Wind energy and power privatisation in Nicaragua

In September 2000 plans to bring wind power to Nicaragua were scuppered by the Inter-American Development Bank (IDB) which blocked the Spanish company IBERDROLA from providing this renewable resource.[1] The reason was that the value of the soon-to-be privatised national power company ENEL, would be significantly lowered, since the Spanish company would be able to provide substantially cheaper rates of power than ENEL. The foreign companies bidding to buy ENEL would therefore be allowed to continue to generate power, and pollution, from oil in old facilities which are constantly at risk of breakdown.

IDB officials threatened the Nicaraguan government with the stoppage of all IDB support should they proceed with the IBERDROLA deal. This was almost universally seen as a direct violation of Nicaraguan sovereignty. Despite strong opposition, however, the Nicaraguan government continued to privatise ENEL and agreed that a contract with the Spanish energy company would have negative impacts on the privatisation.

Outwardly, there were powerful interests which did not wish to see the conversion of an energy source that would liberate a country like Nicaragua from spending its scarce foreign exchange resources on importing petroleum to burn in inefficient and pollution-causing power stations.[2]


[1] Environmental Network for Central America (ENCA) (February 2001) ‘IDB blocks wind power in Nicaragua’, ENCA Newsletter No.28, pp.6-7.
[2] Nicaragua Solidarity Campaign (NSC) (Sept 2000) Eco-Alert correspondence, ‘Inter-American Development Bank Blocks Wind-Power in Nicaragua’, nsc@nicaraguasc.org.uk.

Case study: Energy privatisation in Nicaragua

Referring to the energy market in Nicaragua during the 1990s, John Perry states that:

If there was a ‘strategic vision’ for the energy sector it was to privatise both the generators and the distribution system, make even greater use of oil, and trust the private sector to start to invest in a more modern system. The geothermal plant was privatised and the hydro-electric plant allowed to run down to the point where it operated well below capacity.[i]

The privatisation of the electricity distribution system in Nicaragua involved the Spanish transnational company Unión Fenosa, now generally referred to as ‘Unión Fenosa – Gas Natural’ as a result of the purchase of the company by another Spanish transnational energy company, Gas Natural. Because of its significance in the region, a brief summary of the company’s activities in Central America is given in the box following this text.

Although most urban areas in Nicaragua had electricity, in 1990 half the population were still not connected to the grid, but Nicaragua could ill-afford to challenge the imposition of the privatisation of the energy system by the World Bank, IMF and IDB. In any case, for 17 years [1990 – 2007] it had governments that embraced them enthusiastically and were able to portray them to critics as inescapable requirements.[ii]

The crown jewel of privatisation was the electricity distribution system. Only one company, Unión Fenosa, made a bid. It created two distribution companies and various offshoots to give the appearance of not being a monopoly, and bought the whole system with its bid of only $115 million (slightly more than half the value placed on it by the government). As well as the infrastructure, it acquired Nicaragua’s limited technical expertise – the engineers and economists who run the system, and even the laboratory which tests household meters.

Nicaragua therefore entered the current century with a newly-privatised electricity system covering only half the population, massively dependent on oil imports, and charging the highest consumer prices of any country in the region. The government had limited regulatory ability to control a multinational company whose contract was, in any case, underwritten by World Bank guarantees. It had also completely failed to develop alternative, more sustainable power sources, which might have increased its flexibility in dealing with the Spanish multinational.

Despite the promises, privatisation brought little new investment, so not only was power generation based on imported oil, it took place in old and inefficient power stations afflicted by frequent breakdowns. A combination of mismanagement and large numbers of illegal connections meant that, of the power that was generated and passed to Fenosa, some 30 per cent was still being lost before reaching legitimate end users.

While higher prices in Britain affect transport costs and might lead people to curb optional travel or switch to public transport, in Nicaragua the effects of oil costing up to $100 per barrel have been much more dramatic. The cost of basic foods has increased by up to 40 per cent, and the daily bus journey to work might consume most of your weekly earnings.

Despite the fact that the original sale had factored in guaranteed profit levels, and had even assumed a high level (15 per cent) of ‘technical losses’ in the distribution system, Fenosa has persistently sought higher prices or has added extra charges to bills. Electricity prices in Nicaragua are higher than anywhere else in Central America.

