Energy Sector Managemiient Assistance Programme Guatemala Issues and Options in the Energy Sector Report No. 12160-GU MICROGRAPHICS Report No: 12160 GU Type: SEC JGINT UNDP / WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) i w. r. , * .X * PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) was launched in 1983 to complement the Energy Assessment Programme, established three years earlier. ESMAP's original purpose was to implement key reconmnendations of the Energy Assessment reports and ensure that proposed investments in the energy sector represented the most efficient use of scarce domestic and external resources. In 1990, an international Commission addressed ESMAP's role fcr the 1990s and, noting the vital role of adequate and affordable energy in economic growth, concluded that the Programme should intensify its efforts to assist developing countries to manage their energy sectors more effectively. The Commission also recommended that ESMAP concentrate on making long-term efforts in a smaller number of countries. The Commission's report was endorsed at ESMAP's November 1990 Annual Meeting and prompted an extensive reorganization and reorientation of the Programmne. Today, ESMAP is conducting Energy Assessments, performing preinvestment and prefeasibility work, and providing institutional and policy advice in selected developing countries. Through these efforts, ESMAP aims to assist governments, donors, and potential investors in identifying, funding, and implementing economically and environmentally sound energy strategies. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (ESMAP CG), compose of representatives of the UNDP and World Bank, the governments and institutions providing financial support, and representatives of the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank's Vice President, Finance and Private Sector Development, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners and economists from the Industry and Energy Department of the World Bank. The Director of this Department is also the Manager of ESMAP, responsible for administering the Programme. FUNDING ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Organization of American States (OAS), Latin American Energy Organization (OLADE), and countries including Australia, Belgium, Canada, Demnark, Germany, Firland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom, and the United States. FURTHER INFORMATION For further information or copies of completed ESMAP reports, contact: ESMAP c/o Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 U.S.A. For Official Use Report No. 12160-GU Guatemala Issues and Options in the Energy Sector September 1993 ESMAP c/o Industry and Energy Department The World Bank 1818 H Street, N.W. Washington, D.C. 20433 U.S.A. Contents Prefae ........................................ vii Currfey Equvalents, Weights md Meums, Abbreiadons ..... ............. viii Acronyms ......................................... ix Executive Summa ......................................... xi I Energyandthe Economy. 1 A. Recent Economic Deveiopments .1 B. Overview of the Energy Sector. 2 Present Energy Demand. 3 Future Energy Demand. 4 Energy Policy an Reguation .5 C. The Energy Sector ar4 the Economy. 6 D. Lessons of the Past .13 2 The Power Sector . . .17 The 1980s and Proset for the Fture . . .17 Orgnization of the Sector. . . . 18 A. Structure of Mixed Regulatory and Corporative Functions ...19 Reguatory Framework .19 Institutionl and Reuaory Issues .19 Strategy for Reform ...... 20 Lessons of the Past .23 B. SystemOperations .23 Geneation and Transmission .24 Transmission and Distribution .25 Perspectives for the Future . . . ... 25 Transmission and Distribution Expansion .27 Electricity Demand .28 C. Electricity Tariff Policy .32 Legal and Institutional Framework .32 Tariff Levels and Subsidies .32 Marginal Costs .34 Tariff Strcture .34 Tariff Levels and Financial Performae. .36 D. Power Sector Finances .36 Past Performance .3 Consolidated Financial Overview of the Sector .37 MDE's Financial Perfonnance .38 EEGSA's Financial Perfonnance .39 Financial Perspectives .39 E. Lessons of Experience .42 iii 3 Hydrocarbon Sector ...................................... 45 A. Upstream Petro!eum Operations ....................... 46 Background .................................. 46 Impact of Regulatior on Exploration ............. .... 48 Institutional Structure ............................ 49 Need for a Focused Promotionial Effort to Exploit Hydrocarbon Potential .................. 49 Alternative Promotion and Production Strategy: Currenl Production and New Promotion .... ......... 51 B. Downstream Petroleum Operations ...................... 54 The Govermnent's Role and Its Effects ................. 54 Structure of Private Sector ......................... 55 Demand . .................................... 56 Supply ..................................... 57 Strategy for a More Competitive Market ............... 61 Free Entry and Exit and Private Sector's Role .... ........ 62 Lessons Leaned ............................... 67 4 Fuelwood and Household Energy Demand ........................ 69 Objectives of the Chapter .............................. 69 A. Fuelwood Supply and Demand ........................ 69 Institutional Aspects of the Forestry Sector .... .......... 69 Fuelwood Supply .............................. 70 B. Fuelwood and Household Energy Demand ................. 74 Energy Prices ................................. 75 Useful Energy .......... ....................... 76 Economic Cost of Fuels ........................... 77 Overall Costs .......... ....................... 77 Lessons Learned ............................... 78 5 Energy and the Environment .......... ....................... 81 Links between Energy Activities and Environmental Effects .... .... 81 Objectives of the Chapter .............................. 81 Deforestation ...................................... 82 Petroleum Sector ............ ....................... 83 Power Sector ....................................... 84 Environmental Effects of Energy Consumption ................ 85 Institutional and Legal Aspects ........................... 87 Boxes Box 3.1 Oil Industry Incentives .51 Box 4.1 Basic Facts about the Forestry Sector and Fulewood Markets .71 Box 4.2 Basic Economics of Forestry .72 iv Anuexes 1 Electricity Sales by Conmpany and Customers ........................ 93 2 Guatemala Power System Statistics. 95 3 Characteistics of Future Hydro and Thermal Power Plants .99 4 Characteristics of Transmission Projects .103 5 Electricity Sales and Subsidies ...... 105 6 Marginal Cost and keference Tariffs .109 7 Guatemala Power Sector: Actual Financial Statements Summary 111 8 Power Sector Financial Projections .115 9 New Fisca Framework for Petroleun Sector .123 10 Recoverable Reserves and Production Policies of Petroleum Sector .125 11 Financial Impact of Actual and Revised Contract in the Petroleum Sector .127 12 The Petroleum Law and the Production Sharing Model Contract (P.S.C.) .133 13 Guatemala Petroleum Market: Consumption and Prices .135 14 Price Strcture of Petroleum Products .... . 137 15 Description of Petroleum Pricing System for Guatema .139 16 Direct Costs and Returns From a Multipurpose Tree Plantation - Las Chaprnas 143 17 Fuelwood Market Distribution Channls .145 18 Environment: Institutional and Legal Aspects of Enviromnental Policy .147 lit of Reports on Completed Activities .149 maps Map No. IBRD 16761: Energy Infrastructure Map No. IBRD 25082: Guatemala Land Use Map No. IBRD 25083: Guatemala Exploration and Discovery Well Locations Map No. IBRD 25084: Guatemala Basin Setting Map No. IBRD 25085: Guatemala Seismic Coverage V Preface Messrs. Salvador Rivera and Hein Campero discussed the main conclusions of this report with the Ministe of Energ and Mines and other government uthorities m Guatemala on September 1-4, 1993. In agreement with the Report, the govement is moving to define clearer environmentl regulaton and preparig a new prmoti loron can'paign along the lines defined in this report. In addition, the govermn taking steps to liberalize the downstream petrleum market. In the power subsector, the government agreed with the need to separate the regulatory and comm= cial functions, and to ensure a strong instiutional frawork to carry out the reforms; it firther determied that the resuuring proces should be initiated as soon as possible. To benefit fhom experines in other countries, the govanmet consides that it would require techical assistnce to carrny out some of the I on s adressed in dhs report. Foilowing the discussion of this report, the govement has asked the World Bank to discuss a program to canry out the reforms in the energy sector. vii CurreIc Equivalents Currency unit= Quetzal(Q) Exchange Rate: Q 5.06= 1US$ (.September 1992) Weights and Measure bd barrels per day Btu British thermal unit Boe Barrel of oil equivalent Kcal Kilocalories kW Kilowatt kWh kilowat hour GW Giga Watt GWh Giga watt hour tpy Tons ver year Toe* Tons of oil equivalent 1 Toe 7.21 Boe Abbreviatons Co carbon monoxide C02 carbon dioxide CONAMA National Environmental Commission db decibels DIGEBOS Directorate General of Forestry Services EEGSA Guatemala City Power Utility S.A. EIA Environmental Impact Analysis GDP Gross Do .estic Product HC hydrocarbons INDE National Institute of Electrification LPG Liquified Petroleum Gas LRMC Long Run Marginal Cost m3 cubic meter MEM Ministry of Energy and Mines mg microgram MW megawatt MWh megawatt hour NGO Non Governmental Organization NOx nitrogen oxide PAH polycyclic aromatic hydrocarbons Pb lead PCB polychlorinated biphenyl ppm parts per million Sm National Interconnected System SOx sulfur oxide SRMC Short Run Marginal Cost viii Acronyms ASIES Asociacion de Investigacion Estudios Sociales (Association for Social Research and Studies) BID Intemational Development Bank (IDB) CATIE Centro Agronomico de Investigacion y Ensenaza (Agronomical Center for Invesdgation an d Education) CECON Centro de Estudios Conservationiistas (Center for Conservation Studies) CONAMA Comision Nacional del Medio Ambiente (National Commission' for the Environment) CONAMCUEN Comision Nacional para el Manejo de Cuencas (National Commission for Watershed Management) CONAP Consejo Nacional de Areas Protegidas (National Council for Protected Areas) DIGEBOS Direccion General de Bosques y Vida Silvestre (General Directorate for Forestty and Wildlife) EEGSA Empresa El6ctrica de Guatemala, Sociedad Anonima EIA Environmental Impact Assessment ESMAP Energy Sector Management Assistance Program FAO Food and Agriculture Organization ICAM Instto Centro Americano de Investigaci6n y Tecnologia (Cantral American lnstitulte for Investigation and Industrial Technology) IDAEH Institato de Antropologia y Historia (Institute for Anthropology and History) INAPOR Instituto Nacional Forestal (National Forestry Institutt) MDE Instituto Nacional de Electrificacion (National Institute for Electrification) INTA Instituto Nacional de Transformacion Agria (National Institute for Agarian Transformation, MAGA Ministerio de Agricultura, Ganaderia y Alimentaci6n (Ministry of Agriculture, Livestock and Ali mentation) MEM Ministerio de Energia y Minas (Ministry of Energy and Mines) OEA Organization of American States (OAS) OECD Organization for Economic Cooperation and Development RE Renewable energy ROCAP Regional Office for Central America and Panama SIGAP Sistema Guatemalteco de Areas Protegidas (Guatemalan System of Protected Areas) TFAP Tropical Forest Action Plan URL Universidad Rafael Landivar USAC Universidad de San Carlos de Guatemala USAID United States Agency for International Development This report is based on the findings of an energy assessment mission which visited Guatemala in Februay 1992. The mission comprised S. Rivera (mission leader), F.H. Campero (Sr. Energy Planner), A. Meyer (Energy Ecowmist), A. Roa (Power Engineer), C. Trujillo (Financial Economist), H. Bhat, and G. Zappala (Upstream Petroleum Consultants). ix Guatemala: Issues and Options In the Energy Sector Executive Summary 1. The objectives of this report are twofold: first, to review developnts in enry poiHcy in Guatmla during the 1980s and early 1990s; and, second, to propose elements for comideration by the govrnment in developing and implementing its energy strategy for the remainder of the decade. A Sector in Transitdn 2. The period under review has two distinct phases. During the 1980s, the state played a dominant role bcth in regulin the energy sector and in operating sectoral enterprises. In the power sector, operational difficulties 3nd high indebtedness becae acute, especially in the case of INDE, one of the two national utilities. INDF1 was not even able to cover its debt service (and, at dmes, its fuel costs) out of its operating income becase of the erosion of tariffs, which in 1991 were less than half of their 1980 level in real terms. Those indirect subsidies, as well as direct subsidies for residential electricity consumption and for some household fuels, were politically motivated to benefit the poorest segments of society. But t;1e evidence shows that the bulk of subsidies reached less than 5 percent of energy consumers, that is, the households that use moden fuels. The majority of consumers, especially those in the lowest income levels, use fuelwood almost exclusively. Hence, they did not benefit from the subsidy policies. 3. Overall during the 1980s, the energy sector was a drain on the economy. Capital speing in the power sector and its financing with foreign and domestic loans contited to the very large public sector deficits in the early 1980s and the high debt service paymens in the late 1980s. The subsidization of the exchange rate for debt service payments of the power sector and fuel imports was another source of loss for the public sector. 4. Since 1991, however, the govement has taken steps to moderate the state's role in providing public services, including energy services, and to open the sector to private partipation. The government's atempts to restructure have been peraps most tadical in the heavily indebted power subsector, where a private generator has signed a 15-year power purchase agreemen (PPA) with REGSA, the second national utDity, which is mainly responsible for distributionon a 110 MW power plant; other, similar, contracts are under consideration. In the petroleum subsector, efforts are under way to attract further exploration in the Rubelsanto and frontier areas, and a draft law to Liberalize the entire downsam chain, including imports, refining, distibution, transportation, and retail prices is under review. 