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tortillaconsal punto/dot com
by Karla Jacobs, December 27 2008
There are many factors that lead one to wonder what would have become of Nicaragua if one of the right wing candidates had won the presidential elections in 2006. Most prominent among these factors are the Nicaraguan right wing opposition's lack of realistic policy proposals concerning the most pressing national issues and their more than evident inability to improve living conditions for the majority of the population. Surely one of the most critical issues that the national right wing, in its various party political manifestions, failed to address was the virtual collapse of the country's electrical energy sector. (During the last year of Enrique Bolaños' government, the entire country was subjected to daily power cuts lasting between four and fourteen hours.)
The three neo-liberal administrations that preceded the current FSLN government were characterized by the implementation of policies based on systematic cuts in public spending, privatization of public services and submissive acceptance of unacceptable abuses by big business. Ordinary Nicaraguans suffered the progressively damaging effects this form of economic laissez-faire had on their basic human rights for 16 long years.
Collapsed energy sector
The multipronged social and economic crisis created as a result of the unquestioning implementation of neo-liberal economic policy was part of most Nicaraguans' daily experience long before members of the minority elitist classes began to suffer the disruption of daily power cuts. Banks, multinational chain stores and the richest of the rich were able to protect themselves from the crisis to a certain extent as the purchase of diesel run generators and fuel did not make too much of a dent on their profit margins or fortunes. Unable to absorb similar dents, however, tens of thousands of small and medium business owners went under. The school year was disrupted for tens of thousands of students.The lives of patients in Intensive care were put at risk in hospitals that could not afford to maintain a generator. It was impossible for the National Police to guarantee citizen security after dark. And yet the government did next to nothing.
In August 2006, after a relatively dry wet season, Bolaños warned that the only hope for a reduction in the country's growing energy deficit would be above average rainfall in September and October so that Nicaragua's biggest hydroelectrical plant, located in Lake Apanás, was able to operate at full capacity. If the below average rainfall continued, he said, the energy crisis "could get worse in the dry season."
Lack of investment and progressive privatization
At the time representatives of the Bolaños administration spoke a lot about the problem of the increasing oil price. There is a lot more to the Nicaraguan energy crisis than that, though. The neo liberal governments' most significant failure in terms of ensuring the nation's energy security was the lack of investment in new energy generation plants and maintenance for existing generation plants.
Between 1996 and 2006 only 142 additional megawatts (MW) were made available to the national grid. Over half of the "new" energy created during this ten year period is produced in conventional fossil fuel combustion generating plants exacerbating further the country's irrational dependence on oil for electrical generation. Nicaragua has the potential to produce over ten times the current national demand from renewable sources (see table below). Despite this, the country currently depends on imported oil derivatives to generate roughly 75% of its electricity.
Nicaragua's potential and effective renewable energy generation
| Type of Generation | Potential (MW) | Effective Capacity (MW) | % of potential capacity currently being made use of |
| Hydroelectric | 3,280 | 98 | 3 |
| Geothermic | 1,200 | 37 | 3.1 |
| Wind power | 800 | 0 | 0 |
| Biomass | 200 | 60 | 30 |
| Total | 5,480 | 195 | 3.6 |
taken from the Ministry of Energy and Mines' Strategic Plan for the Energy Sector
Insufficient efforts to promote investment in Nicaragua's enormous potential for renewable energy meant that the country was doomed to suffer severe energy insecurity when in 2005 the international oil price began to rise. During 2006 Nicaragua paid out 65% of the value of its exports to import oil and other petroleum derivatives.
As well as a lack of investment, a progressive process of privatization was imposed on the National Electricity Company (ENEL) between 1990 and 2006 with the sale of numerous generation plants to national and international "investors." Meanwhile some of the more important generation plants still under possession of ENEL, which was by now severely undermined, such as the Managua Plant (57.4 MW) and the Las Brisas Plant (81 MW), were subjected to such extreme underfunding that they experienced frequent technical failures.
It seems fair to suggest that, as was the case with the National Water Company (ENACAL), the neo-liberal governments' plan was to provoke an unprecedented crisis within ENEL as a pretext to justify the complete privatization of the company.
Union Fenosa's credit anomalies
Other factors which create energy insecurity in Nicaragua include the fact that roughly 30% of all electricity generated in Nicaragua is lost due to technical faults in the national grid and energy fraud (energy "stolen" by electricity consumers who have illegal connections to the grid). This situation is exacerbated by the failure of Union Fenosa (the Spanish company that distributes electricity in Nicaragua) to invest in maintenance, repairs or expansion of the national grid.
