Imf dr elect_sec
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Transcript of Imf dr elect_sec
THE ELECTRICITY SECTOR
IN THE
DOMINICAN REPUBLIC
CWashington DC,June 21st, 2010
1
Current Situation
The electricity sector in the DR has shown little structuralimprovements, if any, in the last 12 months despite theefforts of the current administrationefforts of the current administration.
Clearly, the drivers for the historical “vicious cycle” remainunchangedunchanged.
Although the underlying causes for the “vicious cycle” arewell known we have the perception that we continuewell known, we have the perception that we continueshooting in the wrong direction. Myths continue to fog theright path.
After describing briefly these negative drivers our intention isto share with you our view on how to transform them, andcreate once again a “virtuous cycle” for the sector.c ea e o ce aga a uous cyc e o e sec o
2
Virtuous Cycle (1999-2001)
Causes Privatization process in
Effects Significant direct p
1999.
Regulatory framework
ginvestment in generation, distribution, and transmission. Regulatory framework
Electricity Law Specialized Regulatory
Bodies (OC, SIE, CNE)
transmission. Specially over 1,500MW of
new efficient generation capacity.
Long-term contracts Additionally diversification of the energy supply
Market oriented political message
gy pp ymatrix (fuel & tech). LNG, Coal, CC GT
3
New Investments
Technology Fuel MW PlayerCCGT & LNG Terminal Natural gas 300 AESCCGT & LNG Terminal Natural gas 300 AESOC GT (DPP) Natural gas 236 AESSteam Turbine Coal (Conversion) 235 El Paso, AES Di l E i HFO 150 B i E CDCDiesel Engine HFO 150 Basic Energy, CDCSteam Turbine Coal 45 Basic Energy, CDCSteam Turbine HFO (Repowering) 200 Basic Energy, CDCCCGT LFO 300 CDC, CogentrixDiesel HFO 100 Caterpillar, Local GroupDiesel HFO 60 Local GoupDiesel HFO 60 Local Goup
Total 1,626
Current peak demand ~1,800MW
4
Energy Matrix
100%
FuelsFuel Oil
40% 43% 47%39%
62% 64% 72%60%
80%
CarbónCoal
24%
10%
17%
60%3%
7%3%
14%
40%
Gas Natural
Bagazo deC ñ
Natural Gas
Bagasse
33%15%
37% 35%16%
10%21%60%
28%
0%
20%
Caña
GeonergíaGeothermal
Pan
amá
Salv
ador
epúb
lica
min
ican
a
uate
mal
a
ondu
ras
cara
gua
erto
Ric
o HidroenergíaHydro
P S Re
Dom Gu Ho
Nic
Pue
5
Vicious Cycle (2002-Today)
Causes No tariff adjustments. Non-
t h i l t iff
Effects Significant service interruption
ff ti l ti d ttechnical tariff. Non-focalized subsidies
Geographical subsidies (PRA) All users above 150kWh/mo
U i l Di C
affecting population and country growth.
Exit of private sector from the DisCos and GenCos.
Untimely payments to DisCosbefore their re-nationalization.
Renegotiation of LT contracts. Change of Political message
Stop of new investments in efficient generation within the SENI.
Withdrawal of existing generationg g State intervention and State utility
mindset Constant threat to renegotiate
contracts
Withdrawal of existing generation capacity from the SENI.
Inefficient investment in self-generation by small users.
Massive injection of state funds to Generation used as escape goat Lack of consistent LT plan and
investments to reduce energy losses
Massive injection of state funds to cover part of the “hole”.
Stalemate in government efforts to reduce fraud and energy losses. Hi h fi i t f th Financing the “hole” with the
generators Higher financing costs for the
country and all the players.
6
No Tariff Adjustments
30
35END USER TARIFF
20
25
30
10
15
cUS$
/KW
h
Indexed User Tariff Frozen User Tariff
0
5
Jan
Feb
Mar
Apr
May
Jun Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
A pr
May
Jun Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Indexed User Tariff Frozen User Tariff
The tariff is not used to curve consumption, give a pricesignal, and reflect market tendencies.
2007 2008 2009 2010
s g a , a d e ec a e e de c es Tariff is managed politically
7
DR Tariff is NOT the highest in the world nor the Region
45 END USER TARIFF, US$/KWh
2025 30 35 40
$/KW
h
5 10 15 20
cUS$
-
Trin
idad
Rep
. Dom
.
Bel
ice
Aru
ba
Bar
bado
s
St.M
aarte
n
Jam
aica
Virg
in …
Nev
is
St.
Luci
a
ST.
Vin
cent
Cay
man
Ber
mud
a
Mon
tser
rat
Ant
igua
Cur
acao
Dom
inic
a
Indexed tariff is still competitive when compared to the restof the regionof the region.
8
Source: Caribbean Electric Utility Service Corporation (CARILEC), 2009
Madrid Contract Prices & Market Spot Price
20.0
25.0
10.0
15.0
SCtv
s
0.0
5.0
U
Madrid Average Spot Average
Madrid energy prices are in line with the current systemgeneration mix.
Renegotiation of contracts already occurred once in 2001
9
Renegotiation of contracts already occurred once in 2001,however, structural situation remained unchanged. Energy prices were reduced (up to 40% in some cases).