5. To the government's credit, it has embarked on the reforms relatively quickly and in some respecx dynamically. At the same time, however, the reform has lacked welldefied objectives and has not been accompaied by the creation of effective regulations and regulatory instittions that would ensure the trparency of rules for the sector, prevent interference by the governmet in the sector's day-to-day operations, and increase confidence for private particpation. A key example of the incomplete status of the reform is that the govrment bas yet to prmgule general rions for electricity tariffs and to disetange the regulatory and operatinal functions of INDE. Thus, the govermnent still has to define the role of the state in xi xii Guatemala: Issues and Options in the Energy Sector the sector and establish a process to decentralize, corporatize, or privatize current state-owned assets. 6. The lack of clear goals and rules for the restructuring process may hinder the government's efforts to attract private participation. Whereas the government has sought to encourage private investment in both power generation and petroleum operations, the draft law to liberalize uie downstream petroleum market limits private foreign investment in distribution of petroleum products. Moreover, policies in the petroleum sector have yet to resolve contradictions betwrn efforts to promote greater exploration and limits on activity mandated by current enviromenta laws and reguiadons. Clearly a key elemcnt of the restructuring strategy nmust be strengthening the institutional capacity so tnat Guatemala can implement the anticipated reforms consistently. Need for Inst;tutional and Pricing Reforms 7. The manifold contradictions still evident in the energy sector indicate the continuing need to coordinate srategy at the macroeconomic and sectorwide levels. They also indicate the importance of creafing regulations and institutions appropriate to the sector that will ensure the solidity of stuctural changes already initiated. 8. The absence of an adequate independent regulatory capacity in the sector could lead to a recurrence of past experiences. In the 1980s, lumpy and high-risk projects ultimately led to negative macroeconomic effects in the presence of weak institutional and regulatory capacity at the sectoral level. This was fiurther exacerbated by the politization of the tariff-setting process. In the past, the Ministry of Energy and Mines (MEM) lacked the mandate, capacity, or structure to perform the regulatory role. Future restructuring will need to be based on strengthenin MEM, transferring to it sectoral planning and coordination functions, and creating an independent agenqy in charge of regulatory activities. 9. In the second half of the 1980s, the petroleum and power subsectors shared a common denominator: the excessive politization of their respective pricing policies. These policies had effects on utility revenues and hence on government transfers; consumers' choice of fuel uses; investment decisions, or lack of them, by petroleum suppliers; and revenues of the cental government. For example, in the power subsector, retail tariffs started to fall below their long-n marginal cost levels after 1984, resulting in a cumulative subsidy of consumers of almost US$300 million by 1991. Further, bulk tariff subsidies, embodied in INDE's sales to EEGSA (the power distribution company), amounted to about US$350 million in the 1985-91 period. In total, this is more than five times INDE's debt arrears of US$114 million. 10. Even though electricity rates were increased in 1991 by about 47 percent, and, starting in January 1993, tariffs have been adjusted automatically in response to fuel cost varations, tariffs are on average still 20 pert ent below their long-run marginal cost levels. As of July 1993, an interministerial group has been analyzing a new adjustment mechanism to align tariffs with marginal and financial costs and avoid their inflationary erosion. Still, the recurrent issue is the lack of pricing principles embodied in an electricity law and supervised by an independe regulatory body. As long as this issue is not addressed, power purchase agreements formulated at the subsector level will not be part of a more coherent and sustainable strategy for the sector. Executive Sumnary xiii 11. As a matter of general principle, electricity tariffs should be set so that fte average tariff provides sufficient revenue to (a) cover operating costs (fuel, purchased power, staff, operations and nintenance), (b) repay capital costs (depreciation and a reasonable rate of return both based on ivvalued assets plus increases in working capital as required), (c) service debt (interest plus amortization) and (d) finance a portion oI the construcdon program. 12. In the case of Guatemala, however, this principle cannot yet be applied as the power sector needs to be restructured as part of the measures needed to restore the power sector to a healthy condition and attract private sector participation. It is therefore proposed, first, to reduce INDE's investment program by inviting private sector financing in all new generation plants and, second. to restructure INDE's debt by transferring a portion to the government along with associated fixed assets in order to create a new generation company, which later could be privatized. Under these circumstances, aligning electricity rates with inarginal cost for bulk and retail sales and establisihg an automatic mechanism to prevent tariff levels from being eroded by inflation might be enough to cover financial requirements. 13. Financial requirements to be reflected in the tariff will also depend in part on the extent of private participation in the ownership and operation of the power sector. Indicative financial projections (Annex 8) have been made according to alternative scenarios; however, further analysis based on firmer indications of the interest of the private sector are needed before definitive projections and tariff recommendations can be made. 14. In the petroleum sector, product pricing in the past encompassed a mixture of taxes and subsidies, which led to retail prices that bore no relation to the economic costs of products. Whereas under the government pricing system the prices of commercial fuels declined in real terms, the prices of fuelwood increased in real terms during the past decade, making fuelwood the most expensive fuel for cooking purposes. Fuelwood prices, in contrast to fuel and electricity prices, are determined by market forces and are hence subject to local variations in supply and cost conditions. Issues in the Energy Subsectors Power 15. Nature of the Problems. In the absence of clear objectives and the institutional capacity to ensure an economic and reliable energy supply, the power sector lacks the minimal level of accountability to shareholders that would exist under a business operation bearing commercial risks, whether private or state owned. This situation has occurred because the sector was structured to rely on government contributions as the donor of last resort. Consequently, starting in .988, the sector became unable to even cover interest payments on its debt service, leading to government transfers of about US$240 million in the 1988-93 period, on top of about US$593 million in contributions to investment between 1980 and 1984. The financial situation of the consolidated power sector is dominated by INDE; EEGSA has been able to finance its investment program (distribution only) with internal funds. In the vacm created by the lack of a clear mandate and strucre, the state's regulatory and corporate functions in the sector became mixed. xiv Guatemala: Issues and Options in the Energy Sector 16. Despite recent efforts to encourage private producers, INDE remains both a provider of power and the main regulator of the sector, leaving the door open for a recurrence of past problems. The new 1992 law to regulate INDE's activities, which amends the original law creadtg INDE, has not corrected this situadon. 17. Electricity Law a Precondition to Restructuring. Remedying the problems in the power subsector will require a more specific definition of the structure of the entity or entities to be responsible for generation, transmission, and distribution. This would be embodied in a formal electricity law that does not yet exist. The definition of a set of consistent principles for an electricity law should be based on an analysis of the financial, operational, and administrative implications of alternative structural options. The law should provide for (a) creation of an inteministerial unit in charge of defining energy policy and provide indicative sectoral planning; (b) creation of an independent regulatory body responsible for pricing, concessioning, and other regulatory issues; (c) a specific program to decentralize and corporatize INDE; and (d) a specific program to float EEGSA's shares to the private sector. i8. In addition, reform should include a strategy for implementation of a nonpolitical electricity price setting procedure and for the development of a transparent and well-organized program to encourage private participation. 19. Investment and Financing Requirements. Future additions in generating plant, regardless of the source of finai.mg, will be based on a niix of conventional thermal, geothermal, and hydro plant to meet load growth and replace worn out equipment. In addition to the requirements for generation must be added the cost of investments in transmission and distriuton. The government will need to consider the implications of Siuture investment needs on the struct of the sector and the manner in which it can be financed. Hydrocarbons 20. Needed Reforms. The weaknesses of this subsector are predominantly institutional and regulatory. The first priority is to organize the MEM so that it can effectively monitor the activites of the oil companies currently operating in the country and attract others. Second, a new law has to be enacted for downstream activities to liberalize the market and prevent monopolistic structures. 21. Upstream Priores. Only some minor changes are required, since basically the excist law is attractive for private foreign oil companies. Principal activities should comprise (a) preparing and implementing effective and unambiguous environmental regulations for petroleum exploration and production; (b) modifying the current fiscal regime by setting a flat royalty (rather than the current sliding-scale system) and allocating a percentage of production as profit oil from the beginning of production; (c) preparing and implementing regulation to use the Basic-owned pipeline on a common-carrier basis; and (d) strengthening MEM so that it can launch and carry through new promotion campaigns aimed at increasing private investment in secondary recovery and exploration. 22. Downstream Priorities. Dereguation of the downstream sector should be accompanied by strengthening the capacity of MEM to monitor the resulting more open market. In addition to clarifying the terms under which foreign capitai may participate, key activities Executive Summary xv should focus on (a) opening the import market for crude as well as products to competition; (b) removing entry barriers for investment in storage, transport, and distribution; (c) permitting companies to be active in all subsectoral activities (i.e., importation, supply, distribution); (d) liberalizing the pricing regime by eliminating all price controls (Decree 31-79) and abolishing the cost-plus system for the refinery, allowing it to operate as a free-market enterprise, as well as the guaranteed margins for the oil companies in the supply and distribudon chain; (e) designing a system of petroleum product taxes and import duties (with equal rates for crude and petroleum products) to generate revenue for the government in a less distortive way than the previously used compensation funds; and (f) shifting the functions at the MEM from price fixing and quota allocations to controlling quality and s -servising the companies to ensure that they behave competitively. 23. The main report details the process and steps required at a minimum to liberalize the market and gives some insights into the experiences of other countries in similar situations. Overall, the lessons learned in other countries indicate the need to prepare a minimal set of conditions to open the petroleum markets, both during the transition phase as well as during the fine tuning required for full implementation. Overall, it requires a strong government entity to ensure that the market operates within established standards of safety. product quality, and the enviromnent and that those departing from the agreed conditions will be penalized. 24. The behavior of petroleum product prices in a liberalized system cannot be predicted with certainty. Experience in other countries shows, however, that after an initial hike, the average fuel price level does not experience a permanent increase. It depends on the new tax rates, the former level of distortions, and the competitive parameters chosen by the suppliers. With the tax rates proposed in this report (and assuming that supplies will be procured at lower average prices than under the old structure), prices for all products except LPG should not experience a permanent increase in real terms over the present level, which is in line with fuel price levels in most other Latin American countries. Fuelwood 25. Supply-Side Issues. Even though about 60 percent of Guatemala's total energy consumption comes from fuelwood, this does not represent the main cause of deforestation. Rather, agricultural expansion is the main culprit. Although in general the fuelwood supply is not yet a major problem, shortages do occur locally around the main demand centers. Measures to mitigate the problem include, as a first step, completion of a forest inventory. In order to increase supplies small decentralized mixed-use tree plantations should be established, preferably with close involvement of individual communities. 