Despite the company's failure to comply with the investment commitments outlined in its contract (investments which were designed to reduce this type of losses and expand the national grid) Union Fenosa has consistently claimed to be making multi-million losses in Nicaragua (while sending healthy profits back to its share holders in Spain). During 2005 and 2006 Fenosa regularly refused to pay generating companies for electricity provided, thus provoking a lack of liquidity within the energy generating sector.
The lack of investment in new generation plant together with frequent and serious technical faults in existing generation plant and a lack of liquidity within the sector meant that by the end of 2006 the country was suffering a permanent energy deficit of nearly 100 MW. (At that time the average national electricity demand was 485 MW.) Bolaños' government declared itself incapable of doing anything to resolve the crisis.
FSLN government creates Energy Ministry
One of the first things the FSLN government did once it assumed power in January 2007 was to create the Ministry of Energy and Mines (MEM) to oversee the energy sector. This was the first move in what has become the increasingly successful process of State empowerment within the energy sector.
By mid-2008 an extra 120 megawatts were being generated in Nicaragua with the installation of diesel based generating plants operated by ENEL. Most of these plants were made available under long term low interest rate credit agreements as part of a cooperation agreement with Venezuela. One of the plants was donated by Taiwan.
A further 60 megawatts will be made available with the installation of another diesel based generation plant during 2009 to complete the government's plan of short term measures to confront the energy crisis. As a result of these measures the daily power cuts, or "electricity rationing," came to an end in December 2007. This was possible despite the soaring international oil price thanks to Venezuelan solidarity in the provision of preferential payment conditions on fuel.
Long term plan to transform generation infrastructural framework
Simultaneously, the Energy Ministry has been working towards the long term aim of transforming the infrastructural framework of energy generation in Nicaragua so that by 2014 eighty percent of the electricity produced in the country will come from renewable sources. As part of this plan private and mixed international and national companies have been given contracts to develop six different geothermal generating plants, five hydro-electric plants, three wind power plants and one biomass plant to generate a total of 597 MW by 2014. Many of these projects are already advancing towards the final stages, with Nicaragua's first wind powered electricity generation plant scheduled to start operating in early January 2009.
As part of its strategic plan to overcome the energy crisis the FSLN government has signed cooperation agreements with countries and multilateral organizations as diverse as Iran, Taiwan, Canada, Iceland, Russia, Brazil, Venezuela, Cuba, members of the European Union and the Central American Economic Integration Bank making a mockery of the government's political opponents' claim that the Ortega Administration is isolating Nicaragua from the international community.
What to do about Fenosa?
In an attempt to overcome the lack of liquidity (due to credit problems for the generating companies caused by Union Fenosa late or non-existent payment for power generated) the government arranged for credit with flexible payment conditions to be provided to Union Fenosa and to electrical generating companies during 2007 and 2008. This credit is provided by the financial cooperative ALBA-Caruna that administers funds made available as part of Venezuelan cooperation with Nicaragua.
During the second half of 2008 the government negotiated an agreement with Union Fenosa whereby in exchange for a US$10 million debt the company owed to state institutions, the government would receive 16% of the company's shares in Nicaragua and be given one seat on the in-country Board of Directors.
While the most desirable option would be to send the disgraced multinational packing, the government knows it would most likely be liable to pay a multi-million dollar fine for cancelling the 30 year contract Union Fenosa was given during President Arnoldo Aleman's administration. The World Bank agency that oversees the development of such contracts (rich country multinationals taking over public sector service utilities in impoverished countries), the Multilateral Investment Guarantee Agency, has a track record of successfully pushing for verdicts favourable to multinationals in such disputes. This means that despite Fenosa's repeated breaches of contract, the possibility of a multi-million dollar compensation demand must be a real concern for the Nicaraguan government.
Increase coverage and per capita consumption
Other aspects of the government's Strategic Plan for the Energy Sector include the expansion of access to electrical energy in rural areas (currently just over 50% of Nicaraguan homes have electricity). In this vein ENEL is carrying out and overseeing the construction of numerous small scale energy generation plants (mainly hydroelectric) to provide electricity to remote rural communities. The energy produced by these small scale plants will not pass through the national grid.
The government also wants to increase per capita consumption of electricity. Currently Nicaragua has the lowest rate of per capita electricity consumption in the continent after Haiti.
In terms of electrical energy, Nicaragua's problems are both numerous and complex. Whereas previous governments preferred to leave everything to the "free" market, the FSLN government has proved itself willing and able to take on those problems. By increasing State control over the energy sector and broadening cooperation relations with the wider international community, the government has taken bold steps towards turning the country's energy crisis into an opportunity to modernise the generating sytem, which, ironically, sounds a bit like all the neo-liberal, free market rhetoric Nicaraguans got so used to hearing after 1990.
Karla based her research for this article on the Ministry of Energy and Mines' website, ENEL's website and publicly available Nicaraguan and international news sources.