March 19, 2002
A Conference Presented by
THE CENTER FOR LATIN AMERICAN ISSUES
OFFICE OF EXTERNAL RELATIONS OF THE
ORGANIZATION OF AMERICAN STATES
Promoting Integration and Development
Through Enhanced Energy Supply
(Follow the hyperlinks to view the speaker presentations.)
Energy resources, particularly oil, natural gas and hydropower, are
abundant in South America. Establishing the infrastructure to extract
these energy resources and to distribute them throughout the hemisphere is
an outstanding business opportunity and is a significant component of the
hemispheric integration process. Perhaps most importantly, energy supply
should be viewed as a measure of and a stimulus to economic and social
development in Latin America. The conference presenters focused on these
topics as they discussed the possibilities and challenges of developing
energy resources in Latin America.
|CLAI interns Eliane Bucar, Claudia
Araujo, and Sonali Isaac (seated, r. to l.) greet a conference guest.
||Magdalena Talamás, of the OAS’ Office of External
Relations, welcomes conference attendees. The OAS co-hosted the
conference with CLAI.
The energy sector holds great promise for Latin America. There is an
enormous market for oil, natural gas and hydropower, both within Latin
America and in the United States. The energy reserves available in Latin
America will outpace the region’s demand for the next several decades,
making it a net exporter of energy. At the same time, the energy needs of
the United States (Latin America’s primary trading partner) are
significantly greater than its reserves. The challenge is to develop the
transportation infrastructure as quickly as possible. According to
Latin America will require as much as $200 billion of investment over the
next 20 years to reach its potential as an energy supplier. This scenario
predicts 12-20% growth in the energy sector during that time.
Events of the last 20 years have not helped Latin America to develop this
potential. During the macroeconomic crises and fiscal adjustments of the
1980s and 1990s, infrastructure and power generation suffered
disproportionately, according to Luis Serven. As
public financing of infrastructure development decreased dramatically
during the financial crises, private financing increased. This increased
private investment has led to a partial investment recovery, but it has
not been sufficient to develop energy resources sufficiently. The result
of the infrastructure compression has been slower growth, lower export
competitiveness, and lower profitability than would be the case otherwise.
The current 20% gap between Latin America and East Asia in energy
production, a gap that has developed since 1980, is a direct result of the
failure to develop the hemisphere’s energy infrastructure.
Until the 1980s, most energy investment was driven by the public sector.
Market liberalization, led by Chile, has shifted this focus to business.
While governments have an important role in establishing the regulatory
framework for investment and development of energy resources, financing
for new development will have to come primarily from the private sources.
Attracting foreign investment, then, is critical to the development of the
energy sector in Latin America. A key impediment to promoting this
investment is institutional instability. According to Gary Ward, the
political situation of the late 1990s had a dramatic impact on capital
flows. Foreign direct investment in Latin America dropped 22% from 1999 to
2000, and dropped another 13% in 2001. What businesses are seeking, says
Jaime Millan, is
a business arena that is low risk and high profit. Strong, stable
governing and judicial institutions will make nations much more appealing
to foreign investors. Carlos
Salinas-Estenssoro remarked that terrorism is yet another factor
working against energy infrastructure development. This is especially true
in Colombia, where terrorist attacks have resulted in the loss of 2.2
million barrels of oil.
|Carlos Salinas Estenssoro, Vice
Minister of Energy and Hydrocarbons of Bolivia, speaks of his
country’s potential as an energy exporter.
||Panel 1 members Luis Servén (World
Bank), Rob Weiner (GW Professor of International Business) and Ramón
Espinasa (Inter-American Development Bank) describe the energy macro
scene that prevails today in South America.
The current energy crisis in Brazil indicates some of the
shortcomings in the Latin American energy sector. In spite of its
extensive hydroelectric power production, last year Brazil confronted a
critical power shortage. Minister Pedro Parente
noted that, in addition to the severe drought, structural factors
contributed to the emergency.
For example, because of the electricity marketing model, prices in
long-term purchasing contracts failed to adjust to the changing climatic
conditions. In addition, the power distribution system, which was entirely
publicly owned and operated until 1996, is suffering from a lack of
management experience. Xisto Vieira
described efforts to deal with the energy crisis, which emphasized
reducing demand and diversifying energy resources by developing thermal
power generation and alternative energy resources.
|Pedro Parente, Chief of Staff of the
Government of Brazil, and Brazil’s interim Minister of Energy,
describes his plans for modernizing the electricity sector in Brazil
to meet his country’s growing energy demands.
||Minister Parente (second from left) receives
certificate attesting to his new status: that of CLAI Fellow. With the
Minister are (l. to r.) CLAI director, Dr. James Ferrer, Jr.; Brazil’s
Ambassador to the United States, the Honorable Rubens Barbosa; Mrs.
Talamás; the Honorable Valter Pecly Moreira, Brazil’s Permanent
Representative to the OAS.
Brazil is not alone in its efforts to create more efficient and reliable
energy systems. There are several partnerships underway that are moving
Latin America towards more complete integration, including natural gas and
electricity sharing between Brazil and Argentina; natural gas from Bolivia
to Brazil; electricity from Venezuela to Brazil, etc. Bolivia even
anticipates the construction of a network that will allow it to export
significant quantities of natural gas to the United States. Several
presenters envisioned efforts to link the entire continent with oil and
natural gas supply lines. According to Luis Enrique
Berrizbeitia, two key factors in promoting coherent regional
development are homogeneous energy policies and harmonization of energy
regulatory criteria. To continue and to expand these efforts so that Latin
America can achieve its potential as an energy resource supplier,
governments will have to promote dialogue between public and private
|The Andean Development Corporation’s
Executive Vice President, Luis Enrique Berrizbeitia, addresses the
conference. CAF was a conference Co-sponsor.
||Sergio Ugarte, former Vice Minister of Energy of
Peru (l.), and Luis Giusti, former head of Petroleos de Venezuela, SA
(the Venezuelan national oil company), share a moment on Panel 2,
which addressed impediments to energy investment.
A fully developed energy supply system would bring great benefits. A more
stable energy supply throughout Latin America would be a catalyst for
development. Increased exports would mean more earnings.
noted that efficient energy production is also an issue of regional
security: a self-sufficient Latin America would be less susceptible to
world energy market fluctuations.
We gratefully acknowledge our sponsors, without whose generous support
this conference would not have been possible. To visit our sponsors’ Web
sites, please click on their logos.