CONSUMER FRAUD. The National Association of Attorneys
General, meeting Nov. 18 in Washington, D.C., to discuss electric restructuring, issued a warning to electric consumers on...
The governments of most Latin American countries have yet to establish clear policies about the future ownership of existing generation assets, but they do expect future capacity to be largely developed by the private sector. This has created friction in some countries between governments, which are eager to limit the role of the state in electric supply, and national utilities, which feel threatened and continue preparing traditional expansion plans. In assessing the region's power markets and preparing a strategy to penetrate them, the private power developer must take a critical look at utility plans, expose their incompatibilities with the government's stated independent power objectives, and build a case for independent power projects. The core problem is the predominance of hydroelectric power in Latin America and its abundant untapped potential.
Hydroelectric power in Latin America grew rapidly between 1960 and 1980. Development banks offered attractive financial terms, and fossil fuel prices were expected to escalate rapidly for a long time. These were the last decades in a long era of intense nationalism and extensive government control of all economic activity. Existing national power utilities were enlarged and new ones created. These became symbols of national independence and economic growth.
Many good and not-so-good projects were built during those years in every country in continental Latin America, including some of the largest in the world (em such as Itaipu, on the border of Brazil and Paraguay, and Guri in Venezuela. Many of the smaller countries built a single hydroelectric project that still accounts for a large portion of the national power supply and thus wields considerable strategic importance: El Cajon in Honduras, Chixoy in Guatemala, Arenal in Costa Rica, and Paute in Ecuador.
Ironically, hydropower has also been a major factor in the public's loss of confidence in the large national power monopolies it helped create. The droughts first experienced in El Salvador and Guatemala, followed by Colombia and more recently Honduras, provoked legislation to de-monopolize energy supplies. Power deficits at Ecuador's Paute hydroelectric project prompted a similar government response, and the corruption scandals surrounding the Yacyreta hydroelectric development on the Argentina-Paraguay border no doubt fueled one of the most sweeping and successful privatizations on the continent.
But most national power utilities in Latin America have not been dismantled or privatized to the extent they were in Argentina and Chile, and many may never be. Private power developers can expect mixed signals from a national utility fighting for survival and converted by a privatizing government into both an unwilling client and regulator of private power activity.
Planning at Cross-Purposes
Because they are based in a country were power has always been largely the domain of the private sector, U.S. investors maybe more apt than their European or Latin American counterparts to underestimate the change in mentality that private power policies, often hastily developed, impose upon these utilities. In some cases the reforms may ultimately become the overseas equivalent of the Public Utility Regulatory Policies Act of 1978. However, the pace of power-sector transformation, the expectations about its scope, and the circumstances of the utilities