ENERGY SECTOR JAIME QUIJANDRIA SALMON THE CENTER FOR LATIN AMERICAN ISSUES THE GEORGE WASHINGTON...

ENERGY SECTOR

JAIME QUIJANDRIA SALMON

THE CENTER FOR LATIN AMERICAN ISSUESTHE GEORGE WASHINGTON UNIVERSITY

JANUARY 28, 2005

PERU

INDEX

• Background

• Energy Balance

• Energy Sector Rewiews 2004

• Energy Sector Perspectives

• Privatization Program

• Electrical Interconnection with neighbors countries

• What is ahead?

• Hydrocarbons

BACKGROUND

PERU POPULATION: 2003

Source: INEI

Rural28%

Urban72%

Total: 27 148 101 inhabitants

Elaboration: OGP / MEM

GROSS DOMESTIC PRODUCT: 2003

Source: BCRPElaboration: OGP / MEM

Manufacturing14%

Mining & Hydrocarbons

7%

Fishing0%

Construction5%

Commerce14%

Other Services51%

Agricultural9%

Total: US$ 60 772 506 Thousands

INFLATION RATE (1990 – 2004)

Source: INEI

Elaboration: Electricity General Directorate / MEM

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

% 139,2 56,7 39,5 15,4 10,2 11,8 6,5 6,0 3,7 3,8 -0,1 1,5 2,5 3,5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

ENERGY BALANCE

Source: Net Energy Balance 2003Elaboration: Ministry of Energy and Mines / General Planning Office

PRIMARY ENERGY PRODUCTION: 2003

Total: 451 742 TJ

Crude Oil42,7%

Natural Gas15,9%

Biomass22,3%

Coal0,1%

Hidroenergy18,5%

Solar0,5%

ENERGY CONSUMPTION BY PRODUCTS: 2003 (%)

Total: 448 335 TJ

Hydrocarbons57,9%

Biomass21,0%

Electricity16,2%

Coal, Coque and Industrial

Gas4,4%

Solar0,5%


ENERGY CONSUMPTION BY SECTOR: 2003 (%)


Total: 448 335 TJ

Others

3,0%

Mining

9,6%

Transportation

28,8%

Public

1,9%

Industry

17,9%

Commerce

1,8%

Residential

31,7%

Agriculture

2,5%

Fishing

2,9%

GEOTHERMAL POTENTIAL

Elaboration: Technical Energy Bureau – OTERG / MEM

WIND

POTENTIAL


SOLAR POTENTIAL


ENERGY SECTOR

REVIEWS 2004

ELECTRIC

POWER

SYSTEM

BUSINESS STRUCTURE

* Market Oriented

* Prices are set on a marginal costs basis

Generation

* Regulated

* Price Tag guarantees investment return and O&M Costs

Transmission

* Regulated for public service.

* Tariffs calculated on basis of a model utility.

* Natural monopoly within the “concession area”

Distribution

Free Market

Free Market

Regulated Market

MARKET STRUCTURE

Source: Electricity General Directorate / MEM

OSINERG

INDECOPI

MEMDGE

FISCALIZATION

REGULATION OF RATE SETTING

FREECOMPETITION

NORMATIVEPROMOTERGRANTOR

COES

RELATIONSHIP BETWEEN GENERATION AND TRANSMISSION AGENTS

UTILITIES

CONSUMERS

G, T, D

FREE

REGULATED

STATE

GENERATION – PUBLIC SERVICE 2004


ESTATE38%

PRIVATE62%

Total: 5 118 MW

20%

51%80%

49%

-

500

1 000

1 500

2 000

Hydro Thermal

(2 966 MW) (2 151 MW)

MW

ESTATE PRIVATE3 183 MW

1 935 MW

ESTATE44%

PRIVATE56%

Total: 22 609 GW.h

55%

13%

45%

87%

-

2 000

4 000

6 000

8 000

10 000

Hydro Thermal

(17 093 GW.h) (5 516 GW.h)