26. Demand-Side Issues. Government strategies to reduce fuelwood consumption consisted of the promotion of inproved woodstoves and of modern fuels, especially through the subsidization of LPG and electricity. Neither policy was successful. The key problem of the woodstove programs was apparently in their dissemination. However, furher analysis is needed to assess the causes of failure. The experiences of countries with successful programs such as Mali, Rwanda, and China, should be helpful in designing new woodstove as well as kerosene stove programs, in which the government should seek to play a more significant and targeted role. xvi Guatemala: Issues and Options in the Energy Sector 27. Energy price subsidies have benefited only a very small part of the population because the bulk of households consume fuelwood at market prices. Low commercial fuel prices are usually not enough to make households switch away from fuelwood. Related capital goods such as stoves are often unaffordable for poor households. 28. Institutions. Problems of fuelwood supply are part of a broader institutional quandary in which lack of trained human resources in the forestry sector is a key. Hence, to effect the required changes on the supply side (i.e., streamlining of entry controls, extraction of rents, and abolition of current land-clearing incentives), the government needs to define clearer objectives for the forestry sector, provide the personnel and financial resources to implement those objectives, and structure the sector accordingly. These goals obviously extend beyond the energy sector and the effects of fuelwood consumption and will require attention at the macroeconomic level. Environment 29. Guatemala's energy-related atmospheric emissions do not pose a serious threat to the environment, either at the national or regional level. The most serious risks are (a) deforestation, at least partly caused by fuelwood consumption; (b) pollution caused by petroleum exploration (test drilling); (c) risks of spills from maritime transport of crude oil; and (d) environmental problems associated with operations at the Laguna power plant and future hydropower projects. The lack of definition in the current legal and institutional setup does represent a key obstacle to the fornulation and implementation of an environmentally sound energy policy for the future. The restricturing must proceed within sound and clear environmental rules, monitored by an effective institution adequately empowered to enforce clear and consistent regulations. Structure of this Report 30. The report consists of five chapters. Chapter 1 shows the interrelationships between emurgy policies and the economy as a whole. Chapter 2 presents the main issues in the power subsector. Chapter 3 deals with the upstream and downstrean aspects of the petroleum subsector. Chapter 4 focuses on fuelwood supply and household energy demand and links the recurrence of local fuelwood shortages to the effects of the relative energy prices that households face. Ch..pter 5 assesses the enviromental impact of energy-related operations. Executive Summary xvii Guatemala: Energy Sector Issues and Options Summary Matrix: Policy Recommendations [SECIOR IOUCY ISSUE STRATEGY RECOMMNDATION STATUSI l _ _ _ _ _ _ _ _ _ _ _ ___ _ _ _ _ _ _ _ _ _ _ _ COM MENTS POWER SECTOR RESTRUCTURNG Restructuring of INDE; divestue of EEGSA Open generation to compedtion; Increase private First PPA has been sector investment in generation, mininize signed between EEGSA investunent by INDE and private generator Prioritize transmission plans and reevaluate distibution plans Improve demand forecasting ___ TARIFF POLICY Revise tiff sncure tO reflect long-n marginal cost; esablish automatic adjustment mechanism Replace cost-plus pcing between IPPs and INDE to provide performance incentives Remove sabsidy element from bulk tariffs for INDE sales to EEGSA OPERATIONS Reduce losses in tansmission and distribution USAID assistance REGULATION Prepar Electricity Law Regulatory ftamework is being developed under consulting services financed by USA!ID Set up independent regulatory agency PETROLEUM . - UPSTREAM Provide incentives - prepare rservoir study and enhanced recovery for more study exploraion and - prepare inproved promotion package for production exploration - Modify fiscal aspects of PSCs l Regulatons - Give Basic pipeline common camer stats - Harmonize environmal objectives and petroleum exploation and production _ - DOWNSTREAM Liberalization liberalize impotatdon of crnde and prducts, Draft law under review refining, distribution and product retail prices on a competitive basis Establish standards regardig quality of products, safety and environmenal requirements Refnirng Abolish cost-plus arangement Priing and taxation Remove govemment determination of retail of petroleum prices products II xviii Guatemala: Issues and Options in the Energy Sector SECTOR POLICY ISSUE SrRATEGY RECOMMENDATION SIATUSI COMENTS Replace compensation funds by specific taxes on 'Fondo compensatorio- petroleum products was replaced by taxes Reguladon Prepare legislation to allow free entry to and exit from the industry, especially for construction of bulk storage terminals and gas stations Set up independent agency to enforce competition FUELWOOD Improve supply - prepare forest inventory conditions - provide more finances and personnel to l_________________ forestry sector restructure stumpage fees to capture rent and provide incentives for more sustainable logging Household fuel Analyze failure of improved stove programs and demand design and implement new programs Provide incentives to switch from fuelwood to kerosene (see fuel pricing) ENVIRONMENT prepare safety standards for oil transport I Incompatibility of redefine responsibilities of MEM and CONAMA environmental in order to remove incompatibilities objecdves and energy issues INST11UTIONS Strengten MEM to help perform their new role in structural planning, coordination and supervisory functions 1 Energy and the Economy A. Recent Economic Developments 1.1 This section surveys the economy and energy sector in Guatemala, links between economic performance and energy policy decisions, and lessons from the past. 1.2 During the 1980s, the energy sector, on balance, was a drain on the economy; the public sector deficit and government transfers to the power utility (INDE) were directly correlated. Avoiding a recurrence of this situation will require changes in the structure of energy policy in Guatemala, with the government taking on a specific and subsidiary role. Hence, the govement will need to focus on establishing regulation to encourage compeition in areas where is economically sound, particularly in downstream petroleum operations; on strengthening or restrucring government institutions to ensure a sustainable reform; and on promoting greater mobilization of resources from the private sector. 1.3 With 9.2 million inhabitants, Guatemala is the most populous of the five Central American countries. The GNP per capita, US$980 (1992), is distributed very unevenly. Agriculture employs more than half the population, but, like income, land ownership is distributed very unevenly. A majority of the population, most of them Indians in rural areas, lives in extreme poverty and lack access to basic services. 1.4 In the 1960s and 1970s, the economy recorded steady growth, averaging about 6 percent per year. During the 1980-85 period, deteriorating external economic conditions and inappropriate domestic macroeconomic policies led to unsustainable fiscal and current account deficits, and GDP declined on average by about 1.4 percent per year. 1.5 In 1986, after 30 years of military rule, a democratically elected government came to power and initiated a stabilization program to reduce the fiscal deficit and inflation. Thi government also embarked on a program of trade liberalization. Although these programs met with some initial success, the public sector deficit continued to soar, mainly because of a failure of the tax reform program in 1987. Deficit financing by the Central Bank and sharp devaluation of the exchange rate fueled ition, especially in 1990. This, in turn, contributed to negative 1 2 Guatemala: Issues and Options in the Energy Sector real interest rates, pressure on the exchange rate, and capital flight, compounded by erradc exchange rate management. The lack of fiscal revenue and foreign exchange led to a rapid accumulation of external arrears in 1990, including to the World Bank, IDB, and IMF. 1.6 In January 1991, the new government initiated a new stabilization program. As a result of tight monetary and credit policy, inflation decreased from more than 60 percent between January ard December 1990 to 9.5 percent in the same period of 1991. The exchange rate stabilized at around Q 5 per U.S. dollar, and foreign exchange reserves increased. The nonfinancial public sector deficit was reduced from 3.2 percent in 1989 to 0.9 percent in 1991. A broad-based structural adjustment program now is aimed at (a) comprehensive fiscal reform; (b) improved public sertor performance through restructuring public sector enterprises, privatizing them, or both; (c) reform of import tariffs and elimination of nontariff barriers; (d) financial sector reform; and (e) alleviation of poverty. 1.7 The major proposed re.i%rms affecting the energy sector are elimination of virtually all exemptions of tne value-added tax (VAT); reform of import tariffs; modifications in the taxation of petroleum products; reduction of subsidies and fiscal transfers to, and restructuring of, the national electricity company, INDE. 1.8 The proposed economic and institutional reforms are expected to stabilize inflation, the public sector deficit, and the current account deficit (about US$250 million) and to contribute to increased investment, savings, and economic growth (expected to be between 3 and 5 percent in 1992-2000). The risks involved stem from the opposition of interest groups negatively affected by the adjustment program, the administration's and public sector's poor record with respect to tax collection and institutional capacity. 1.9 The proposed macroeconomic policies are critical for a positive reordering of the energy sector. In particular, fiscal discipline and the setting of conditions to further develop the financial markets is a necessary condition to allow the state to withdraw from activities that are capital intensive and could be developed by a more competitive private sector. The sections below give an overview of the energy sector, its impact on macroeconomic performance, and lessons learned from past energy policies. B. Overview of the Energy Sector 1.10 Energy demand per capita of 3.3 barrels of oil equivalent (boe) is stIll relatively low in Guatemala (compared with about 4.4 boe in Costa Rica and 7.6 boe in Mexico). This low demand is caused by three factors: only about 40 percent of the population has access to electricity; automobile transportation is on a low level; and the relatively small industrial sector is not energy intensive and does not contribute much to energy demand. Noncommercial energy, mostly fuelwood, still plays a major role in Guatemala, with a share of about 60 percent of total energy supply. Table 1.1 summarizes the structure of primary energy production. Energy and the Economy 3 1.11 Guatemala inports most of its crude and petroleum products. Total primary energy requirements amount to about 34.2 million boe; of this, local production-mainly wood-accounts for 91 percent. Table 1.1 Guatemala: Pimary Energy Production, 1990 ('000 boe) Domestic Imported Fuel- Measure Hydro crude crude wood Bagasse Residues TOTAL Production 1,322 1,420 0 19,583 8,850 18 31,203 Imports 0 0 3,892 0 0 0 3,892 Exports 0 1,085 0 0 0 0 1,085 Inventory change 0 21 0 0 0 0 243 TOTAL 1,332 356 4,113 19,583 8,850 18 34,253 Source: MME, 1990 statistics. Present Energy Demand 1.12 Final energy consumption of 31.65 million boe is concentrated heavily in the household sector, with 65 percent. Transportation and industry followed with 18 and 11 percent, respectively. Because of concentration of energy demand in the household sector, which uses eergy mainly for cooking, fuelwood is the main fuel, with 60 percent of total consumption. Among the commercial fuels, petroleum products make up 28 percent, followed by electricity, with 5 percent (see Table 1.2) Table 1.2 Guatemala: Energy Consumption, 1980-1990 ('000 boe) Kerosene Gasoline Gasoline Fuel- Year Ekc. LPG turbo regular super Diesel oil Fuelwood Bagasse Charcoal TOTAL 1980 1016 357 695 1106 853 3609 3543 17690 688 116 29676 1982 808 401 671 855 812 3003 1942 18708 852 121 28178 1984 838 517 673 1092 716 3004 1788 19795 736 126 29290 1986 928 667 549 1124 610 2773 962 17994 773 136 26519 1988 1077 767 520 1319 804 3523 1194 19058 807 141 9214 1990 1429 827 517 2365* 3865 1361 19281 1858 146 31649 Inchubes both regular and super. Source: MEMI. 4 Guatemala: Issues and Options in the Energy Sector 1.13 Table 1.3 provides growth rates for some important energy and nonenergy variables. Population outgrew real GDP by far in tile 1980s, resulting in a decrease in GDP per capita. Also, total energy consumption showed a modest increase. A decrease in the demand for petroleum products was more than offset by a strong growth of electricity demand, made possible by a doubling of installed capacity. The massive capital outlays for the rapid expansion in the power sector probably came at the expense of other investment. On the other hand, fiurer expansion of installed capacity in the power sector is to be expected, given that the annual consumption of electricity per capita in Guatemala is only half of the average consumption in developing countries of 500 kWh. Table 1.3 Guatemala: Annual Average Growth Rates of Selected Variables, 1980-90 (percentages) Energy demand EleElctrcty Popuion GDP, real Total Fuels Electricity (installed capacty) 2.6 0.8 0.4 -4.3 3.1 6.9 Source: World Bank calculations based on data from INDE, MEM, and World Bank. Future Energy Demand 1.14 Expected energy demand was projected based on intensity values obtained from a small survey of 20 sectors in the economy conducted for this report and a macroeconomic model used by the Ministry of Energy and Mnes (MEM). The underlying assumptions of the forecast were as foilows (results are shown in Table 1.4): a. That economic growth will average 3 percent per year. b. That industries with the highest energy intensites (sugar, paper, chemicals, refining, minerals, cement, electricity, and transportation) will become less energy-intense because of pricing policies and structural changes. c. That some of the less energy-intensive sectors (agriculture, other industries, and commerce) will increase their consumption. d. That the remaining sectors will maintain the same energy intensity as calculated in the input/output table, derived from energy consumption patterns based on the 1985 energy demand survey. Energy and the Economy 5 Table 1.4 Guatemala: Energy Demand Forecast, 1995 and 2000 ('000 toe) Source Agnculture Industry Commerce Services Households TOTAL 199S Electricity 1.5 33.4 43.8 11.5 138.5 228.7 Diesel/gasoline 37.1 69.5 803.9 54.4 134.3 1099.2 Other fuels 0.4 211.7 311.7 1.5 54.9 580.2 Biomass 0.3 335.7 0.0 0.0 3099.7 3435.8 TOTAL 39.3 650.3 1159.4 67.4 3427.4 5343.9 2000 Electricity 1.9 36.7 51.2 13.7 207.2 310.6 Diesel/gasoline 44.2 76.4 783.4 64.3 150.2 1118.6 Other fuels 0.5 225.8 308.3 1.8 61.3 597.6 Biomass 0.4 349.7 0.0 0.0 3550.2 3900.4 TOTAL 47.0 688.6 1142.9 79.8 3968.9 5927.0 Source: Mission estimates. Energy Policy and Regulation 1.15 In the past, the government lacked an explicit set of sectoral policies and objectives and an institutional structure to suppolt those objectives. It appears as though past energy actions have been made either by default because of prevailing macroeconomic policies or short-term political realities or by reaction to a crisis. 