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Final j belt energy_asce_2008_august 2
- 1. The Energy Sector in Cuba: Financial and Economic Considerations Juan A. B. Belt Director Office of Infrastructure and Engineering USAID Presented at the Annual Meetings of the Association for the Study of the Cuban Economy (ASCE), Miami, Florida August 2008 The opinions expressed in this presentation are those of the author and do not represent the views of the US Government
- 2. 2 Disclaimer • The opinions expressed in this presentation are those of the author & do not necessarily represent the views of the US Government • All information comes from public sources available in the Internet • Special thanks & appreciation to my friend & colleague Luis Velazquez for his crucial support in the preparation of this paper
- 3. 3 Outline 1. Methodology 2. Comparisons with selected countries in Latin America 3. Electricity trends in Cuba 4. Financial & economic aspects of the electricity sector 5. Sector reform during a transition 6. Conclusions “Communism is Soviet power plus the electrification of the whole country” Cuba has continued to ignore financial and economic aspects
- 4. 4 LNG Plants (Sherritt) Thermal Plants Diesel Plants Gensets Domestic production PDVSA Imports 102.0 Refineries 35.0 CO 68.0 CO 51.1 RP 24.5 LNG 15.9 Diesel 53.4 FO 16.4 Diesel Oil and Gas Flows 2007 ('000 bpd, MM cfd) Power Generation (17,621 GWh) Transportation, Industrial, Residential, and Other Fuels 33.2 RP 2,797 GWh 404 GWh 11,099 GWh 3,321 GWh
- 5. 5 Liquid Fuels: Supply & Uses 2007 Liquid Fuel Supply bbl/day % of Total Domestic production 68,000 40% Imports 102,000 60% Total supply 170,000 100% Liquid Fuel Uses Power generation 85,700 50% Transport 84,300 50% Total uses 170,000 100%
- 6. 6 Comparisons with Selected Countries Cuba Chile Costa Rica Dominican Republic
- 7. 8 GDP/Capita & Electricity 2007 • Chile & Costa Rica have increased GDP/capita much faster than Cuba in 1959-2007; social indicators are similar in the 3 countries (Carmelo Mesa-Lago book) • DR has caught up and its GDP/capita is similar to Cuba’s • All countries essentially have universal coverage • Electricity consumption/capita is similar in Cuba & DR GDP/capita ElectricityCountry PPP (US$) Nominal (US$) Coverage (%) Consumption (kWh/capita) Chile 14,400 9,874 99 3,062 Costa Rica 13,500 5,525 99 1,730 Cuba 4,500 3,958 95 1,300 Dominican Rep 5,865 3,789 92 1,067 Source: CIA – The World Factbook – https://www.cia.gov/library/publications/the-world- factbook/
- 8. 9 Electricity Consumption (kWh/capita) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 1970 1990 2007 Chile Costa Rica Cuba Dominican Rep Since 1990 energy consumption in Cuba stagnated Chile Dominican Rep Costa Rica Chile, Costa Rica, and Cuba had similar consumption in 1990
- 9. 11 Cuba: Trends & Present Financial Issues * ** * * ** * * ** * * * * * Pinar del Río Cienfuegos Santa Clara Vicente Camagüey CTE 10 de Oct Holguí n Cueto CTE Felton CTE Renté Punta Gorda Matanzas CTE Guiteras CTE Habana CTE Mariel Haban a Cotorro * Bayamo * *CTE CMC Next Topics: 1. Electricity trends in Cuba 2. Financial & economic aspects of the electricity sector
- 10. 12 Unión Eléctrica – Nominal Installed Capacity (MW) 886 4,2754,078 4,287 4,411 3,960 3,965 3,764 5,176 5,389 397 2,731 0 1,000 2,000 3,000 4,000 5,000 6,000 1958 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 Increase: GENSETS 1,200 MW GAS 400 MW
- 11. 13 Electricity Consumption 1958-2007 (GWh) 0.0 2,000.0 4,000.0 6,000.0 8,000.0 10,000.0 12,000.0 1958 1975 1985 1987 1989 1992 1995 1997 1999 2001 2003 2005 2007 Total Industry and Construction Residential Others Ag / Trans / Comm “Período especial” Industry & construction 28% lower in 2007 than 1990 Blackout period Gensets & gas-fired plants
- 12. 19 Union Electrica: Economic Profit Description Units Results Crude Oil Price $/bbl 87 100 120 140 Fuel price (80% fuel oil, 20% diesel) $/bbl 112 125 145 165 Economic Profit M $ (1,503) (1,867) (2,427) (2,987) EBITDA M $ (709) (1,073) (1,633) (2,193) EBITDA (fuel discount 40%) M $ 547 329 (7) (343) EBITDA (fuel discount 100%) M $ 2,432 2,432 2,432 2,432
- 13. 23 Union Electrica: Labor Efficiency Comparisons Indicator Costa Rica DR Cuba Residential connections per employee 260 200 111 Electricity sold per employee (MWh/year) 2,837 881 409 Employees per '000 residential connections 3.8 5.0 9.0 Chile has only 0.7 employees per 1,000 connections
- 14. 24 Union Electrica: Total Unit Costs (G, T & D) Crude Oil Price $/bbl 87 100 120 140 Fuel price (80% fuel oil, 20% diesel) $/bbl 112 125 145 165 Cost per kWh sold $/kWh 0.310 0.336 0.376 0.417 Cost per kWh generated $/kWh 0.244 0.265 0.297 0.328 • Oil & diesel accounts for 70-80% of generation costs; Cuba 5th in the World in 2003 after Yemen, Iraq, Benin & Jamaica in use of liquid fuels for generation • Labor efficiency very low • Technical losses high (16%)