Myth of Excessive Generation Profit
Company Country Corporate Rating
Sovereign Rating
(EBITDA/Sales)
AES Panama Panamá BBB- BBB- 66%Termocandelaria Colombia BB- BB+ 64%
Enel Fortuna Panamá BBB- BBB- 61%E N i l d El t i id d Chil BBB A 46%Empresa Nacional de Electricidad Chile BBB A 46%
AES Andres Dom Rep B- B 31%Itabo Dom Rep B- B 29%
AES Gener Chile BBB- A 23%H i D R B B 16%Haina Dom Rep B- B 16%
Electroandina Chile BB A 5%
The profits of the Dominican GenCos listed are amongst the lowest The profits of the Dominican GenCos listed are amongst the lowest.
This situation is worsened when returns are risk-adjusted.
10
Source: Fitch Ratings
Why the Withdrawals from the SENI?
Power Plant Technology Fuel MWSultana del Este Diesel Engine HFO 50Monte Rio Diesel Engine HFO 100Seaboard Diesel Engine HFO 97Seaboard Diesel Engine HFO 97
Total 247
Is the business that good?
Several international strategic players have exited the sectorat a significant discount to initial investment. Union Fenosa and AES as distributors. El Paso, CDC Globeleq, Cogentrix, Caterpillar.
11
Actual Capacity With & Without Investments
3,500
2,500
3,000
1 500
2,000MW
1,000
1,500
500
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Capacidad instalada Demanda Maxima Capacidad disponibleInstalled Capacity Max. Demand Available Capacity
12
Marginal Costs With & Without Investments
SPOT MARGINAL COST, cUS$/KWh
354045
No new Investments
15202530
cUS$
/kW
h
Additional 150 MW of Coal per Year
$
05
1015 (US$300mln/yr)
0 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
13
Are AR an attractive financial business?
400
600
800
1,000 S$
mln
AR
‐
200
400 Jan
‐07
Mar‐07
May‐07
Jul‐0
7
Sep‐07
Nov‐0
7
Jan‐08
Mar‐08
May‐08
Jul‐0
8
Sep‐08
Nov‐0
8
Jan‐09
Mar‐09
May‐09
Jul‐0
9
Sep‐09
Nov‐0
9
Jan‐10
Mar‐10
US AR
Sales
Distribution companies’ late payments force generators to finance the deficit of theElectrical Sector with a negative carrying. Generators pay 9 5% to 12% on their indebtedness (144A/Reg S Notes) Generators pay 9.5% to 12% on their indebtedness (144A/Reg S Notes). Generators charge 7% to 9.5% to the DisCos (Historical USD Local Active Interest Rate
under PPAs). Additionally, merchant generators (mostly the DR Govt. throught CDEEE &
EGEHID) charge 11%-18% interest rate in DOP plus an 18% penalty, whichcombined with exchange rate stability makes a 25%-35% USD effective interestrate on energy purchases of Contracted Generators.
Conclusion, except for merchant generators financing the DisCos is a very badbusinessbusiness.
If the GenCos would monetize the AR, USD 400mln could be used to fuel a newwave of investments at higher rates of return.
14
¿Where is the hole?
US$MMPotential Gross Sales 2 473 1Potential Gross Sales 2,473.1 Tariff Deficit (404.7) Commercial Losses ** (889.4) Real Gross Sales (A) 1 179 0
31%
69%Real Gross Sales (A) 1,179.0
Real System CostsG ti * 1 593 8
* This includes ~150mln annual
Generation * 1,593.8 Fixed Costs (D&T) 288.0 CAPEX (D&T) 96.0
Tariff Deficit Commercial Losses **
This includes ~150mln annualprofit of the GenCos
** Losses from Theft and lack of
Sector Debt Interests 32.0 Total System Costs (B) 2,009.8
15
collectionsAnnual Deficit (A‐B) (830.7)
What Reducing the Contract Prices Means
Private GenCos combined Net Income was US$154mln in 2009.
Annual Deficit
154
600
700
800
900
831 676
200
300
400
500
US$
mln
‐
100
Current GenCos Conceed Net Income
If GenCos were to reduce their prices in 0.02 US$/kWh their profitwould disappear and still the hole would be unmanageable. Notedthat without appropriate returns there are no investments.
Th bl i t i th G C it i i th ft f li d The problem is not in the GenCos, it is in energy theft, non-focalizedsubsidies and tariffs.
16
Conclusions
We are at a critical point for decision making. With the wrong incentives we will continue with the “vicious cycle” and
run out of generating capacity in 3 years.u out o ge e at g capac ty 3 yea s The electricity sector deficit representing ~1.8% of the GDP is
unsustainable. Implementing market oriented measures are the way to go:
A t h i l t iff hi h ill id th i ht i i l A technical tariff, which will provide the right price signal Focalized subsidies, below 150kWh/mo Fully transfer the DisCos to private ownership Eliminate arrears with generatorsg Political will to enforce the law against electricity theft
Moreover, key elements for positive change are present: Willingness of existing players to invest in new efficient capacity. The country remains attractive for the investment community (telecom The country remains attractive for the investment community. (telecom,
tourism, recent placement of sovereign bond, etc.)
The right incentives and fulfillment of contractual obligations,are the only way to reduce long-term energy marginal costs.
17