1.16 Institutional Framework. Currently, Guatemala's energy sector is administered by the Ministry of Energy and Mines (MEM), which is in charge of formulating energy policy, promoting development of domestic energy resources, and regulating and coordinating the sector's activities. The MEM has five major directorates: the Mining Directorate; the Fossil Fuels Directorate; the Nuclear Energy Directorate; the New and Renewable Sources Directorate; and the Technical Services Directorate. Energy policy and planning activities are assigned to the Energy Planning Department, which is part of the New and Renewable Sources Directorate. 1.17 Policymaking for the electric power sector is shared between MEM, which has no specific division in charge of the electricity subsector, and the public utility, INDE. Responsibility for expansion, new construction, and tariffs lies primarily with INDE. Administrative and basic operational responsibility for the electric power subsector are assigned to the Instituto Nacional de Electrificacion (INDE) and the Empresa El6ctrica de Guatemala S.A. 6 Guatemala: Issues and Options in the Energy Sector (EEGSA). INDE was created in 1959 as a state-owned institution in charge of promoting and developing electrification nationwide and responsible for power generation and transmission as well as supply of bulk electricity and retail distribution in most of the country. EEGSA, which is primarily involved in distribution, le Guatemala City area, was originally privately owned; the government purchased 92 percent of its shares in 1973 and transferred themn to INDE in 1983. 1.18 Despite their apparently close association, INDE and EEGSA function as separate units and rarely share strategies or even information. In addition, the MEM has lost some of its well-rained staff because of low salaries. Consequently, the institutional structure lacks the characteristics required to define a long-term energy policy and its implementation in a rapidly changing macroeconomic enviromnent. This is evident by the absence of the MEM in the design of the restructuring of the power subsector or in Ieading the restructuring of downstream petroleum operations. In both cases, INDE and the Ministry of Finance have been the driving forces. 1.19 Regulatory Framework. At the subsectoral level, INDE plays the role of regulator and enterprise. In the absence of an electricity law, INDE's laws do not require any specific tariff regulation such as rate of return or marginal cost pricing. Overall, electricity tariffs are under the control of INDE's board of directors, which in turn operates under the orders of the executive power. 1.20 Whereas Guatemala's electricity subsector is dominated by government-owned companies, the petroleum sector is largely privatized. Within that context, however, importation of both crude and products as well as the market for products are heavily regulated. The only refimery is operated on a cost-plus basis. Its operating costs are well above international cost levels, but sales of its products are guaranteed through the pricing system. The government sets the retail prices, which overall are above international market prices. The difference is captured by the government as revenue, although, what once was a source of revenue, the compensation fund, has become in 1993 a pricing subsidy channel. Only in the fuelwood subsector does a free market prevail. 1.21 The MEM is also in charge of supervising and managing all aspects of upstream petroleum operations in Guatemala. The National Petroleum Commission, which is chaired by the Minister of Energy and Mines and representatives from the ministries of Defense, Finance, and Economy, the Attorney General, and the Central Bank, acts as an advisory body for the MEM. At the technical level, the General Directorate of Hydrocarbons within the MEM monitors compliance with laws, regulations, and contractual stipulations relative to petroleum operations. C. The Energy Sector and the Economy 1.22 The energy sector and the economy interact in many areas: public finance, investment, the price level, the balance of payments, and foreign and domestic debt. In Guatemala, as in many developing countries, the energy sector has a particularly strong influence Energy and the Economy 7 on macroeconomic performance; public utilities play an important role, and the energy sector is heavily regulated. 1.23 Many of the country's macroeconomic problems were compounded by the Chixoy hydroelectric power project. Chixoy was planned to provide additional hydro generating capacity of 300 MW by 1982, reducing thermal generation and the country's dependence on imported fuel, and increasing total installed capacity by about two-thirds. Production actually began only in late 1985 because of construction and conmnissioning delays, %nich also led to cost overruns of 123 percent (from US$414 million to US$924 million). The total cost of the project thus reached 10 percent of the 1984 GDP (Q 9,970 million). The project was financed by loans from the World Bank (US$116 million), IDB (US$175 million), other external sources (US$123 million), and local sources (US$510 million). Most of the additional financing requirements were met by government contributions. As a consequence, government and INDE participation in the financing of the project increased from a forecasted level of 32 petcent to 55 percent. The initial benefits of the project were lower than expected because of lower sales growth, reduced fuel savings stemming from lower-than-expected international oil prices, and the cost overrun. 1.24 Before Chixoy, the government built the 90 MW Aguacapa hydropower project, commissioned in October 1981. The project experienced delays and an 83 percent cost overrun, apparently caused by construction problems and inadequate preparation. 1.25 Between 1978 and 1982, cost overruns of investment projects, adverse market developments (i.e., less-than-expected sales growth because of reduced economic activity) and high fuel costs led the power sector to require additional funding. Government contributions supplied most of the funding; the rest came from additional borrowing. Between 1983 and 1987, the performance of the sector improved slightly, with a slow recovery in sales growth and reduced fuel costs. In 1988, however, the recovery stalled, as the unification of the exchange rate almost doubled the debt service burden in local currency. Some of these developments are shown in Table 1.5, which provides highlights of the results of the consolidated operations of the power sector between 1978 and 1991. Table 1.5 Guatemala: Summary of Consolidated Financ ml Operations in the Power Sector, 1978-1991 (Million Quetzales) Item 1978-82 1983 1984 1985 1986 1987 1988 1989 1990 1991 Fuel expenses 362 45 57 59 3 21 25 20 39 190 Debt service 86 35 35 33 64 86 153 167 161 294 Balance to finance 888 193 55 89 70 19 99 NA NA NA Government contrib. 513 131 40 17 28 5 70 96 29 255 Source: World Bank, Project Completion Report, C0uxoy, 1978-88 (1991), chapter 2. 8 Guatemala: Issues and Options in the Energy Sector 1.26 The financing problem, especially of INDE, was exacerbated by the fact that although average electricity tariffs increased 140 percent between 1980 and 1991, in real terms they decreased 110 percent (see Table 1.8) 1.27 Public Finances. The energy sector is both a source of fiscal revenues, which originate principally from the oil subsector, and a destination of resources, either in the form of subsidies to energy imports of oil products or in the form of investments in energy enterprises, principally in the power subsector. The share of revenue from the energy sector reached more than 16 percent in 1991, up from only 4 percent in 1990. 1.28 Although a detailed breakdown of revenue according to source is not available for every year, the most important components of the central government's revenue from the energy sector are royalties paid by oil companies, sales taxes on petroleum products, and the compensation fund, which was created as a buffer to absorb the effects of price fluctuations in the international petroleum market and has, in practice, been used as a revenue collection mechanism. During the first semester of 1993, however, it became a subsidy vehicle. Incotae taxes paid by companies in the petroleum subsector are of only minor importance. For example, in 1990 the four companies active in downstream operations paid Q 11.5 million, less than 0.5 percent of total direct taxes. Table 1.6 shows that royalty revenue has declined with declining crude production and prices since 1984. Revenues from the comnpensation fund have been very volatile, high in years of low international oil prices and low in years of high prices. In 1991 it went up from a low of Q 10.8 million in 1990 to a high of almost 500 million. This was due mainly to the average 180 percent increase in retail prices between November 1989 and December 1990. 1.29 The main recipient of central government funds in the energy sector has been the power subsector, especially INDE. Government contributions as well as loans helped finance INDE's investment programs. In the early 1980s, during the completion of Chixoy, the central government contributed as much as 8 to 15 percent of its overall expenditures to INDE. This contribution peaked at Q 212 million in 1981. In the last few years, the government has again added considerable sums, this time to help INDE finance its debt service. Between 1980 and 1991, total government contributions to INDE reached Q 1 billion. Other public sector expenditures, which were recorded as iosses of the Central Bank, were used to subsidize INDE's debt service (between 1984 and 1988) and petroleum imports (between 1984 and mid-1991) by giving these companies access to a more favorable exchange rate. In the case of petroleum imports, losses were particularly heavy, Q 133 mlllion, in 1990, when the exchange rate lost 40 percent of its value and international oil prices increased in the wake of the Middle East crisis. Energy and the Economy 9 Table 1.6 Central Govemment Revenue from and Expenditures on the Energy Sector, 1980-1991 (Million Quetzales) cuiego,y 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total revenue 748 742.4 731 704 690 866.6 1466.8 1857.8 2299 2433.7 2795.8 4310.2 Total energy revemue 27.1 53.2 65.9 94.2 58.1 83.7 144.3 74.7 90.8 94.2 131.3 694.5 nconie taxes NA NA NA NA NA NA NA NA NA NA 11.5 NA Sales tax NA NA NA NA NA NA NA NA NA NA 99.8 194 Royalties 13.6 26.6 30.7 40.7 26.6 12.7 4.8 6.6 5.8 7.6 9.2 9 Compensatonfund 13.5 26.6 35.2 53.5 31.5 71 139.5 68.1 85 86.6 10.8 491.5 % t,f wal revenue 3.62 7.17 9.02 13.38 8.42 9.66 9.84 4.02 3.95 3.87 4.70 16.11 itlJ expendiur 1116 1380 1141.5 1034 1041.7 1068.3 1704.8 2093.6 2669.9 3130.6 3503 4380 Contributon to NDE 119.6 212.96 92.82 119.19 51.58 16.92 28.056 4.6 40.72 96.1 29.5 255.1 % of total 10.72 15.43 8.13 11.53 4.95 1.58 1.65 0.22 1.53 3.07 0.84 5.82 Oveall ddicit -368.9 -638.6 -411 -331.2 -351.6 -202.6 -298.1 -433.8 -587.8 -891.8 -983 NA GDP 7878.6 8607.6 8716.6 9050 9470.3 11180 15838.1 17711.1 20545.1 23625.6 34036.8 NA Deficit in % of GDP 4.68 7.42 4.72 3.66 3.71 1.81 1.88 2.45 2.86 3.77 2.89 NA &ew.c: Ministry of Fmance; Mission estmates. - Q475.7 million 1992 and zero revenues in dte futh semester of 1993. 1.30 The size of deficits of the public sector and the amount of capital spending in the energy sector w -e direcfly correlated. In the early 1980s, the central government contributed large amounts to investment in projects of public enterprises, especially INDE. Indeed, the transfers to INDE, as a percentage of transfers to public enterprises, reached 96 percent in 1983 before decreasing to 8.6 percent in 1990. This was one of the reasons for the very large public sector deficits in the early 1980s. Deficits peaked in 1981, at 7.4 percent of GDP, coinciding with the peak in transfers from the central government to INDE. 1.31 Investment. In Guatemala, total investment (in real terms) increased at an average rate of 7.6 percent anmally to reach a 15.7 percent share of GDP in the early 1980s. The main contributor was public investment, with average annual growth rates of 13.8 percent in the 1970s and 11 percent 1980-82. In the latter period it seems to have crowded out private investment, which decreased on average 15.2 percent annually. Investment in the power sector, mainly Chixoy, accounted for almost half of public investment between 1980 and 1985. The growth in public investment vas reversed starting 1983-85, when the government drastically cut investment 28 percent annually to reduce the fiscal deficit. Although public investment again 10 Guatemala: Issues and Options in the Energy Sector picked up in the late 1980s, the power sector played a much reduced role, with a share of only about 20 percent of public investment. 1.32 Whereas investment in the power sector is all public, investment in the hydrocarbon sector is overwhelmingly private. Companies spent Q 250 million for exploration and development in the upstream subsector between 1980 and 1984 and Q 370 million between 1985 and 1991. This compares with investment of about Q 770 million in the power sector over the latter period. Investment in the downstream petroleum sector has been minimal, although the companies are planning upgrades to their facilities as well as expansion once the market is liberalized. Table 1.7 (Guatemala: Investment, 1980-1991 (Million Quetzales) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Tota invesumnt 1251 1466 1233 1003 1096 1286 1637 2464 2815 3192 4158 5963 Pubik 468 675 536 356 278 239 303 472 590 727 892 1455 Private 827 768 773 595 634 986 1290 1716 2157 2497 3217 4508 % of GDP 15.88 17.03 14.15 11.08 11.57 11.50 10.34 13.91 13.70 13.51 12.22 17.01 Power subsector 206 261 247 172 134 114 108 67 112 131 243 594 MDE 178 64 217 91 94 61 -3 8 62 33.9 34.4 195 Hydrocaeoons NA NA NA NA NA 19.07 86.33 92.61 52.52 70.24 48.74 86.92 Upstream NA NA NA NA NA 19.07 86.33 92.61 52.52 70.24 48.74 86.92 Downsream NA NA NA NA NA NA NA NA NA NA NA NA Energy Invest. 