GW

.h

ESTATE PRIVATE12 581 GW.h

10 028 GW.h

INSTALLED CAPACITY

PRODUCTION

PUBLIC

PUBLIC

TRANSMISSION – PUBLIC SERVICE 2004


PRIVATE87%

STATE13%

7 748 km

1 149 km

30%3%

70%

97%

-

1 000

2 000

3 000

4 000

5 000

6 000

220 kV 138 kV

(5 559 km) (3 338 km)

(km

)

STATE PRIVATE

TRANSMISSION LINES (220kV - 138 kV)

TRANSMISSION UTILITIES

Otros

30%

2 687 km

REP

48%

4 256 km

CONENHUA

2%

137 km

ETESELVA

4%

392 km

ISA PERU

4%

394 km

REDESUR

5%

428 km

TRANSMANTARO

7%

603 km

DISTRIBUTION – PUBLIC SERVICE 2004


STATE22%

PRIVATE78%

Total: 19 643 GW.h

12%

31%

88%69%

-1 5003 0004 500

6 0007 5009 000

Regulated Free

(10 326 GW.h) (9 317 GW.h)

GW

.h

STATE PRIVATE

15 333 GW.h

4 309 GW.h

2 056 431

1 806 466

PRIVATE47%

STATE53%

Total: 3 862 897

53%47%

15% 85%

-

500 000

1 000 000

1 500 000

2 000 000

2 500 000N°

Regulated Free

(3 862 897) (257)

STATE PRIVATE

NUMBER OF CONSUMERS

ELECTRIC SALES

TOTAL BILLING - 2004STATES vs PRIVATES


40% 18%

60%

100%

82%

0

200

400600

800

1 000

1 2001 400

1 600

Generators Transmiters DistributorsU

S$

Th

ou

san

ds

State Private

(1 661) (147) (1 011)

Private

75%

State

25%

US$ 2 112 Thousands

US$ 707 Thousands

Total : US$ 2 819 Thousands

EVOLUTION

INSTALLED CAPACITY (1990 – 2004)(45%)

HIDRÁULICO

TÉRMICO

HYDRO

5 907

THERMAL


4 2884 143

HYDRO

THERMAL

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

1 9

90

1 9

91

1 9

92

1 9

93

1 9

94

1 9

95

1 9

96

1 9

97

1 9

98

1 9

99

2 0

00

2 0

01

2 0

02

2 0

03

2 0

04

(MW

)

49%

51%

6 019 MW

4 143 4 288

RATE OF ELECTRIFICATION (1990 – 2004)

Source: OSINERG – GART / MEM

76,376,075,374,973,5

72,070,0

68,066,0

64,961,3

56,854,9

54,652,9

0

10

20

30

40

50

60

70

80

90

1 9

90

1 9

91

1 9

92

1 9

93

1 9

94

1 9

95

1 9

96

1 9

97

1 9

98

1 9

99

2 0

00

2 0

01

2 0

02

2 0

03

2 0

04

PE

RC

EN

TAG

E (

% )

AVERAGE TARIFFS (1993 – 2004)

Source: OSINERG – GART / MEM

5,96

9,709,678,98

10,0410,039,5110,08

11,5211,86

11,36

9,44

5,515,055,105,17

5,575,545,61

4,244,564,784,894,56

7,127,147,437,337,67

7,06

7,63

9,289,629,23

8,767,69

0,00

2,00

4,00

6,00

8,00

10,00

12,00

14,00

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

( c

en

t U

S $

/kW

.h )

Residencial Industrial Comercial

ENERGY SECTOR PERSPECTIVES

POWER BALANCE

MW

Source: Referential Electricity Plan 2003 - 2012Elaboration: Electricity General Directorate / MEM

