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Mexico, Cuba: Next Hot Spots for Energy?

Fortnightly Magazine - July 15 2000

gas from oil production facilities.

"Cuba used to flare the gas," notes Best. "Now it's looking like there is quite a bit of gas there."

Best adds that Sherritt "will be adding another 75-MW combined cycle plant in the fall of 2000 that is scheduled to come online in 2001, which will bring our capacity to a total of 226 MW, with a corresponding investment of about $170 million." She adds that her company was "considering an additional 141-MW unit at Boca del Jaruco, which has not been decided on yet." Although the Sherritt Power facilities are "throwing off cash," the capital-intensive investments will not yield a positive cash flow until the end of this year, she projects.

INFRASTRUCTURE NEEDS. According to calculations by the Center for Studies on the Cuban Economy, in Havana, Cuba had a total of 4,345 MW of generating capacity at the beginning of 1999. Of that total, only 3,219 MW were connected to the grid, with the remainder spread out among Energas, tourist resorts, the sugar ministry, and the basic industry ministry.

Apart from the need for new generating capacity, Cuba is also faced with the daunting task of modernizing its aging thermal-based generation base in a cost-effective manner. Union Electrica hopes to increase its generating efficiency by 20 percent to 30 percent to help bridge the gap between demand and capacity, according to CubaNews. If demand is not relaxed through conservation and rising electricity prices, Union Electrica may be faced with the construction of a new $100 million thermal power plant. French companies are helping with the modernization program, says Best.

As Cuba produces more of its own oil through joint ventures with foreign companies, the island's feedstock should increasingly shift from oil to gas.

"The Cubans are bumping up their focus toward developing natural gas-based power and even hydro," says Kavulich. "In 1999 Cuba had $1 billion worth of fuel imports, so they are aggressively working to develop their import substitution plan." -C.T.

Over the last two years, Mexico's federal electrical agencies have raised the price of power to help provide more realistic returns to investors, she notes. "But there is no question that Mexico will have to [continue to] raise prices for power, or the investment money will flow somewhere else."

One way Mexico mitigates risk for power plant investors is to offer long-term power-purchase agreements through the federal utility, CFE.

In the case of the 545-MW Baijo project in San Luis de la Paz, in the state of Guanajuato, InterGen secured a contract from CFE, which agreed to buy 80 percent of the power generated by the $245 million project, scheduled to come online in 2001. The remainder of the power would be sold on a merchant basis. Financing for the project included direct and syndicated loans totaling $136 million from the Inter-American Development Bank, a $240 million Ex-Im Bank guarantee, and a Citibank loan to Mexican partner Aztec Energy. Construction of the project is being carried out by Bechtel International and GE Power Systems. (InterGen is owned jointly by Bechtel Enterprises Holdings