206 261 247 172 134 133.07 194.33 159.61 164.52 201.24 291.74 680.92 % of Total I 16.47 17.80 20.03 17.15 12.23 10.35 11.87 6.48 5.84 6.30 7.02 11.42 Sources: Miwy of Pmance; Mision estma. 1.33 Inflation. Because prices of energy products are regulated in Guatemala, they generally do not move in tandem with costs or increase with inflation. Instead, price increases are mandated when politically opportune or inevitable. Between 1980 and 1991, the general price level increased 411 percent (average of 14.6 percent annually). Over the same period, average tariffs for final consumers increased 142 percent (7.7 percent annually), so that 1991 tariffs are less than half their 1980 level in real terms. The erosion in tariffs was particularly severe after 1984. Even with the 1990 and 1991 rate increases, tariffs did not keep pace with inflation. 1.34 Between 1980 and 1991, international oil prices declined more than 50 percent in U.S. dollars. But devaluations of the exchange rate led to oil-price increases of 165 percent in current Quetzles, and decreases of 48 percent in real terms. Over the same period, total consumption of petroleum products declined 9 percent. Total expenditures increased 450 percent in current Quetzales and increased 8 percent in real terms. The govermment decreed particularly large price increases in January 1986, November 1989, and September and December 1990. This seems to have had some effect on the consumer price level. In 1989/90, fuel prices increased Energy and the Economy 1 1 between 100 and 200 percent, leading to a rise in fuel expenditures of 41 percent in 1990 and 110 percent in 1991. Inflation reached record levels of 39 percent in 1990 and 35 percent in 1991. Thus, energy price increases appear to have affected the domestic price level. 1.35 Balance of Payments. The following factors originating in the energy sector affect the performance of the balance of payments: fuel imports; debt service payments and profit remittances (for outflows) and equity and debt capital (for inflows). The components of imported capital goods for energy sector projects cannot be quantified, but clearly the Chixoy project contributed to the high share of capital goods in total merchandise imports of about 23 percent in the early 1980s. In the mid-1980s, their share dropped to about 15 percent. Expenditures for cmde oil and petroleum product imports have changed over the last decade with international oil prices as well as with the change in the input structure of electricity generation. Thus, imports of fuels fell from 10.8 million bbl in 1980 to a low of 7.4 million bbl in 1986 and then increased again to 10 million bbl in 1991. 1.36 The same developments can be observed in monetary terms (CIF values): Fuel imports came down from a record US$376 million (1981) to US$94 million (1986), following the decline in international oil prices. Exchange rate devaluations since then, along with the 1990 rise in international oil prices, increased the fuel import bill again to US$304 million in 1991. As a percentage of total merchandise imports (CIF), fuels have not reached their share of about 22 percent again, as they did in the first half of the 1980s. In the second half of the decade the share of fuels declined to 7 percent and only with the increase in oil prices and imports of products did it increase again to 17 percent in 1990. The export of crude oil is of minor importance. At its peak in 1983, it contributed about 6 percent (US$62 million) to total export revenues. Since then, its share has decreased to 2 percent. Table 1.8 Guatemala: Balance of Payments (Million US$) Item 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exports, goods (FOB) 1520 1291 1170 1092 1132 1060 1044 978 1073 1126 1212 1254 Imports, goods (FOB) 1472 1540 1284 1056 1182 1077 876 1333 1413 1484 1428 1602 imports, goods (CIF) 1598 1674 1388 1135 1279 1175 959 1447 1557 1601 1649 NA Fuels (CIF) 340 376 301 255 300 262 94 105 111 119 277 304 % of imports 21.3 22.5 21.7 22.5 23.5 22.3 9.8 7.3 7.1 7.4 16.8 NA Interest payments 60 63 77 89 95 116 154 179 122 103 142 138 Cumret account -176 -573 -399 -224 -378 -276 -42 -564 -523 479 -342 -255 Sources: Ministry of Finance; Mission estdmates. 12 Guatmala: Issues and Options in the Energy Sector 1.37 The external debt service payments of the energy sector becamne a burden for the economy in the second half of the 1980s, when INDE's debt service payments increased. In the early 1980s, the power sector's share in total external debt service increased to 20 percent, then decreased to around 12 percent, and increased again to 21 percent in 1989. With the exception of the beginning of the decade, INDE is responsible for more than 90 percent of the power sector debt service. The impact of INDE's indebtedness becomes even more obvious in its rising share in total interest payments (i.e., on external and domestic debt), which increased from only 3 percent in 1980 to 22 percent in 1989 (in terms of Quetzales). Moreover, because about 90 percent of INDE's total debt is with foreign creditors (compared with 60 to 70 percent of the public sector debt), INDE's share in interest payments is even higher. 1.38 The unsustainability of debt service payments is shown clearly by the increasing share of external debt service payments in total exports of goods and nonfactor services from 6 percent in 1980 to 28 percent in 1987-88. This, and a growing trade deficit, led to an increasing deficit in the current account of more than 6 percent of GDP during 1987-89. Because sufficient external funds could not be mobilized, foreign reserves were depleted, and Guatemala Emcurred debt service arrears, which reached more than US$600 million by the end of 1990. INDE's debts accounted for about 10 percent (US$55 million) of these arrears. 1.39 Foreign Debt. Guatemala's external debt began to increase in the late 1970s and early 1980s, when the government pursued overly expansionary fiscal policies, which it supported largely with exemal credits. Between 1978 and 1985, the debt stock tripled to US$2.6 billion, reaching more than 30 percent of GDP. Since then it has remained relatively constant. The share of public debt increased from about 60 percent in 1980 to 80 percent of total foreign debt currently. Several large infrastructure projects were part of the problem. By the end of 1991, INDE - xounted for 98 percent of the energy sector foreign debt and for 24 percent of the total foreign public debt. Table 1.9 Guatemala: External Debt and Debt Service, 1980-1991 (US$ miinons) item 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 ToaL externa debt 932 1264 1537 1796 2340 2614 2753 2813 2577 2648 NA NA WIDE in % 20.06 17.88 18.02 16.48 11.50 11.94 6.66 4.81 11.39 9.40 NA NA M+LT public debt 548 806 1144 1383 1945 2133 2258 2313 2081 2089 2164 2277 Tota debt service 101 121 141 171 220 282 305 313 348 273 350 NA WNDE in % 8.91 10.74 15.60 18.71 12.73 10.28 10.32 10.35 16.23 20.68 9.74 NA Sowrces: Cental Bank, Mission esmiates. Energy and the Economy 13 D. Lessons of the Past 1.40 The energy sector in Guatemala has been characterized by full ownership and control of public utilities and stiff regulation in the hydrocarbon sector. The results have not been satisfactory. The system has resulted in an electric power service that is both inefficient and a burden to public finances, in an upstream petroleum sector that attracts little investment, and in an overly expensive procurement process for petroleum products. At the same time, the majority of Guatemalan energy consumers still rely on fuelwood, which is expensive and subject to dwindling supply. The deficiencies of the sector are not caused by government involvement alone, but the government's poor administration of the sector has certainly exacerbated the problem. 1.41 In the power sector, problems originated with an investment project that was too complex for the institutional capacity of the public utility. The failure to raise tariffs to cover the utility's financial costs deprived the utility of sufficient funds for debt service payments and for future investment. 1.42 The government's practices of covering INDE's debt service and financing new investments cannot continue, in view of the government's difficulties in balancing public accounts. The private sector must continue to be involved, especially in providing new generation. This requires new policies and regulations for the power sector, as well as an adequate institutional structure. Again, coordination with macroeconomic policy is vital. In countries such as Guatemala, where financial markets and savings are limited, state participation-indirect or direct-may be needed in investments pertinent to the sector. 1.43 In many countries, the private sector is driven away from petroleum exploration and development by excessive government participation in the revenues from oil production. This is hardly the case in Guatemala, however; rather, the problems are that an ever-changing set of rules and regulations and administrative gridlock frustrate potential investors. As elaborated in chapter 5, this is particularly apparent in the environmental regulations for upstream operations, where clear regulations and definition and coordination of functions among the different government entities are lacking. 1.44 Companies active in the downstream petroleum sector and some consumer groups have long benefited from the disarray of the subsector. The government guarantees the operator of the only refinery the sale of all its products and a fixed profit regardless of performance. Concomitantly, the distribution companies are assured a safe margin via cost-plus regulation. The pricing system raises prices of imported products to the level of domestically produced fuels and provides subsidies for some products at the expense of others. As a result, the prices of fuels do not reflect their economic costs, leading to uneconomic uses. Perhaps not surprisingly, at a time of economic trouble, 1989-90, the government revised the pricing systemn to provide urgently needed revenue, abolishing all subsidies and raising all prices. However, price manipulation by the government has caused the compensation fund to shift from a revenue instrument, yielding Q 475 million in 1992, to a subsidy tool by the beginning of 1993. 14 Guatemala: Issues and Options in the Energy Sector 1.45 Even where the government is interfering only minimally, as in the fuelwood sector, it is doing so inadequately. In order to reduce consumption of fuelwood, the government provided incentives to use more efficient woodstoves or switch to other fuels. But, in Guatemala, contry to the experience of other countries, the program did not work (see chapter 4). 1.46 The general pattern is that the public sector has taken on too many tasks and has been unprepared to perform them well. Liberalization of markets, decentralization, and partial prvatiaon should achieve better results in many areas by distributing the tasks of the sector's adminitrai on and development more widely. This does not mean that government has no role. On the contrary, markets work well only when complemented by sound rules, regulatons, and institutions to enforce them. The government thus has an urgent role to play in establishing supervisory or regulatory agencies in the power and petroleum subsectors. 1.47 As for the future, the energy sector could become a contributor to economic growth, in contrast to its past drain on the economy. For such a reversal to occur, certain developments, though perhaps not sufficient, are necessary: (a) a more efficient mobilization of resources, both from the supply (investment) and demand (priceltariff) side, and greater private sector participation in investnents; (b) a regulatory framework comprising laws and subsidiary legislation that clearly define adequate and economically sound pricing meanisms, lift barriers to entry and exit, and establish predicable judiciary avenues to solve disputes; (c) a clear definition of environmental regulation and institutional responsibilities; and (d) an explicit and efficient taxation system that, in the medium term, ensures a certain level of revenue neutrality. 1.48 As an indication of the impact that some of these structral adjustments could have, the Table 1.11 shows the effects on government revenues that could result from greater private sector participation in fuure investment in the power subsector, successful development of the XAN petroleum field in the Pet6n region, and clearer definition of envi regulations. The taxation reform for petroleum products, treated in more detail in chapter 3, is asumed to be reveme-neutral for the govermnent. Energy and the Economy 1 5 Table 1.11 Guatemala: Projected Govemment Revenue Impact of Structural Adjustments in Two Energy Subsectors, 1994-2000 (US$ million) Subsector 1994 1995 1996 1997 1998 1999 2000 Hydrocarbons, upstream Base case 29.6 31.3 30.3 29.06 27.38 27.5 26.1 Oil price 25% up 44.9 46.8 44.9 42.7 39.9 39.7 37.5 Oil price 25% down 24.65 25.8 25.0 23.8 22.4 22.5 21.3 Power Financial projections with: - INDE in charge of expansion plan -45 -790 -179 426 -600 -626 -828 - Private sector in charge of expansion plan 36 129 141 198 199 217 267 Sources: INDE; Mission estimates. Annexes 8 and 11 were used as basis for simulation. The Power Sector The 1 980s and Prospects for the Future 2.1 In the 1980s, four factors shaped the Guatemalan power sector: (a) installed capacity, and associated investment, in the interconnected system rose from about 300 MW to 800 MW, an increase of 166 percent; (b) GDP declined on average by about 1.4 percent per year during the first half of the 1980s, and electricity demand declined correspondingly; (c) devaluation of the Quetzal in 1985 without corresponding tariff adjustments led to tariff levels in 1989 equivalent to 60 percent of those in 1980; and (d) consequently, to close the financial gap, government transfers to the sector were increased to about US$852 million to cover investment in 1980-84, and corresponding debt service in 1988-92. 