In 2006 and 2007, amidst widespread protests and a situation described by one of the main national newspapers as living “… in a state of catastrophe”, the power cuts were extended and formalised so in most places they lasted up to ten hours per day. The effect on the economy was disastrous.

Yet these problems only directly affect half the population, as the other half continue to have no connections to the grid. The system has hardly grown at all since Fenosa took it over. Although its bid contained promises of investment, there was no contractual timetable about how and where this should take place. In fact, where rural areas have secured electricity for the first time, this has been through international aid rather than as a result of investment by Fenosa.

President Daniel Ortega has described Unión Fenosa as “a mafia; it is a mafia structure that uses gangster tactics within the global economy.”[iii] Compared with what Unión Fenosa does elsewhere in Central America, its operations in Nicaragua appear tame. In Guatemala, for instance, its behaviour is more appropriately described as gangster-like.


[i] Op. cit., John Perry, page 231.
[ii] I am grateful to John Perry for his permission to use this summary of the case study of Nicaragua’s electricity privatisation which was provided in Chapter 17 (‘The debate on energy and climate change – a different perspective’, 2008, pp.229-244) of a book published by The Chartered Institute of Housing entitled ‘Housing, the Environment and our Changing Climate’.
[iii] President Daniel Ortega quoted by Luis Alemán (12 November 2007) ‘Fenosa “oídos sordos”’, El Nuevo Diario, Managua, Nicaragua.

Unión Fenosa

Founded in 1982, Unión Fenosa is a Spanish transnational company involved mainly in the energy sector in a number of Latin American countries. It has recently become involved in waterworks projects and privatisations in Colombia, Costa Rica and Chile, and has shown interest in providing mobile telephony in Bolivia and Peru. In Central America the company has been involved in the generation and distribution of electricity in Panama, Costa Rica, Nicaragua and Guatemala.

In Panama, the company claims to be the country’s major distributor of electricity covering over 400,000 homes. Its principal Panamanian subsidiary is Unión Fenosa Edemet-Edechi, but it has also created Ufinet (Unión Fenosa Telecommunications Network) and ESEPSA which its website states is to develop renewable energy projects. Its parent company has been awarded ISO 14001 (2004) for its environmental management and ISO 9000 (2000) for its management quality.

In Costa Rica in 2003, Unión Fenosa began construction of the La Joya electricity plant on the Río Reventazón in the country’s Central Valley. The plant was inaugurated in 2007 and provides 3 per cent of the country’s demand for electricity. La Joya was developed under the Clean Development Mechanism of the Kyoto Protocol with the aim of limiting and reducing the emission of greenhouse gases. As such, great significance has been placed on its environmental sustainability, although there was considerable early opposition to the project on the grounds that it would affect the flow of and aquatic life in the Río Reventazón. These fears were in fact realised and life in the Río Reventazón is now a shadow of its former self. In 2008, Unión Fenosa’s second hydroelectric generating plant at Torito, also on the Río Reventazón, was approved by the Costa Rican Electricity Institute (ICE) which will buy all the electricity produced by the plant.

In Nicaragua in 2001, the Nicaraguan electricity network was privatised as demanded by the IMF. Unión Fenosa bought the network and divided its distribution system into two subsidiary companies to give the appearance of competition. The purchase included agreements about the reduction of charges, security of supply and investment in the network to improve quality and coverage. In reality, the opposite of these occurred, a situation which gave rise to public demands for re-nationalisation of the network. In 2005, the National Assembly refused to authorise price increases which the company claimed it needed in order to pay its suppliers, the generating companies. Thus began the round of power cuts – the energy crisis mentioned at the start of this chapter – suffered by Nicaragua through to the end of 2007.

The company has worked in Guatemala since the privatisation of electricity distribution in 1998. The company created two subsidiary companies, DEOCSA (Western Electricity Distribution) and DEORSA (Eastern Electricity Distribution). In the first five months of 2010 the CNEE (National Electricity Energy Commission) recorded 90,358 complaints against the two subsidiaries and the Human Rights Ombudsman´s Office had also received 78 complaints against the two companies. FRENA (the Resistance Front for Natural Resources / Frente de Resistencia por los Recursos Naturales) claimed that 16 of its activists were assassinated in 2009 and by half way through 2010 a further 8 had been assassinated.


