Case study: energy privatisation in Honduras

In the early 1990s, the Honduran electricity sector experienced a severe financial crisis when electricity tariffs were not adjusted to cover the debt incurred by the El Cajón hydroelectric project. To combat this, privatisation of the Honduran electricity market was mandated in 1994, but it was not achieved and the state electrical energy company (ENEE – Empresa Nacional de Energía Eléctrica) remained the only energy buyer in the country. A number of private generators of electricity, mostly small-scale and mostly producing hydroelectricity, operated under power purchase agreements with ENEE. By the mid-1990s Honduran electricity generation was largely hydro-generated, but financial conditions improved for private developers of thermal power stations, and by the mid-2000s 62 per cent of the country’s electricity was generated by thermal power stations in 2007.[1]

Technical losses, mainly through theft and illegal connections, had increased up to 25 per cent[2] and ENEE’s performance had been consistently poor throughout this period. Its financial difficulties had not improved by 2006 when a commission was charged with the running of ENEE because of these problems.

Mario Zelaya, an electrical engineer serving as a technical advisor to the commission, dates ENEE’s financial problems back to the early 1990s when the government was forced to privatise substantial parts of the national energy production due to requirements from the International Monetary Fund. In the process, the production moved from being mainly hydroelectric to mainly thermal – the latter being more profitable for the private sector.[3]

The ESMAP report cited above referred to this crisis as both “the emerging energy crisis” and “ENEE’s financial crisis.”[4] ENEE, then, is in crisis; and following the 2009 illegal overthrow of the elected President Manuel Zelaya, there have been reports that the illegitimate government which followed the coup government from January 2010 deliberately failed to enforce payment for electricity in order “to bankrupt the company as a pretext to allow financial corporations to take it over and privatise it.”[5] Aware of this process, ENEE’s labour union protested in October 2010 and demanded that the preparation for privatisation be halted.

The re-entry of Honduras into the Organisation of American States (OAS) in June 2011 acted as a spur to stimulate a renewal of interest of transnational investors in energy projects in Honduras. The IDB, having already violated its own charter by providing funding to Honduras during its period of suspension from the OAS, now has a programme to strengthen the Honduran energy sector. Much of the programme relates to the drafting of the regulatory framework for the sector, which “often refers to the legal framework for privatisation.”[6] It seems increasingly likely, then, that ENEE will experience a process of privatisation up to 2015. But as another World Bank report indicates, “If efficiency gains cannot be achieved to counterbalance the need to increase prices to cover costs, then the net impact on poverty could be dramatic, especially in very poor rural households.”[7] On the other hand, ENEE has shown an extraordinary resilience to the process of privatisation, perhaps through serendipity, over the past two decades.

Honduran hydroelectric projects are a major cause of local opposition. Consultation is not on the agenda of the post-coup Honduran government, and opposition to the Agua Zarca dam (on the Río Blanco) and the Patuca Dams (on the Río Patuca in La Mosquitia region) has grown in response to the violence of the security forces used to defend the construction of the dams. Details of both schemes and opposition to them are given in ‘The Violence of Development’ website.

In September 2010, the post-coup Honduran National Congress gave approval to 47 concessions for private energy generation projects around the country, 41 of them for hydroelectricity. Perhaps the government was hoping to stretch the opposition to such developments so far that it (the opposition) would not be able to concentrate its efforts sufficiently for success in any of them?

[1] Energy Sector Management Assistance Programme (ESMAP) (2010) ‘Honduras: Power Sector Issues and Options’, The World Bank, Report 333/10.
[2] Gobierno de Unidad Nacional (2010) ‘Estado debe invertir más de US$1,500 millones para satisfacer creciente demanda energética’, Visión de País 2010-2038, p.34.
[3] Anette Emanuelsson (31 July 2006) ‘Electricity company trying to recover three million lempira deficit’, Honduras This Week,
[4] Op.cit. (ESMAP, pp.xvi-xvii).
[5] Annie Bird (17 October 2010) ‘Honduran Coup Authors Poised To Pillage Indigenous Territory And National Energy Company’, Indigenous Peoples’ Issues Weekly News,
[6] Annie Bird (June 2011) ‘Honduras back in the OAS: Violations and militarisation will increase as the military coup authors ensure their economic interests, and the Resistance Front advances toward political power’, Rights Action,
[7] World Bank (2003) ‘Poverty and Social Impact Assessment (PSIA) – Demonstrations: Electricity Reforms in Honduras’, The World Bank.