2.2 The unsustainable situation described above, and the 1991 power shortages, forced the government to reassess the role of the state in the power sector and to envisage a greater role for private generation. One of the government-owned companies, EEGSA, signed a 15-year contract with a private investor for a 110 MW thermal plant. In addition, negotiations are under way for additional 50 MW in Pto. Barrios and an additional 100 MW steam-oil fired plant, as well as cogeneration in sugar cane plants. Still, the state has a role to play in improving transmission and distribuion facilities, in the regional interconnection, and in establishing the regulatory framework to ensure a sustainable reform. 2.3 In hindsight, the problems of the power sector were more than merely a failure to adjust tariffs or to contain large cost ovemms. The present analysis poinus out that these problems were derived more fundamentally from structural problems, including the lack of government policies and objectives to ensure an economic and reliable energy supply, as well as the institutional structure to carry them out; the policy vacuum, which led to the practice of mixing the state's regulatory and operational functions in the power sector; and, under those conditions, the lack of accountability by INDE to its shareholders, in contrast to what would exist under a business operation bearing commercial risks. At present, despite recent efforts to open bidding for new generation to the pnvate sector through Independent Power Producers (IPP), the old p^.icies are still being pursued, leaving the door open to recurreces of past errors. Hence, the fundamental problem of lack of efficiency in the sector has not yet been tackled. 17 18 Guatemala: Issues and Options in the Energy Sector 2.4 After providing some background on the organization of the sector, this chapter focuses on four areas: institutional and regulatory issues; how the sector's structure affected the operation of the powet system; tariff policies; and the financial performance of the sector. Organization of the Sector 2.5 Instituto Nacional de Electrificaci6n (INDE) and Empresa Electrica de Guatemala (EEGSA) are the main institutions of the Guatemalan power sector. INDE accounts for about 95 percent of generation; EEGSA functions as a distribution company serving the Guatemala City area and its surroundings. The distribution market in Guatemala is heavily concentrated in Guatemala City and its surroundings, accounting for about 75 percent of retail sales. 2.6 INDE was established in 1959 as a state-owned enterprise responsible for the supply of electricity throughout Guatemala, except for the Central Zone. EEGSA was originally fotmed by private investors before INDE came into being. Although EEGSA operates as an investor-owned utility under the commercial code, INDE actually owns about 92 percent of EEGSA's outstanding stock. Hence, in practice, the govermnent's responsibility as shareholder has not been clearly distinguished from its other duties and functions, such as regulation. Overall data on generation and sales by both entities are shown in Table 2.1. Table 2.1 Generation and Sales of Electricity, Guatemala, 1989-93 Measure 1989 1990 199J0 1992 1993k Gross generation (GWh) 2196.10 2336.01 2463.33 2705.00 3048.44 Total sales (GWh) 1860.25 1969.37 2106.02 2365.44 2666.66 INDE retail sales 439.50 476.39 507.56 645.00 713.60 EEGSA retail sales 1420.76 1510.98 1598.44 1720.44 1953.06 Losses (GWh) 335.85 366.64 357.31 339.56 381.78 Losses (%) 15.37 16.50 14.51 12.55 12.52 'Preliminary figures. bEsfimates at 31/12/91 in 1993 include 40 MW of private generation. 2.7 Administratively, INDE reports to a board of directors and the MEM. In practice, and particularly for major policy decisions, INDE is instructed by the president of the Republic. Investment plans and budget execution are coordinated with the Planning and Finance Ministries. 2.8 Regarding market size, which is important in terms of economies of scale and restucuring options, the system has about 600,000 customers. EEGSA serves about 60 percent of these, accouting for nearly 75 percent of retail sales. Levels of average consumption per The Power Sector 19 customer of the two utilities are highly uneven; in the residential sector, for example, average consumption in the EEGSA system is 1,590 kWh/year, whereas for INDE's clients it is only 450 kWh/year (see Annex 1). A. Structure of Mixed Regulatory and Operational Functions Regulatory Framework 2.9 No specific electricity law governs the power sector, but the law creating INDE is, in effect, the main legal tool of regulation in the sector. Article 56A of INDE's law specifies that INDE, as the regulatory body of the power sector, wiUl be in charge of developing all aspects related to tariff formulation and supervision of its application. This legislation does not specify any particular principle for setting tariffs (e.g., rate of return, marginal cost). 2.10 Despite the virtual legal monopoly that INDE has to regulate and operate the sector, the new administration in INDE has voiced a desire to allow a more competitive public/private sector market to emerge. Although INDE is solely responsible t:.- the supply of electricity throughout Guatmala, its management is steadily relinuising that responsibility by carefully exploiting loopholes in the existing laws. A recent example of this move away from past practices is the tower purchase agreement signed last year between EEGSA and a foreign independent power producer to supply it with 100 MW of thermal power generation. Cogeneration contracts signed earlier with sugar mills and other industrial power producers led the way to this dramatic break with the past. 2.11 What INDE's administration has achieved, without changing existing legislation, is essentially to relieve INDE of the responsibility to provide electric power generation throughout the country on an exclusive basis (EEGSA's ad hoc purchase power agreements are private sector transactions outside the restrictive public sector procurement procedures). 2.12 Within the overal legal system, the constitution of the Republic (articles 129 and 130) establishes the conditions for a decentalized power sector with the participation of the state ad municipal governments to formulate plans, as well as private sector participation. The constitution also formalizes and the state's role as a defender of a market economy, prohibiting monopolies. Institional and Regulatory Issues 2.13 The mamn institutional and regulatory issues in Guatemala's power sector are, first, the lack of a regulatory framework separating regulatory and public service utility functions, and second, the lack of a regulatory institution with responsibility for developing and coordinating regulation, policies, and norms. The entry of private power generators has alleviated the short- term investment requirements, but it has not addressed the fundamental operational, financial, and economic efficiency issues (described in more detail later in the chapter). For example, mainenance practices have been poor, financial transfers from the central government to the 20 Guatemala: Issues and Options in the Energy Sector sector were the norm rather than the exception during the last decade, and tariff levels and structure have reflected neither their economic cost of supply nor their financial cost. Strategy for Reform 2.14 Although it is desirable to separate quickly the regulatory and entrepreneuria roles the government plays, one also must recognize the potential political pitfalls of attempting to amend the existing INDE legal framework in the current, opposition-dominated national assembly; premature action could reverse the few gains INDE has achieved. Nonetheless, the govermnent has embarked on a process for reform and should continue it by clearly elaborating the reform's objectives, strategy for implementation, and required institutional/regulatory framework. Objectives should be defined at both the "macro" and subsectoral levels. 2.15 Macro-level Objectives. Power sector policies should be coordinated with macroeconomic priorities, given that efficient resource allocation in the wider economy depends on achieving efficient and secure supplies of energy and that a reduction in the government's p-Ubic sector deficit can be facilitated by reforming the established culture of government tasfers to the power sector. Moreover, the strategy should encompass the sector as a whole, so that it includes efficient pricing on both energy production and use. Finally, the policies mist be developed within the context of the constitutional mandate to avoid unnecessary monopolies and increase private sector participation. 2.16 Subsectoral Objectives. Policies for the power subsector should establish clear efficiency and quality objectives, such as providing minimum-cost service, subject to reliability constraints. This may mean that the regulatory body will need to provide planning functions that are more indicative than it has done previously. In addition, regulatory objectives must be clearly enunciated, such as the conditions under which the public and private generators will participate in the sector; the rules by which the transmission system may be shared by various generators; and the conditions for concession of distribution systems to municipalities or the private sector. For the government to develop clear subsectoral objectives, it will not only have to separate its regulatory and policy roles from its operational functions but witl also have to establish basic principles for pricing, scope of regulation, quality of service, and environmental protection. 2.17 Strategies to establish an organiational and regulatory structure to tackle the above objectives can be developed in several ways. It appears, from the actions it has taken so far, that the government has decided to develop the institutional stnrcture shown in Figure 2.1. The Power Sector 21 G~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ G G G G G T [Csoers ||ostomers [ [rstomers] G = Genertion companies or independent power producers. GT = Generation and transmission company (possibly a trimmed-down INDE). D Distribution company. Figure 2.1 Intended Structure of Guatemalan Power Sector 2.18 If adequately followed by required legislation and institutional reform, this structure would have three main characteristics compatible with the above-mentioned objectives. It would allow for a decentralition of INDE that may lead INDE toward becoming only a transmission company; for participation of the private sector in generation and some movement toward a more competitive market, with open access to transmission; and, in particular, for a system of invoices among generating compamies according to their economic cost of supply and financial costs, thus enabling a hard budget discipline. 2.19 As the new institutional structure unfolds, the government will have to be aware that a number of its operating practices will change, depending on the extent of competition. These include the number and type of generating and distributing enterprises; regulatory arrangements; merit order dispatch arrangements; and rules for access to transmission facilities, ownership, and financial arrangements. For example, as power stations become more aware of the real costs of generation, they may be less willing to submit to central outage or merit order dispatch planning without adequate commercial incentives or a proper regulatory structure; power exchanges with neighboring countries are likely to change, as well. Stll, the new institutional structure must accommodate these changes and continue to deliver least cost dispatch while maaing security of supply. 2.20 Scope for Competion. Arguments could be made for introducing, up front, more competition in generation (after atl, generation accounts for around 70 percent of total cost) 22 Guatemala: Issues and Options in the Energy Sector and a separation of transmission and distribution. Although these are legitimate issues to be taken into account in the drafting of the electricity law and subsidiary laws, there is no evidence that conditions exist for a genuinely competitive system in generation; on the contrary, in a small system such as Guatemala's, the atomization of new generation may lead to losses of significant economies of scale in generation and transmission.' To achieve economnic efficiency objectives, the power plants must be of sufficient size to capture economies of scale and be financially viable without state intervention. 2.21 As a transition step, and because the bulk of total cost savings are in generationi, competition between generating enterprises should be permitted to arise through bidding to provide additional or replacement generating capacity whenever this is required (kW or kWh), as now being practiced by INDE. 2.22 Another way to induce competition in generation is through a power pool supplied by different generators (practiced, e.g. in Chile and U.K.). However, the small size of Guatemala's system may preclude the achievement of one of the conditions for competition-the presence of many finms with none dominant. The introduction of supply competition, under which suppliers (generating and distributing companies) compete to sell the electricity to final consumers, requires an extremely complex legal and regulaory framework and sophisticated metering system. 2.23 Overall, given the small size of Guatemala's power market, competition in generation should continue on the basis of open and transparent tendering of bulk power. To hedge against the risk of having the prospective generator fail to meet its contractual obligations, the purchase agreements should include a provision for temporary imports by the contractor, if required, from the regional interconnected system. In any case, given the evidence of the last decade, future construction of generation by INDE should be minimized, and the relation with EEGSA should be established on a commercial basis. Further, because EEGSA already operates under the commercial code, its shares could be floated to the private sector. 2.24 Creating an Enabling Environment for Restructuring. To ensure coordination in the system and avoid conflict of interests, the reforms should aim first at separating, at least in accounting terms, the transmission and generation operations in INDE. In a more general sense, the government should be atuned to the three minimal measures necessary for carrying out an effective restructuring process. The first is introducing discipline through competition, performance contracts, and/or hard budget practices. Such activities are within the domain of the energy sector. The second is lifting the barriers to mobilization of resources (labor and capital). Third would be increasing the pool of resources-particularly managerial, institutional, information flow, and financial. The last two of these meures are integral parts of the structural adjustment of the economy. 