Sources:
Energy Information Administration (Topic Editor: Langdon D. Clough) (2009) ‘Energy Profile of Central America’, Encyclopedia of Earth (Washington D.C.: Environmental Information Coalition, National Council for Science and the Environment) www.eoearth.org/article/Energy_profile_of_Central_America (accessed 7 July 2010)
Klaus Hess (2009) ‘The EU Reaches for Central America’, Friedens Forum, 3/2009.
Martín Cúneo, (2010) ‘Ocho activistas opuestos a Unión Fenosa asesinados en seis meses en Guatemala’, Revista Amauta, 15 April, http://revista-amauta.org/2010/04/ocho-activistas-opuestos-a-union-fenosa-asesinados-en-seis-meses-en-Guatemala (accessed 12 July 2010)
Toni Solo (2005) ´Central American Strikes and the Energy Crisis´, ZNet, 25 September.
Wikipedia, ´Unión Fenosa´, http://es.wikipedia.org/wiki/Uni%C3%B3n_Fenosa (accessed 12 July 2010)

Unión Fenosa in Nicaragua

The economic model developed in the USA and Britain in the 1980s was later imposed on developing countries by the international financial institutions (IFIs) – the World Bank, the IMF and in Latin America the Inter-American Development Bank (IDB). The model advocated cuts in public spending and the privatisation of state-owned enterprises, especially utilities such as energy companies.

Although most urban areas in Nicaragua had electricity, in 1990 half the population were still not connected to the grid … Nicaragua could ill-afford to challenge the impositions of these IFIs. But in any case, for 16 years it had governments that embraced them enthusiastically and were able to portray them to critics as inescapable requirements.

The crown jewel of privatisation was the electricity distribution system, … Only one company, Unión Fenosa, made a bid. It created two distribution companies and various offshoots to give the appearance of not being a monopoly, and bought the whole system with its bid of only $115 million (slightly more than half the value placed on it by the government). As well as the infrastructure, it acquired Nicaragua’s limited technical expertise – the engineers and economists who run the system, and even the laboratory which tests household meters.

Nicaragua therefore entered the current century with a newly-privatised electricity system covering only half the population, massively dependent on oil imports, and charging the highest consumer prices of any country in the region. The government had limited regulatory ability to control a multinational company whose contract was, in any case, underwritten by World Bank guarantees. It had also completely failed to develop alternative, more sustainable power sources, which might have increased its flexibility in dealing with the Spanish multinational. …

Despite the promises, privatisation brought little new investment, so not only was power generation based on imported oil, it took place in old and inefficient power stations afflicted by frequent breakdowns. A combination of mismanagement and large numbers of illegal connections meant that, of the power that was generated and passed to Fenosa, some 30% was still being lost before reaching legitimate end users. …

While higher prices in Britain affect transport costs and might lead people to curb optional travel or switch to public transport, in Nicaragua the effects of oil costing up to $100 per barrel have been much more dramatic. The cost of basic foods has increased by up to 40%, and the daily bus journey to work might consume most of your weekly earnings. …

Despite the fact that the original sale had factored in guaranteed profit levels, and had even assumed a high level (15%) of ‘technical losses’ in the distribution system, Fenosa has persistently sought higher prices or has added extra charges to bills. … Electricity prices in Nicaragua are higher than anywhere else in Central America. …

In 2006 and 2007, amidst widespread protests and a situation described by one of the main national newspapers as living “… in a state of ctastrophe”, the power cuts were extended and formalised so in most places they lasted up to ten hours per day. The effect on the economy was disastrous. …

Yet these problems only directly affect half the population, as the other half continue to have no connections to the grid. The system has hardly grown at all since Fenosa took it over. Although its bid contained promises of investment, there was no contractual timetable about how and where this should take place. In fact, … where rural areas have secured electricity for the first time, this has been through international aid rather than as a result of investment by Fenosa.


Source:
John Perry (2008) ‘The debate on energy and climate change – a different perspective’, Ch. 17 (pp 229-244) of ‘Opening Doors – Improving housing services for refugees and new migrants’, Chartered Institute of Housing.