- 15. 25 Reform Takes Time & Requires Planning Activity Description Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Transition begins Infrastructure Strategy & Legal Framework Draft strategy Develop consensus Draft laws (power, telecom & water) Enact laws Establish regulatory agency Power sector Emergency Rehabilitation Program Operation contracts Unbundle / corporatize Adjust rates Sell DISTCOS Sell GENCOS Could be reduced to 3 years
- 16. 29 Generation • Cuba needs to diversify energy sources to reduce reliance on liquid fuels • For new generation capacity Cuba should promote greater use of 1. Gas (will depend on domestic availability) 2. Coal (will require bulk import handling facilities) 3. Biofuels including bagazze (would depend largely on revitalization of sugar industry) 4. Wind (becoming more competitive today) 5. Mini-hydro (fairly limited) 6. Solar (costs are still high) • Tariff free imports of machinery & equipment for renewable generation & reasonable tax breaks could reduce over reliance on liquid fuels
- 17. 31 Conclusions • Lack of reliable data makes analysis very difficult • Power sector suffered since the collapse of USSR but now blackouts not as common as in 2004-06 • UE rates do not cover economic costs • UE: expensive fuel, low labor productivity & high losses • UEs economic loss almost $3 billion or around 6% of GDP (oil price $140/bbl) • Reform to promote private participation would be necessary during a transition • Well-designed system of incentives to decrease reliance on liquid fuels should be implemented
- 18. Any questions? Juan A. B. Belt Director Office of Infrastructure and Engineering (I&E) Bureau for Economic Growth, Agriculture, & Trade (EGAT) US Agency for International Development (USAID) E-mail: jubelt@usaid.gov
Notes de l'éditeur
- FO – Fuel Oil RP – Refined Products CO – Crude Oil LNG – Liquefied Natural Gas Sherritt’ Gas-Fired Plants are located in Boca de Jaruco, Puerto Escondido and Varadero for a combined total of 376 MW, expected to increase to 526 MW in 2009 with the addition of a new 150 MW CC unit at Boca de Jaruco LNG was estimated at the rate of 1 CF of LNG ~ 1,020 BTU, and 1 kWh of electricity = 3,413 BTU. Plant capacity of 450 MW assumed to operate at 80%. See Sherritt Annual Report 2007 – http://www.sherritt.com/doc08/files/financials/2007%20Annual%20Report/2007_SIC_AR.pdf Sales Revenue was estimated on the basis of: An estimate of the number of domestic and foreign customers and their respective consumption levels. Unit prices assumed at different currencies and uniform application throughout the entire customers’ base. An initial currency conversion rate of 1 CUP per 1 USD. A sensitivity analysis was later performed for different exchange rates. Electricity consumption levels for all consumer groups were increased by 3% with respect to the levels of 2006. The official report Anuario Estadístico used the same approach for 2007. Fuel consumption for electricity production was assumed at productivity values between 12 and 15kWh/gallon of fuel. Metric tons of fuel consumed – as reported by the Anuario Estadistico 2007 – were converted to volumetric units of barrels of oil assuming densities between 7.5 and 9 barrels per ton of oil. Capital stock was estimated at an average replacement cost of $850/kW of installed nominal power generation capacity in 2007 US$. Transmission lines were valued at an average replacement cost of $29,000/km. No investments were assumed on transformers and substations. Annual capital costs were discounted at a 10% rate and a 20-year period used for similar infrastructure projects. O&M costs were assumed at 1.5% of the annual capital costs. Fuel and Crude oil prices, and refining margins were based on US figures reported by EIA.
- Caveat on volumes, etc
- Log Consumption/capita = - 2.27 + 1.41 Log GDP PPP/capita R2 = 0.7821
- Get graph w. GDP & energy consumption
- Can we get data back to 1958?
- Think more about this concept VA by power sector negligible. How can this be? Need to discuss Energy as % of GDP at different exchange rates
- #1 Develop Infrastructure Strategy. USG should support reformers POSSIBLE ULTIMATE OBJECTIVE 6-7 Private DISTCOS: regulated 10 private GENCOS; maybe one or more coal-fired base load plants; wind power; unregulated, except for environmental concerns; contracts reviewed by regulator One state-owned transmission company One market operator: government or owned my market participants (“club”) AGENDA FOR ACTION Plan A: support UE to improve control systems to introduce discipline & minimize asset stripping and tunneling If A not feasible, Plan B: performance-based management contract to introduce discipline & minimize asset stripping and tunneling Minimum investment to “keep the lights on” Develop laws, regulations and institutions to encourage private participation Establish regulatory agency separate from policy ministry
- Can we do a graph like the next slide????
- We need to discuss this graph