1. However, existing generation capacity should be ransformed gradually into commercial companies operating under the commercial code. The Power Sector 23 2.25 Areas of Regulation. Overall, four main areas of regulation will require an independent and autonomous regulatory body: (a) environmental regulation; (b) economic reguhtion; (c) technical regulation; and (d) customer-service-related regulation. Environmental regulation should be done jointly with the National Environmental Conunission (CONAMA). It should address several issues, including requirements for environmental impact assessments of proposed projects; monitoring of plans and programs; formulation of standards and codes; issuing of licenses to discharge effluents; and definition of emission standards. 2.26 Economic regulation deals with definition of tariff-setting mechanism and profits in those segments under rate of return regulation. Technical regulation includes standards on quality of supply, operational standards, and procedures for merit order dispatch. Finally, to encourage the growth of a more demand- and service-oriented industry, customer-service regulation should introduce rules for handling customers' complaints. Lessons of the Past 2.27 The weak institutional performance of INDE and the inadequate regulation, management, and organization of the sector have been recurrent issues in Guatemala's power sector since the mid-1970s. Essential components of a stronger institutional structure in the power sector are clarification of the relationship between the operational and regulatory functions in the sector; establishment of an effective legal-regulatory framework; and creation of a regulatory organization with adequate staffing and powers. Although the government appears to have committed itself to the first component-separation of regulation and operation-it has yet to elaborate an explicit strategy for implementing the latter two. Indeed, the fact that INDE itself has been the driving force behind current changes has effectively perpetuated the mixing of regulatory and operational roles. Hence, the potentil for repeating past mistakes appears to remain significant. 2.28 In this context, specific steps should include the preparation of an electricity law as a vehicle to separate regulation and operation, basic principles for electricity pricing throughout the chain, access to transmission, operation of the system, and jurisdiction for disputes. Finally, a program should be initiated to float EEGSA's shares to the private sector. B. System Operations 2.29 This section looks at several aspects of the operation of the system, including generation/transmission and maintenance practices and electricity demand (for more comprehensive data on Guatemala's power sector, see Annex 2). 24 Guatemala: Issues and Options in the Energy Sector Generation and Transmisslon 2.30 Infrastructure. In Guatemala-as in the rest of Latin America in the late 1970s and early 1980s-hydroelectric power plants came first in the least-ost expansion plans, influenced by assumptions on high oil prices and high electricity demand growth rates. In addition, difficult geological characteristics have been a leitmotif in the construction of Guatemala's hydro plants. 2.31 Two main hydropower plants formed the backbone for generation expansion during the early 1980s: the 100 MW Aguacapa hydropower plant (1981) and the 250 MW Cbixoy hydropower project (1985). In the Aguacapa plant, after 11 months of operation, the power house was flooded. A recent PCR and project performace audit report prepared by OED concludes that after an overrun of 83 percent with respect to appraisal estimates, the project suffered from inadequate preparation and defective designs. 2.32 The Chixoy project was also affected by construction problems, caused in part by insufficient geological analysis during the feasibility study phase. The severity of these omissions was confirmed by a major failure in the tunnel just three months into operations. Conditions are still not stable, and risk of future collapses is high. These difficulties, together with probable underestimates at the appraisal stage, led to large cost overruns (final cost was almost US$1 billion). 2.33 Maintenance Practices. INDE's mainnance practices are deficient. Budgetary constraits, restrictive procurement practices, and inadte taning and supervision of maintenance personmel cause unsatisfactory preventive and programmed maintance. Timely procurement of spare parts is particularly difficult under the overly restrictive public sector procurement practices that INDE must follow as a stae-owned enterprise. Similarly, governmental directives on personnel policies prevent INDE from establishmg adequate career development programs for mantenance personnel. Requests for specialized technical assistance have ken postponed repeatedly, presumably for lack of funds. 2.34 As a result of these procurement problems and other diffculties, INDE's preventive mainenance on thermal power plants was grealy neglected. INDE therefore relied heavily on hydro generation, but when the 1991 drought struck, INDE's thermal plants were ill- prepared to make up the shortfall in generatng capacity. A crash maintenane program is being carried out with the support of several international financing institutions, mostly under bilateral aid arrangements. USAID, for example, is providing technical assistance to help INDE identify all opportmities to improve the efficiency of existing thennal and hydro power stations. 2.35 At EEGSA, well-defined maintenan procedures and practices intoduced by the original owners are still being followed. EEGSA is ruled by the Commercial Code, and consequenty it is more efficient than INDE in procuring spare parts and maintence materials and equipmen. For the same reason, EEGSA has attracted and retained good maintenance personnel through adequate compensaon and promotion policies. The Power Sector 25 2.36 Conditiont of Existing Power System, Emergency measures were adopted to alleviate the shortage. By June 1992 almost all thermal plants had been repaired, increasing the capacity by about 88 MW (60 MW INDE and 28 MW EEGSA). A new 50 MW gas turbine (STIG) was commissioned in 1992, and a 110 MW firm energy supply contract was signed between EEGSA and an independent power producer. A drainage gallery is being built in the Chixoy plant to reduce the external water pressure around the tunnel and to decrease the risk that the tunnel will collapse when it is emptied for maintenance work. Transmission and Distribution 2.37 EEGSA's sales in 1990 were 1,510,980 MWh. Total net generation and purchase power were 1,732,165 MWh. Total transmission and distribution and unaccounted for losses were 221,185 MWh, or 12.8 percent. EEGSA is aware that this loss figure is too high for a distribution company (it should be no more than 6 percent), and the company is making efforts to reduce losses through improvements in transmission and distribution networks and elimination of theft. 2.38 INDE's losses are worse than EEGSA's. In 1990, INDE's transmission and distribution and unaccounted losses were about 16.5 percent. USAID is assisting INDE in identifying opportunities to improve transmission and distribution networks, to be implemented with fiurher USAID assistance. Perspectives for the Future 2.39 Overall, capacity/power requirements to year 2003 are 614 MW, with an associated investment of about US$1 bilion in generation alone. This is beyond the financial and instiutional capacity of the sector. The future expansion ot the power system in Guatemala wil be influenced by internal and external factors. With regard to the former, new generation is being sought out by EEGSA with private producers. 2.40 Regional Interconnection. The main external factor to affect future generation will be the extent of interconnection with all five Central American countries and Panama. In the short term, energy exchanges within the region are marginal. At present, an interconnection at 230 kV links Guatemala and El Salvador; another 230 kV line links Honduras, Nicaragua, Costa Rica, and Panama. Some additional 150 kn of 230 kV transmission will complete the regional interconnected system from Guatemala to Panama, a first step toward establishing a formal Central American power pool that will exploit possible economic interchanges, share reserves, and develop low-cost power supply based on large generation projects aimed at a regional electricity market. 2.41 System Improvements. The current institutional and regulatory structure is not adequate to permit major expansion investments or to maintain the system adequately. This justifies a more decentalzed system with greater private sector participation. Under that 26 Guatemala: Issues and Options in the Energy Sector assumption, INDE's generation expansion plan includes the participation of the private sector and only minor public financing in generation before the year 2000. INDE's efforts would be addressed at improving the precarious condition of the transmission and distribution systems, an area that at this stage of reform is less attractive to private sector. 2.42 Demand Assumptions and Projected Responses. Annual electricity demand has increased 6.6 percent in the last years (1989-91), and INDE expects this tendency to continue in the next years. As the economy in Guatemala is improving, this assumption is acceptable for use in planning the expansion of generating capacity. Annex 3 presents more detailed characteristics of future thermal and hydro power plants as well as energy balances. 2.43 INDE is using consultant services to prepare the engineering studies of candidate projects and to assist its own planning staff in the preparation of an "indicative least cost expansion plan for generation" (ILCEPG). Because the World Bank mission concluded that INDE's proposed expansion plan did not provide a reliable supply of energy in dry periods or during forced outages, the plan was complemented by incorporating 100 MW steam power plants by 1997 and 1998. The adjusted expansion plan is shown in Table 2.2. 2.44 The energy balance for the 1993-96 period shows that the system reserve is small and that any demand increase over the forecasted demand could jeopardize the system energy supply. This siuation should be carefully examined by INDE in the next years. In addition, monthly detailed output of simulated load dispatching (shown in Annex 3) was used to calculate the short-term marginal cost of the system. The Power Sector 27 Table 2.2 Adjusted Expansion Requirements for the Guatemalan Power System, 1995-2003 Year Commissioning To be Retired 1995 Zunil I (Geothermal-15 MW) 1996 Vapor III (Steam-lOOMW) Esquintla Gas I & 2 Laguna Vapor 1 & 2 Laguna Gas I Diesel San Felipe Diesel Puerto Barrios 1997 Rio Bobos (Hydro) Vapor IV (Steam-100 MW) 1998 Santa Maria 1I (Hydro-68 Santa Maria I MW) Esquintla Gas 3 & 4 Laguna Vapor 3 & 4 Laguna Gas 2 & 3 1999 El Palmar (Hydro-55 MW) 2000 Geotermica II (Geothermal 55 MW) 2001 Serchil (Hydro-80 MW) Esquintla Gas 5 2002 Vapor VI (Steam-100 MW) Esquintla Vapor I 2003 Vapor VII (Steam-100 MW) Source: Mission estimates. Note: Annex 4 provides energy balances and more detailed information on generation and transmission requirements. Transmission and Distribution Expansion 2.45 Transmission. Annex 4 gives a detailed review of transmission projects. The existing 230 kV and 138 kV transmission system has the following purposes: a. Interconnecting the Chixoy hydropower plant with the load center in Guatemala b. Interconnecting other load centers toward the west (Mazatenango, Quetzaltenango) c. Interconnecting smaller loads toward the eastern (Atlantic) seaboard. 28 Guatemala: Issues and Options in the Energy Sector 2.46 INDE has prepared transmission plans for the 1992-2000 period, estimated at US$142 million (1991 U.S. dollars), within the framework of the National Electrification Plan: a. The central-west 230 kV interconnection, broken down into three stages of development b. The interconnection of the Atlantic and Pet6n areas via two projects c. New substations and reinforcements to existing ones d. Transmission lines connecting new plants to the main high-voltage network. 2.47 Of these projects, the small Atlantic market, with 7,500 customers and sales of 14 GWh in 1991, does not justify extending the network with a 165 km line of 230 kV. The line leading into the Peten is justified only for promoting the region's development. Studies carried out to recommend transmission expansions are outdated, and INDE's financial difficulties suggest that the review of priorities in the described transmission projects must be performed. 2.48 Distibution. Total investments in distribution planned by INDE for the 1992- 2000 period amount to US$63 million (US$7 million per year). In the same period EEGSA has planned an investment of about US$120 million (US$13 million per year). INDE estimates that electricity service reaches some 2.8 million people; adding those covered by the municipal distributors brings national coverage to about 40 percent. In the last National Plan of Electrification (1988), INDE had an ambitious development plan to reach 275,000 new users by the year 2000, mostly in rural areas. Because INDE's financial constraints have shown that these targets are unrealistic, the economic effectiveness of the required investments and the need for improving planning methods should be examined. Electricity Demand 2.49 Background. In Guatemala, as in many Latin American countries, the 1970s saw growth, whereas the 1980s were characterized by recession. Correspondingly, sales of electricity grew from 1971 to 1979 on an average 10 percent annually, and they decreased from 1979 to 1984. Only in 1985 did electricity sales reach the 1979 level. Since then, growth has resmed, averaging 9.3 percent annually in the 1985-91 period. Demand is expected to increase by an average of 6.7 percent in 1992-2000 period (see Figure 2.2). 