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, www.marrder.com/htw/2006jul/national.htm
[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, www.isuma.tv/lo/iu/indigenous-peoples-issues-and-resources/honduras-honduran-coup-authors-poised-to-pillage-indigenous
[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, www.rightsaction.org/articles/Honduras_back_in_OAS_061111.html
[7] World Bank (2003) ‘Poverty and Social Impact Assessment (PSIA) – Demonstrations: Electricity Reforms in Honduras’, The World Bank.

Guatemalan opposition to Unión Fenosa dealt with by hitmen

fenosa-no-al-regreso-imagesCAWH8WC3-2On 11 January 2010 a delegation of members of FRENA (Resistance Front in Defence of Natural Resources and the Rights of People and Communities) held meetings in Guatemala City with various civil society organisations and government authorities, including the Ministry of Defence, the Ministry of the Interior and the Secretary General of the Presidency. The meetings were organised to present extensive documentation of complaints against DEOCSA, one of the two electricity distribution companies set up by Unión Fenosa.

Shortly after the meetings, the delegation returned to San Marcos. Evelinda Ramírez Reyes and three male FRENA members noticed that their car was followed by a four-door, white car with two passengers, both men of about 22-24 years of age.

At 8:30 pm, near Km. 208, the same car overtook them and blocked the road. The FRENA members´ car was shot at, possibly from another direction, and both Evelinda Ramírez and the driver were hit. The driver and two other passengers were able to escape from the car and hide from their attackers. Once the assailants had left the scene, the driver and the two other passengers returned to the car, where Evelinda had died from her wounds. Nothing was stolen during the attack.

Evelinda Ramírez was 26 and a single mother with a 5 year old son. She was a member of FRENA and president of the board of the community of Chiquirines, Ocós in the department of San Marcos. She was also a member of the Peasant Unity Committee (CUC).

By the end of 2009, no less than sixteen of the organisation’s members had been assassinated. Unión Fenosa denied any responsibility for the assassinations.

In February 2010, fifty organisations, trade unions and Spanish parties sent a letter to President Colom and to the directors of Unión Fenosa declaring that these assassinations had resulted from the social activism and opposition to the high costs charged by DEOCSA. The letter also pointed out the responsibility of the Spanish government in ensuring the continuing impunity enjoyed by the assassins.

2010 witnessed more assassinations of FRENA members.


Sources:
Martín Cúneo, (15 April 2010) ‘Ocho activistas opuestos a Unión Fenosa asesinados en seis meses en Guatemala’, Revista Amauta, http://revista-amauta.org/2010/04/ocho-activistas-opuestos-a-union-fenosa-asesinados-en-seis-meses-en-Guatemala (accessed 12 July 2010).
NISGUA-United States (together with a collection of similar solidarity organisations) (2010) Urgent Action bulletin.
Wikipedia ‘Unión Fenosa’, http://es.wikipedia.org/wiki/Uni%C3%B3n_Fenosa (accessed 12 July 2010)

Case study: energy privatisation in Costa Rica

Even in Costa Rica where at least 90 per cent production of electricity from renewable sources, the Costa Rican Electricity Institute (ICE) has been blamed for failing to invest in new sources of renewable energy, this leading “to the increase in reliance on fossil fuels to generate energy.”[i] In 2000, however, attempts to privatise the ICE sparked public protests and strikes on a huge scale, grand enough to force withdrawal of the proposed legislation. “Few argue that the services don’t need improvement, but opponents say the bill is too deeply tied to the personal financial interests of several political families.”[ii] Efforts to privatise the electricity generation sector disappeared from view for a few years, and from 2005 to 2007, the amount of power produced by thermal (fossil fuels-based) energy crept up from 3.5 to 8.2 per cent.[iii]

In February 2008, then President Oscar Arias announced his goal that Costa Rica would become carbon neutral by 2021. Since then, efforts to privatise have begun to re-surface, linked to attempts to increase the proportion of energy produced by renewable sources. Interestingly, the privatisation moves are also linked to attempts to promote small-scale energy generation. In March 2011, Arias’s successor, President Laura Chinchilla, issued a decree ordering ICE officials to promote small-scale power generation on the grounds that opening the electricity market to private companies would boost “the growth of small-scale power-producing businesses across the country.”[iv] Carlos Wahrman, an energy consultant, explains the thinking behind this move:

