just two months ago refused to decrease production in order to raise prices, but oil industry sources say there’s little chance of a policy change.  Meanwhile, the environment may turn out to be among the biggest beneficiaries of lower oil prices.  Less investment in shale oil production reduces the risk of leaks of methane, a potent greenhouse gas, as well as decreases flaring.  Similarly, slowing down oil sands production in Alberta and Saskatchewan means that the very high levels of greenhouse gas emissions associated with extracting crude oil from bitumen (not to mention the negative impact on water resources) is diminished.  Although lower fossil fuel prices traditionally have undermined incentives to move to greater reliance on renewable and non-traditional energy resources, this may no longer be true.  For one thing many governments around the world are now embarked on ambitious efforts to reduce carbon emissions by, among other things, raising the costs associated with petroleum usage through cap and trade regimes that force companies to buy government-issued pollution permits.  Still others have enacted outright carbon taxes on utilities and large factories per metric ton of carbon dioxide emissions.  In addition, the heavy initial capital investment that was previously associated with things like wind, solar and geothermal power are falling.  For example, a combination of technological advances and Chinese overproduction have resulted in much lower prices for solar panels so that the cost of generation from a large photovoltaic solar plant is now almost 80 percent less than five years ago.  Geothermal energy may be the renewable that most benefits as drilling rigs idled by lower oil prices are now available at a lower cost for geothermal projects.  

*Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd. and teaches at the Villanova University School of Law.

January 13, 2015

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by clalsstaff on January 13, 2015  •  Permalink
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Posted by clalsstaff on January 13, 2015

https://aulablog.net/2015/01/13/the-impact-of-falling-oil-prices-on-the-western-hemisphere/

The Amazon Basin: Rainforests, Oil, Politics, and the U.N. Climate Negotiations

By Todd A. Eisenstadt and Karleen Jones West

Photo by Caroline Bennett / Rainforest Action Network / Flickr / CC BY-NC 2.0

Caroline Bennett / Rainforest Action Network / Flickr / CC BY-NC 2.0

Research that we have undertaken with National Science Foundation support indicates that rural, indigenous, and impoverished citizens in Latin America mobilize on environmental issues out of simple self-interest.  In daily testimonials at last week’s meeting in Lima of the United Nations Framework Conference on Climate Change (UNFCC), activists reaffirmed that they have been mobilizing all across Latin America to protect their land and water.  The conventional argument in the political science scholarly literature is that environmental issues are a post-materialist concern that influence only the relatively affluent populations of advanced democracies, but our research shows that the self-interest of vulnerable populations in developing countries is a powerful motivation for environmental consciousness.

Original data from a national survey we conducted in Ecuador this year point to three interest-driven hypotheses as explaining attitudes towards the environment.  First, similar to literature developing in geography, vulnerability to environmental changes that impact on people’s livelihood greatly enhances interest in environmental issues.  Second, political competition affects individuals’ environmental concerns because politics determine the extent to which citizens will benefit from extraction as a development policy.  Third, we claim – particularly for respondents in the Amazon region subsample – that a respondent’s location on the “extractive frontier” (i.e. whether they live in an area where extraction is under consideration) will affect their level of environmental concern.  Using original survey data from Ecuador, we find that populations threatened by environmental change and who are on extractive frontiers (where mining and oil concessions are being considered) are more likely to express concern over the environment, but that these factors are conditional upon how much citizens trust that the government will use profits from extraction to invest in their communities.

The meetings in Lima and implementation of its results are testing the findings of our research.  The social impact of the 2009 Baguazo – the slaying of some 33 protestors against mining in Peru’s Bagua Province – is still a recent memory to many and is a constant reminder that the “extractive frontier” is long, dynamic, and fraught with social conflict.  For Ecuador, Peru, and the other Amazon Basin nations on the front lines of climate change, our findings imply that in this part of the developing world at least, vulnerability to environmental change has a great impact on public opinion.  Competing political interests and debate over whether to accept mineral or petroleum extraction is also intense because of the trade-offs they entail between environmental conservation and economic growth.  This is not a new debate, but one which is acquiring more precise definition by academics in studies such as ours (click here for full paper) as well as the policymakers who last week pushed the debate onward to Paris in 2015, where a new climate change framework is expected from the UN.

