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Piñón on Energy: $4 bln for oil imports — what now?

By Jorge Piñón

For the first time since July 2008, this month the average price of Venezuela’s crude oil export basket surpassed the $100 per-barrel mark. This represents a possible negative (replacement cost) cash flow to the Cuban economy of more than $4 billion on an annualized basis.

The full impact of the recent price increases for Cuba may be cushioned by the Convenio Integral de Cooperación with Venezuela. Indeed, the October 2000 services-for-oil barter agreement, under which the island receives subsidized payment terms, has become more important than ever.

Even so, energy is a vital ingredient to economic growth, and rising oil bills could derail efforts of putting the Cuban economy back on track. According to the EIA’s 2010 International Energy Outlook Report, the world GDP is expected to rise by an average of 3.2 percent per year to 2035, while world energy consumption increases by 49 percent, or 1.4 percent per year. Cuba, as other emerging and transitional economies, will have to cope with the challenge of balancing economic growth and increased energy demand, particularly in an environment of rising oil prices.

Underscoring Cuba’s concerns over its precarious economic dependency on imported oil from one single source, the government has already increased consumer prices for transportation fuels by between 4 and 8 percent this year. Meanwhile, prices for electricity rose by up to 285 percent for large consumers. These two sectors account for more than 50 percent of Cuba’s petroleum demand.

Renewable energy, energy efficiency, and conservation initiatives, as outlined in the 2005 Revolución Energética plan, should continue to be promoted, but are not the final solution to fulfill Cuba’s thirst for energy into the 21st century. Also, the recapitalization of the sugarcane industry, in partnership with private investors, has the potential of contributing about 70,000 barrels per day of bio-fuels and 60,000 GWh of bio-mass generated electric power, which would provide considerable relief to Cuba’s energy challenges.

Renewable energy sources such as solar, hydro, and wind should be considered. But the time, resources, and capital required to capture their energy, as well as their lack of scale and materiality limits their short-term potential.

Following the precedent of independent power producer Energas, a private-public joint venture between Canada’s Sherritt and Cuba’s Cupet-UNE that already produces 13 percent of the national electric production, Cuba should consider more public-private joint ventures in electric power generation. This could be done by allowing for private financing, design, building, operation and possibly temporary ownership of an asset; thereby freeing public funds for much-needed core economic and social programs while maintaining regulatory control as a public sector responsibility.

Public-private energy projects partnerships, along with the creation of a national energy policy which would embrace economic growth, energy conservation, modernization of the energy infrastructure, a balanced sourcing of oil, natural gas (LNG), bio-fuels, and alternative energy sources, while protecting the island’s environment, would contribute toward Cuba’s energy independence.

Jorge R. Piñón was president of Amoco Corporate Development Company Latin America from 1991 to 1994; in this role he was responsible for managing the business relationship between Amoco Corp. and regional state oil companies, energy ministries and energy regulatory agencies.

Source: http://www.cubastandard.com



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