The Costa Rica Electricity Institute (ICE) has been designed to take on enormous endeavours, such as blasting mountains, building dams, flooding acres of land and changing landscapes. But ICE is totally unable to build small power generation plants because of its size. That’s where private initiative steps in.[v]

fenosa-3-guat-clip_image00224_thumb2-2Rather than an explanation, this sounds like questionable reasoning for privatisation, and it highlights the problems caused by large-scale electricity generation with its talk of blasting mountains and flooding acres of land. It also raises the question of why large companies or institutions are unable to work at the small-scale. Logically, it is easy to see why small companies may not be able to work at the large-scale; but there is no reason why large companies cannot work at the small-scale. With such feeble justifications it is not surprising that opposition to the privatisation promotion strategy is likely to rise again. As José María Villalta, a congressman for the Broad Front Party has said:

We have an electricity generation strategy that has worked almost flawlessly. The country has decided to take the path of renewable, cheap, environmentally friendly energies, and ICE has performed amazingly. The only people that would like to see energy competition under free-market rules are the ones who would [financially] benefit from it.[vi]

Indeed, in 2011 there was certainly some salivating within the business community that the privatisation of the ICE was likely in the near future, as a Business News Americas headline testified: “ICE seen likely to consider privatisation within next 5 years.”[vii] As a clear supporter of privatisation, President Laura Chinchilla and the business community are waiting only for the right moment when they consider they can gain approval for the ICE privatisation, but it is unlikely to occur without a fierce battle with a Costa Rican public that has managed to defeat the move once already and has been emboldened by victory in other battles such as a ban on oil exploration.


[i] Mike McDonald (4 September 2009) ‘Rising Energy Needs Prompt New Bill’, Tico Times, San José, Costa Rica.
[ii] Megan Stacy (19 April 2000) ‘Costa Rica: Strikes, marches force delay of privatisation’, Green Left Weekly, Australia, www.greenleft.org.au/node/22511 (accessed 24.07.11).
[iii] Ibid.
[iv] Rommel Téllez (15 April 2011) ‘Chinchilla Administration Furthers Push For Renewable Energy Sources’, The Tico Times, San José.
[v] Ibid.
[vi] Ibid.
[vii] Business News Americas (28 April 2011) ‘ICE seen likely to consider privatisation within next 5 years’, Business News Americas, http://www.bnamericas.com/news/telecommunications/ice-seen-likely-to-consider-privatization-within-the-next-5-years1 (accessed 26.07.11).

Nicaragua hopes to run on 100% clean energy in six years

Nicaragua News Bulletin 11 May 2010 – May 2010

In an effort to reduce dependency on petroleum, Nicaragua’s Ministry of Energy and Mines (MEM) has set the goal of running entirely on renewable energy by 2016. Today, approximately 30% of Nicaragua’s energy comes from renewable sources (including geothermal, wind, hydroelectric, and biomass) while the other 70% comes from oil.

A number of projects (both public and private) are helping to change these percentages and make the Ministry’s goal a reality. Iceland’s International Development Agency will support growth within the geothermal sector with over US$4 million. Director Gil Paison said that the objective was to strengthen the capacity of Nicaragua’s central government and the ministries and agencies involved in the geo-thermal energy field.

Energy Minister Emilio Rappaccioli recently visited the geothermal project ran by Polaris Energy and Queiroz Galvao, a Brazilian company, at San Jacinto-Tizate. The companies are currently expanding the capacity of the plant and installing new technology. They hope that by next April it will be producing 36 megawatts (up from 10 megawatts), enough energy to supply the departments of Chinandega and Leon. Tom Ogryzlo, head of Polaris Energy Nicaragua, said, “I have worked in many countries around the world and in only a few places have I seen the support from a government similar to that which has been offered by this government.” A total of US$151 million has been invested in this phase of the operation.

Rappaccioli said that by 2012, the geothermal plants at San Jacinto-Tizata and Momotombo will be producing between them 72 megawatts of electricity. Polaris Energy already has a contract to sell energy to Union Fenosa (the Spanish-owned electricity company which runs Nicaragua’s energy distribution network) at US$92 per megawatt hour. (La Prensa, May 6; Radio La Primerísima, May 7, 8)