December 16, 2014

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by clalsstaff on December 16, 2014  •  Permalink
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Posted by clalsstaff on December 16, 2014

https://aulablog.net/2014/12/16/the-amazon-basin-rainforests-oil-politics-and-the-u-n-climate-negotiations/

Preparing the West Indies for the Demise of PetroCaribe

By Thomas Andrew O’Keefe*

ariwriter / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

ariwriter / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

The English-speaking Caribbean nations – whose heavy dependence on imported diesel and fuel oil to generate electricity has placed them among the most heavily indebted countries in the world (on a per capita basis) – will face massive headaches if PetroCaribe collapses.  They eagerly signed up for the Venezuelan initiative, which sells them petroleum with one- or two-year grace periods and long repayment schedules ranging from 15 to 25 years at 1 or 2 percent interest.  Participating countries can even pay with products or services in lieu of hard currency.  In the case of Guyana, Haiti, Jamaica, and the Eastern Caribbean mini-states, PetroCaribe’s financing scheme represents an estimated 4 to 7 percent of their annual GDP.  The worsening economic turmoil in Venezuela, however, raises serious concerns about PetroCaribe’s future.  According to recent media reports, PdVSA, the Venezuelan national petroleum company, is shortening repayment periods and increasing interest rates.

No doubt this is one reason why the Obama administration launched the Caribbean Energy Security Initiative (CESI) in June.  CESI seeks to diversify the Caribbean’s energy matrix away from its current heavy reliance on fossil fuels by using Overseas Private Investment Corporation (OPIC) loans and credit guarantees to encourage private sector investment in renewable energy.  It is premised upon the Caribbean’s huge potential to generate energy from the sun, wind, geothermal sources, and maritime currents.  In the past, the principal bottlenecks to harnessing these abundant resources have been hefty startup costs and small populations that make it difficult, if not impossible, for the private sector to recover profits within a reasonable period of time.  Although the initial capital investment for solar- and wind-based technology has dropped considerably in the last few years, it is unrealistic to expect Caribbean nations to make a full switch to renewable energy resources anytime soon.  A more realistic, short- to medium-term alternative is to make greater use of natural gas.  Although still a fossil fuel, gas is more efficient – and therefore the generated electricity is less costly – than fuel oil and diesel.  Moreover, electricity generated from natural gas emits 70 percent as much carbon dioxide as oil, per unit of energy output.

The shale gas boom in the United States generated by innovations in hydraulic fracturing has led to calls to lift restrictions on U.S. natural gas exports to those countries with which it does not have a free trade agreement.  The Caribbean is potentially a major target market of this natural gas in liquefied form (LNG), but this would be a big mistake.  Lifting restrictions on exports will inevitably raise natural gas prices in the U.S., thereby hurting consumers and putting the nascent revival of domestic manufacturing at risk.  It would also require building expensive LNG offloading and regassification facilities in the West Indies, which would run up against the same economies of scale limitations (except in Jamaica and Hispañola) that have undermined a mass transition to renewable energy.  A more realistic alternative is to revive plans to build a natural gas pipeline from Trinidad and Tobago to Barbados, and then up through the Eastern Caribbean.  Proposed back in the early 2000s, it was scuttled with the appearance of PetroCaribe in 2005.  Trinidad and Tobago has ample reserves of natural gas; at one point before the shale gas revolution it was the largest source of imported LNG in the United States.  The pipeline would link islands with populations of under 100,000, where LNG is economically unviable, with the more densely populated French dominions of Guadalupe and Martinique.  It would also help revive the floundering Caribbean Common Market and Community (CARICOM).

* Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd.

