Latin American growth continues

Issue 2 and Volume 101.

Latin American growth continues

ANN CHAMBERS, associate editor

Chile was the “success story of the 1980s,” but Argentina is becoming the success story of the 1990s, according to Carlos Yermoli, Hagler Bailly Consulting director, during the recent Latin America Power Industry Forum in Orlando, Fla.

Yermoli said Chile orchestrated a consolidation of the energy market, widespread Latin American investment, rebundling and consolidation of assets to make it the “grandfather” of market reforms in Latin America. Argentina, on the other hand, now shows “competition at its best.”

Yermoli said Argentina offers a “true model of sudden privatization,” as it has attracted capital into “one of the worst power sectors in the world.” Competition has brought pricing down. Peru and Bolivia are laying down the foundations for competition, while Colombia, Central America and the Caribbean are working on the legal frameworks to encourage more independent power activity.

Ecuador and Venezuela are fluctuating, taking a few steps forward toward an open market, then backtracking. In the fall of 1996, Mexico announced plans to open its market to full competition.

Brazil has 38 percent of the total power needs of Latin America, and there are high hopes for the market there, although the regulatory framework is confusing.

Yermoli offered predictions for the next five years in Latin American power:

A revival is predicted for hydro. Before privatization began, state utilities were planning many large hydro projects and the basic studies for these are complete. When private power entered the markets, these projects became unviable. They are high risk and capital intensive with long construction times, although the fuel is inexpensive. These projects will become more attractive as the markets stabilize and capital financing becomes easier and less expensive. Many of the projects were optimized based on financing costs and fuel prices and will need to be redeveloped to meet the needs of the private sector–producing revenue earlier and bringing in higher capacity factors.

Natural gas is predicted to have a strong effect on the southern part of the region due to pipelines which are going in.

Several countries are discussing the privatization of nuclear facilities.

The next few years should reveal the victor in the race to be the next big open power market. Brazil and Mexico are currently neck-and-neck. More than 5,000 MW need to be installed by 2005 in Latin America, with 58 percent of that in Brazil and 20 percent in Mexico. Venezuela also looks to be a large market, with predominantly hydro generation. In smaller markets, The Dominican Republic needs 1,600 MW by 2005, and Guatemala needs 1,100 MW.