THERMAL SCENARY

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Año

MW

Existing Hydro Existing Thermal New Hydro New Thermal Demand

NG - CC340 MW

NG - CC 340 MW

HP Poechos 15 MW

TP VentanillaConversion

2 U - 324 MW Natural Gas

TP AguaytiaReinforcement 6 MW

HP Callahuanca-Rehabilitation 3x 2,5 MW

HP Yuncán130 MW

NG - CC 340 MW

VentanillaConversion

CC73 MW

Year Energy (GW.h) Power (MW)

2002 19 659 2 909

2012 29 440 4 157

Rate 4,12% 3,63%

Based Scenary - Demand

PRIVATIZATION PROGRAM

•Law Nº 674 Promotion of Private Investement

•Law Nº 757 Framework for Private Investement

•Law Nº 758 Promotion of Private Investment in Public Services.

•Law Nº 26876 Antimonopoly and Antioligopoly Law for the Electric Power Sector

LEGAL FRAMEWORK

PRIVATIZATION PROGRAM : A BALANCE

Between 1993 and 2004, 2 805 US$ million in private investments have been registered in the electric power system.

In 1992 a 25% of the electric demand was unattended. Today we have a system´s reserve of 42%.

Important improvements in efficiency: distribution energy losses went down from 22% to 8,7%.

There are no more energy shortages that used to severly affect production.


INVESTMENT IN THE POWER SECTOR(Generation, Transmission and Distribution)

1990 - 2004

137115

164 167

79

155177

208 203 202

166

95110 111

7266

340359

508

440

211

132

81 95

137115

164 167140

221

373

548 562

710

606

306

242

192167

60

196

0

100

200

300

400

500

600

700

800

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

US

$ (

Mil

lio

n)'

State Private Total


INVESTMENT IN THE POWER SECTOR1993 -2004

STATE US$ (million)

PRIVATE US$ (million)

TOTAL

GENERATION 1 078 1 424 2 502TRANSMISSION 212 416 628DISTRIBUTION 724 965 1 689TOTAL 2 014 2 805 4 819

ELECTRICAL INTERCONNECTION WITH NEIGHBORS COUNTRIES

Possible Electrical Links With Neighbors

Possible Electrical Links With Neighbors :Best Chances

• Ecuador• Bolivia• Chile• Grid Topology and geographical

conditions make links with Colombia and Brazil uneconomical by the moment.

INTERCONNECTION WITH ECUADOR

Ecuador

Chiclayo

Piura

Talara

Carhuaquero

Cajamarca

Perú

ZorritosLoja

Paute

CuencaMachala

Guayaquil

Sta. Elena

Milagro

Pascuales

Zarumilla

San Ildefonso

WHAT IS AHEAD?

Goal:

•Improve the Electrical Concessions Law and its Regulations in order to

consolidate the Sector´s Reform started in 1993.

WHAT IS AHEAD?

• Short Term – Adjustments to the regulatory model

for generation and distribution

• Medium Term– Conceptual changes in the model for

regulated prices of energy– New model for transmmission

remuneration

SHORT TERM

• Generation: adjustments aimed to increase predictability and fairness of the tariff.– Regulated Price Energy Price:

Projection period reduced from 4 to 2 years plus taking in account last year.

– Only one regulation per year instead of two as before.

SHORT TERM

• Distribution: adjustments aimed to maintain profitability of 12% as stated in Electrical Concessiones Law– Allowed level of energy losses– Special geographical and weather

conditions taken in consideration– Changes in the ideal company model– Develop new generating and power

transmission projects.

MEDIUM TERM

• Generation:– Deregulation of the energy price:

price for households and small industry-commerce resulting from public bids amongst present and future new generators

– Natural gas promotion for electric power generating

MEDIUM TERM

• Transmission:– Design of a whole new model. World –

class experts hired to propose a conceptual change aimed to ensure the growth of the system as well as the development of new international links.

HYDROCARBONS

• The year 2004 will be known as the year that Camisea became a reality.