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by clalsstaff on September 9, 2014  •  Permalink
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Posted by clalsstaff on September 9, 2014

https://aulablog.net/2014/09/09/preparing-the-west-indies-for-the-demise-of-petrocaribe/

Resources and the New Developmentalism

By Paul A. Haslam*

María del Carmen Ortiz / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

María del Carmen Ortiz / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Resource nationalism is driving the most significant shift in Latin American development policies of the past decade.  It is rarely talked about yet is constituting a new developmental model that is being adopted by governments of diverse ideological inclinations.  It has involved reforming taxation regimes dating from the 1990s to extract more “rent” from natural-resource intensive industries; strengthening and extending state capacity; using rents to support social spending by the state, including anti-poverty programs; and – most importantly – linking resource abundance with industrial policy.  It is the basic framework of the post-neoliberal development model, and examples are many.  The splashier headlines in the past decade focus on various instances of nationalization, including the expropriation of YPF in Argentina (2012); Venezuela’s erratic nationalization program; and Bolivia’s dramatic military occupation of foreign-owned gas facilities in 2006 – all intended to achieve these goals.  Early this month, the provincial government of San Luis, Argentina, presented a project-law to create a new provincially owned mining company, San Luis Minera (SAPEM) – joining many fellow provinces that have created or breathed new life into state-owned enterprises (SOEs), particularly in the mining sector.

By and large, these enterprises exist to associate with multinationals, following the trail blazed by Argentina’s YMAD (in Catamarca) and Fomicruz (in Santa Cruz) during the dawn of Argentina’s mining boom in the late 1990s.  The SOEs typically offer the rights to prime potential lands claimed by the state, handle the administrative and regulatory requirements of the province, and in some cases, negotiate the social licence with nearby communities.  In exchange, they get a small net profits interest (typically around 8-10 percent), which results in rent for the province.  The multinational does everything else: raises the money; plans, builds and operates the mine, and sells the mineral.

These are not the rent-seeking policies typical of low-capacity governments.  The enduring principles of the liberal regime (such as low royalty rates) have pushed revenue-hungry governments to explore creative options such as these to capture rent from their mining sectors.  The new SOEs are also an institutional innovation that aims at leveraging natural resource wealth for economic development, as governments also expand resource-funded social spending.  One of the objectives of Morales’s “nationalization” of Bolivia’s oil and gas resources, for example, was to “revitalize” the state-owned YPFB (Yacimientos Petrolíferos Fiscales Bolivianos) as an engine of development.  Nor is this “resource nationalism” exclusively a project of the left: Chile increased royalty rates in a “Special Tax” on the mining sector in 2005, and Colombia and Peru have hiked taxation on mining as well.  Brazil has continued to use of SOEs like PETROBRAS.  It’s still an open question, however, how successfully the rents generated by this new model can be combined with industrialization or development strategies that deliver enduring benefits. 

*Dr. Haslam teaches at the School of International Development and Global Studies, University of Ottawa, Canada.

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by clalsstaff on August 19, 2014  •  Permalink
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Posted by clalsstaff on August 19, 2014

https://aulablog.net/2014/08/19/resources-and-the-new-developmentalism/

Prospects for Energy Integration in Latin America

By Thomas Andrew O’Keefe*
  Embed from Getty Images

South America’s presidents began discussing energy integration years before UNASUR made it one of its central initiatives, but these efforts have been hobbled by differences on what role the private and public sectors should play.  One tangible project that has emerged from UNASUR seeks to interconnect the electricity grids of Bolivia, Chile, Colombia, Ecuador, and Peru.  While the Colombian, Ecuadorian, and Peruvian grids (as well as that of Venezuela) are already linked, cross-border transmission of electric power is relatively insignificant.

Since the Sixth Summit of the Americas in Cartagena in April 2012, the UNASUR project has become part of a wider hemispheric agenda called “Connecting the Americas 2022,” which includes Panama and potentially – once the long-delayed Electrical Interconnection System for the Central American Countries (SIEPAC) becomes fully operational – all of North America.  The idea was promoted by the Colombians as hosts of the last Summit and emerged as one of the key mandates.  It seeks universal access to electricity through enhanced electrical interconnections, power sector investment, renewable energy development, and cooperation.  By focusing on electrical interconnections, the hope is to allow countries with excess power to export electricity to those facing deficits as well as permit greater integration of renewable energy resources and exchanges among countries with varying climate and seasonal needs.  Interconnection also expands the size of markets, creating economies of scale that can attract private sector investment, lower capital costs, and reduce electricity costs for consumers.  A separate initiative focuses on Brazil and the River Plate countries as well as the Caribbean.

A number of unanswered questions about “Connecting the Americas 2022” raise doubts about its viability.  For one thing, including Chile and Bolivia means that huge swaths of relatively empty territory will have to be traversed, which inevitably leads to losses of electrical power transmitted over long distances.  (The Chilean grid itself is not integrated, but divided into three separate systems.)  Furthermore, electricity generation in the Andean countries relies heavily on hydropower sourced from high mountain glaciers that are gradually disappearing as a result of climate change.  If “Connecting the Americas 2022” is to succeed, the regulatory frameworks of each participating nation must also be harmonized to facilitate long-term cooperation and network development.  Nationalistic concerns that have plagued the integrated Central American electricity network since it first came on line in the late 1990s must also be overcome.  The actual amount of electricity traded among the Central American countries has, to date, been minimal and is actually declining, as national governments have been reluctant to permit long-term contracts for the international sale of electricity that might put access to domestic electricity supplies at risk.  Such obstacles must be overcome to fulfill any vision for Latin American energy integration.

*Thomas Andrew O’Keefe is President of San Francisco-based Mercosur Consulting Group, Ltd. and teaches at Stanford University.

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by clalsstaff on May 29, 2014  •  Permalink
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Posted by clalsstaff on May 29, 2014

https://aulablog.net/2014/05/29/prospects-for-energy-integration-in-latin-america/

Mexico: Reform Promises Boost in Energy

By Amy Ruddle

Photo credit: Wonderlane / Foter / CC BY

Photo credit: Wonderlane / Foter / CC BY

Landmark reforms passed by the Mexican Congress last month – amendments to three articles of the Constitution – allow private investment in the country’s energy industry for the first time in 75 years. They open the door for international companies to enter into joint ventures with Petróleos Mexicanos (PEMEX), with the first round of contract bidding slated for 2016 – and increased oil and gas production as soon as 2018. PEMEX will remain state-owned and all hydrocarbons in the ground will continue to belong to Mexico, but private companies will gain rights to oil at the wellhead and be permitted to participate in site exploration, gas and oil production, seismic analyses, and the transportation, marketing and refining of these resources. They will also be allowed to bid for rights to conduct offshore and shale exploration.

Although the oil industry is expected to attract billions of investment dollars – PEMEX signed a cooperation contract with Russia’s Lukoil last week for an undisclosed amount – Mexican officials say they’re not rushing into deals. Undersecretary of Hydrocarbons Enrique Ochoa Reza recently said that the government is proceeding carefully, taking cues from Brazil and Norway as examples of how energy reform can be executed successfully. “In order to do it right – and we are committed to doing this – we need to do it one step at a time,” he said. The Mexican government’s hope is to return oil production (roughly 3 million barrels per day in 2012) to its 2000 levels (3.5 million) by 2025, and possibly 4 million barrels in the distant future.  In addition to creating jobs, the government projects the reforms will increase GDP by 1 percent by 2018, and by 2 percent by 2025. Increased revenues should stabilize budgets, fund a long-term savings mechanism, and eventually support long-term projects including the universal pensions system, scholarships, and science and technology research.

The next hurdle in energy reform will be passage of secondary legislation over the next five months — and faithful implementation. The transparency mechanisms written into the constitutional reforms, including public bidding rounds, transparency clauses in energy contracts, external industry audits, and the full disclosure of all payments related to oil and gas contracts are essential to success, but overcoming the corruption and inefficiency that have plagued PEMEX will require sustained effort. In addition, President Peña Nieto still has to sell these changes to the Mexican people. Tens of thousands of citizens took to the streets to protest the changes in early December, and opinion polls show that many, if not most, Mexicans are not in favor of them. Polls conducted by Vianovo in September (still deemed to be among the most accurate) show that only 33 percent of respondents favor profit-sharing contracts between the government and private companies to explore and produce hydrocarbons, although 53 percent were at least somewhat in favor of the energy reforms overall. Unions are upset too, as the union representing PEMEX’s 140,000 employees has now been eliminated from the company’s board, and private firms benefiting from the reforms may create labor contracts without union involvement.

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by clalsstaff on January 30, 2014  •  Permalink
Posted in Mexico
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Posted by clalsstaff on January 30, 2014

https://aulablog.net/2014/01/30/mexico-reform-promises-boost-in-energy/

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