• The Challenge we have now is to reach the massive use of gas, and for that is necesary to coordinate actions between the government of Perú and the private sector.

• The great future proyect is to began the exportation of LNG that means investments of US$ 2000 millions.

• This year will be remembered for the unprecedent rise of oil prices, that forced to the Ministry to design mechanisms to reduce the impact on the consumers.

Hydrocarbon Sub-Sector in 2004

The project was finished on time. On august 20th, 2004 the commercial operation of pipelines to transport natural gas, liquids of natural gas, and distribution grids of natural gas in Lima and Callao began. The consortium have invested US$ 1500 million in the construction of project facilities, US$ 600 million of which have been used in local supplies.

CAMISEA PROJECT

US$ 730 millions have been invested in the field facilities, US$ 670 millions for pipelines of gas and liquids from Camisea to the coast, and US$ 56 millions in the distribution grids of natural gas in Lima and Callao.

8 rights of way were given to allow the construction and installation of the gas pipelines from Camisea in favor of Pluspetrol (1), Transportadora de Gas Natural del Perú (6) and Gas Natural de Lima y Callao S.R.L. (1).6 of this 8 applications were solved through agreements between the concessionaries and the land owners. The revenues generated as royalties until December reached US$ 52,8 million, and 50% of them is transferred to regions as Canon.

Use of Gas in Electrical Power Generation

The ETEVENSA electric plant (320 MW) was inaugurated in Sept, 2004. It is the first thermal plant to use natural gas as fuel on electricity generation, allowing a low cost of electricity.

Gas as Fuel in Industrial Sector

The so called initial clients, 7 companies that signed the gas purchasing contracts, began to use natural gas bringing down their operative costs and improving their competitive level.

PROMOTION OF REGIONAL PIPELINES

• By Ministerial Resolution, the Ministry of Energy and Mines has granted four (4) concession areas to distribute natural gas through a grid of pipelines, for the implementation of the Regional Pipelines Project. These concessions comprise the total area of the following regions: – Ayacucho– Cusco– Ica– Junín.

ALTERNATIVE ROUTES FOR REGIONAL GAS PIPELINES

General Development Plan : 2004 – 2005

Type of client Industrial Area Residential and Commercial Area

Potential Clients 183 20,602Source: GNLC

In the next 6 years, no less than 70 000 clients must be using natural gas in the metropolitan area of Lima (Distribution BOOT Contract).

DEVELOPMENT OF NATURAL GAS DISTRIBUTION IN METROPOLITAN AREA

OF LIMA

General Development Plan : 2004 - 2009

Source: GNLC

Use of Natural Gas on Transportation

The Vehicular Natural Gas (VNG) is used as fuel in vehicles with internal combustion motors.

It replaces gasolines and its advantage is its high octane rating (approx.120 octane number), lower cost and lower incidence in enviromental pollution.

The Ministry of Energy and Mines is about to publish the Regulations for using Vehicular Natural Gas that allows this develoment.

Liquified Natural Gas (LNG)

The liquified natural gas is obtained from a cooling process (criogenic process) in which its temperature goes down to–161°C, with the reduction of its volume in six hundred times for its further exportation to the consumption centers.

.

Reference price / US market

Domestic Grid

LNG

Transport:

$US 650 MM

Transport:

$US 650 MM

Regasification: $US 500 MM

Regasification: $US 500 MM

Liquefaction:

$US 1,100 MM

Liquefaction:

$US 1,100 MM

Duct Expansion: $US 500 MM

Duct Expansion: $US 500 MM

Lote 56`s Development: $US 550 MM

Lote 56`s Development: $US 550 MM

Chain of Value of LNG - An investment in excess of US$ 2 000 million

ENERGY SECTOR JAIME QUIJANDRIA SALMON THE CENTER FOR LATIN AMERICAN ISSUES THE GEORGE WASHINGTON...

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