2.50 Demand Stucture. In the 1980s, because of the economic depression, the share of industrial electricity consumption declined, and residential participation increased. The 1980 market structure of the interconnected system accounted for sectoral sales of 25 percent in the residential subsector, 42 percent in industry, 19 percent for commercial users, and about 14 percent for government and other users. In 1990 residential, industrial, commercial, and govermnent and other consumers accounted for 30 percent, 34 percent, 22 percent, and 14 percent, respectively (see Figure 2.3). The Power Sector 29 GWh MW 5000 1000 0000… S00 3000 -S1--1o1o1 1 1 Ss o0 2000 _ e e | | s 400 1000 900 0 1080 1085 10g0 1006 2000 &2l sates E3 Losses Plant Consumption E Peak Demand Figure 2.2 Guatemala: Electicky Demand, 1980-2000 2.51 Geographical sales show a dramatic imbalance: sales of EEGSA to final consumers, concentrated mainly in Guatemala City, account for about 1,600 GWh in 1991 (76 percent of the total end-consumers demand) against 510 GWh for the rest of the country. This geographical asymmetry reflects Guatemala's duality: an advanced, modern, and urban sector as counterposed to a traditional and comparatively isolated rural sector. 2.52 Geographical differences are remarkable when residential-specific consumption is analyzed. In 1990, EEGSA had roughly 280,000 residential consumers with an annual consumption of 1,687 kWh per customer, whereas INDE had 259,000 consumers with an annual consumption of just 505 kWh per customer. INDE's statistical data show that recently the utility has been reaching ever more marginal consumers with lower unit consumption. 30 Guatemala: Issues and Options in the Energy Sector Residential Residential Commercial 25X Commercial 30% lox ~~~~~~22X Other 14% <' 1 _ .e s illUl _ ~~~~~~ther 14X Industrial 42% Industrial 34X Year 1980 1,217 GWh Year 1990 1,990 GWh Figure 2.3 Guatemala: Electricity Sales, 1980 versus 1990 2.53 Demand seasonality in the interconnected power system is not significant (see Figure 2.4), but weekend and hourly load variations are important because of the high weight of the residential consumption. Demand modulation in the last years, and mainly in 1991, has been affected seriously by sabotage and climate conditions (see Figure 2.4). An improvement of load curves is expected in the future, when reliability of energy supply increases and economic recperation expands industrial electricity demand. 2.54 Demand Forecast. The forecast prepared by INDE was based on the present trend of population growth of 2.9 percent. GNP was assumed to grow at about 4 to 5 percent. The latter would seem an optimistic view of Guatemala's future, and the final forecasts thus should be seen as possibly at the upper limit values. Still, the records of the last years show that forecasts have been within 5 percent of actua} values. 2.55 Forecast growth rates of demand used as the basis for the national expansion plan show the following values: 1989-1991 (actual): 6.6 percent 1992-2000 (forecast): 6.2 percent The Power Sector 31 MW ...... ........ .......... 300 ............ 600 3 0 0 . . e..... .. .......... w ~ ~ ~ ~ ~~ -- . ........... - - - -- -- --. ---- 200 X X: : Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec MEnergy lMin Load U Mean Load EMax Load Aug & Sep. data affected by drought Figure 2.4 Guatemala: Seasonal Electricity Demand, 1991 2.56 These growth rates appear reasonable. However, there is the potential for higher growth (driven by the industrial sector recuperation) as well as the risk that actual demand will be lower than forecast if the economic recovery is slower than expected. 2.57 Although the demand forecast seems "reasonable," INDE and EEGSA should improve their models, increasing explicative variables and including short- and long-run price elasticity concepts. Intensity and substitution of energy products should be also considered. 32 Guatemala: Issues and Options in the Energy Sector C. Electricity Tariff Policy Legal and Institutional Framework 2.58 In view of the importance of tariff levels and structure on electricity demand, and consequently investments, this section looks at past practices and future requirements. Tariffs for electricity in Guatemala are under the control of INDE's Board of Directors. They do not require an explicit government approval and are not promulgated as a decree. However, in practice, rate increases depend on government decision-because the Board of Directors is nomi- nated by the government-so the rate changes are biased by Congress's attitude and public opin- ion. Electricity laws do not comprise any specific tariff regulations, such as rate of return require- ments or marginal cost pricing. Procedures to revaluate assets or to calculate depreciation operation costs also are not regulated by subsidiary legislation. Tariff Levels and Subsidies 2.59 Electricity rates for end-consumers ueteriorated in real terms and were below pro- duction costs most of the timne, since the Quetzal devaluation in 1984 (see Figure 2.5).2 The average retail price for final consumers declined in constant 1991 dollars from US¢10.6/kWh in 1980 to US¢5.7/kWh in 1991. The price for bulk sales from INDE to EEGSA also deteriorated from USC7.5/kWh to US¢3.2/kWh in the same period. The average ratio between rutail and bulk prices-the main source of revenues for EEGSA and INDE, respectively-dropped from 71 percent in 1980 to 56 percent in 1991.3 These two factors largely explain the financial difficulties of INDE and the huge government cash transfers to fund INDE's current expenditures. 2.60 Electricity rates were increased by about 47 percent in August 1991, and an automatic mechanism to adjust prices in response to fuel cost variation was applied beginning in January 1993. After these increases tariffs were about 79 percent of marginal cost (see Table 2.3). - An adjustment proposed in March 1993 to align tariffs with marginal costs is now being analyzed by the new government. End-consumer subsidies, begun in 1985, have amounted to about US$50 million per year over the last three years (see Annex 5). Further, bulk tariffs for INDE's sales to EEGSA have also been highly subsidized, amounting to about US$60 million per year in the last three years. To put it into context, this amount is almost 60 percent of INDE requirements for funding the investments needed by the power system expansion. 2.61 The level of subsidies were calculated as the difference between actual tariffs and marginal cost reference tariffs, as shown in Table 2.3 (in 1991 U.S. cents). 2. Marginal costs are about USC6.1 per kWh for generation level, USc6.8 per kWh for inteonnection level, USc7.4 per kWh for high voltage, US08.3 per kWh for medium voltage and USc9.2 per kWh for low voltage. 3. Based on generation/distribution marginal cost ratio, the rate for bulk energy sales should be at least 75 percent of the retail price. mm Power Set 33 14- ..................................................................... 12 . ..................................................................... @ _ ~~~~~~~~~~~~........... . ...................................................................... X-- i ~~~~~84 so as a a s o g ya.- -*W PA_+&toBIW Figur 2.5 Guate: Evodutio of Eletiit Tarf, 1980-1991 Table 2.3 Guatmal: Reeence an Acta ElectIty Twit I(Jnay 1993) MC referene Conue tpe Acal rute f Tarf rado (%) Resilential 5.4 9.2 59 Commercial-industiala V) 7.2 8.1 89 Commercial-i usial (MV) 6.4 7.1 90 Municipal-govment 8.1 8.1 100 Bulk 4.3 6.7 64 Average retail 6.9 8.7 79 Sbwrs: INDE, Mission esmaes. 34 Guatemala: Issues and Opdons in the Energy Sector 2.62 The conclusions of this analysis are as follows: a. INDE has subsidized EEGSA at USc2.4/kWh (US$36 million annually; 30 percent of its present operating revenues). b. Residential consumers are subsidized by about US$24 million (more than 40 percent of their cost of service). c. Subsidies are present in other tariff categories, but in smaller amounts. Marginal Costs 2.63 Long-run marginal cost (LRMC) and short-run marginal cost (SRMC) are used as references to evaluate the economics of tariff systems (see Figure 2.6). In addition, one should take into account the financing structure of the project (i.e., to ensure a match between economic life of the asset and the amortization '..neduie to service the debt). in this analysis, LRMC has been used to define marginal cost. Toble 2.4 shows the values used by the mission for the evaluation of tariffs. Table 2.4 Guatemala: Power System Marginal Costs Energy supply Capacity cost Energy cost Average cost level (US$/W/year) (USc/kWh) (USOrlk) Generation 59.4 5.0 6.2 Interconnection 84.0 5.1 6.7 High-voltage 113.5 5.2 7.4 Mid-voltage 152.7 5.4 8.4 Low yoltage 178.3 5.9 9.2 Source: Mission estimates (Annex 6). aLoad Factor = 60 percent Tariff Structure 2.64 Annex 6 presents preliminary estimates on reference service costs by voltage level, user category, and peak/off-peak periods. Although INDE rationalized the electricity tariff stucture in 1991, a comprehensive marginal cost and tariff analysis is still needed. Using the reference tariff values from Annex 5, te following observations can be made: * The rate for bulk energy sales, as of June 1992, was 64 percent of the benchmark cost (US"4.3/kWh versus USQ6.7/kWh). Further, the tariff suture should be revised to incorporate demand charges, and seasonality and peak/off-peak modulations. Special tariffs for emergency and maintenance should also be defined. The Power Sector 35 10 Residentia....... 1 . ..''.Bu.k.... . - --,-, .. . . ... . . . . .... _ _ 111111|_ _ _........ .... _ w ilMAs tual Ralte *SY 9Y t Reesidential Comm'l Mun.Gov Bulk Avg.Reta!A Actual Rate 5 5.4 7.2 8.1 4.3 6,9 | SRMC 9.2 8.1 8.1 8 .7 | 8.7 l Figure 2.6 Guatemala: Electricity Rates and Marginal Costs The MV rates (tariff with reduction for off-peak demand) are about 68 percent below the reference tariff in the peak demand charge and 89 percent below in the energy charge. As a charge accounts for off-peak demand, average rate is just 90 percent of benchmark tariff. This tariff should specify different rates according to voltage levels. Low-voltage residential tariffs are uniformly too low, including those oriented presumably to higher-income groups. This means that in effect all income groups receive a subsidy of about USC3.81kWh. If, at a minimum, marginal-cost tariff-setting criteria are to prevail, residential rates will have to be increased by about 70 percent (average rate is US¢5.4/kWh instead of USC9.2/kWh). Low-voltage nonresidential tariffs are also below reference tariffs. In the case of the tariff without demand charge, the average rate is about 90 percent of the reference tariff. In the case of the tariff with a low demand charge, the demand charge is almost 56 percent and the energy charge about 94 percent of the reference tariff. In the case of the tariff with a high demand charge, the demand charge is 73 percent and the energy charge is about 90 percent of the reference tariff. The average rate is 89 percent of the average reference tariff (US07.2/kWh versus USC8.1tkWh). 36 Guatemala: Issues and Options in the Energy Sector Tariff Levels and Financial Perfornance 2.65 Low tariff levels from 1985 onward, as compared to their marginal cost of supply, were, undoubtedly, an important contributing factor that led the sector into financial troubles and, consequently, its inability to even cover its debt service out of its internal cash generation. However, even if tariffs had been adjusted at their average incremental cost levels through the 1986-91 period, the sector would have still required government transfers of about US$380 million: this points out to financial costs well above marginal costs, or a financing structure highly vulnerable to fluctuations in operating income; indeed, a combination of both appears precisely to have happened in Guatemala's power sector.4 2.66 Consequendy, the following section looks at the past funancial structure and performa,ace of the power sector and at indications on the financial impact of alternative strategies for the future, including entrusting total responsibility for generation to private sector capital. D. Power Sector Finances 2.67 This section breaks down the analysis in three components: (a) the consolidated operations of the sector as a whole; (b) INDE's operations; and (c) EEGSA's operations. Annex 7 presents summarized financial statements for each one of the components. Past Performance 2.68 As seen during the 1980s, the power sector in Guatemala was besieged by an array of adverse factors: lack of clear objectives and an adequate institutional framework to carry out those objectives; cost overruns in the two major hydro projects; declining tariffs in real terms; tariff levels below their marginal and financial cost; and lower than expected electricity demand. As in any business, the bottom line effect of these factors was a deteriorating financial situation, which, by the end of 1991, had led to a sector unable to cover even interest payments on its debt service (see Figure 2.7) out of its cash generation (defined as cash flow before debt service and adding back depreciation), therefore also unable to contribute to the sector's investment plan. By 1991, INDE alone had accrued debt service arrears of about US$114 million, twice its gross intemnal cash generation. 2.69 After 1985, the currency devaluation without a corresponding electricity tariff adjustment further exacerbated the fmancial shortfalls, as shown in Figures 2.7 and 2.8: consequ y, the sector operated with a negative net income in the 1988-91 period. 4. It must be remenbered that in the presence of economies of scale, as is the case in power plan, marginal cost is below average cost; therefore, prices must be raised to at least their average cost level to allow the firm to remain in business. The Power Sector 37 Current Million Q 600 400 200 100 1980 1981 1982 1968 18 198 1 1087 1988 1989 1990 1901 1002 Year Grow0m Cash sen. 85 Debt Service Figure 2.7 Guatemala: Power Sector Consolidated Financial Structure, 1980-1992 Consolidated Financial Overview of the Sector 2.70 By and large, the finances of the consolidated power sector during the hlst decade can be described as follows: e The patern chosen for the expansion following the oil shocks of the 1970s, which divided power sector financ in two peniods. A period of intense investment in hydro projects and high opeating costs which lasd until around 1985; and then starting in 1986, a period of high debt service in U.S. dollars, low operatng costs, but also a drop in revenues as expressed in U.S. doLlars. 0 A stable parity of the exchange rate against the dollar until 1985, followed by a devaluation of the Quetzal that eroded tariffs and consequently the power sector income. * A persistent transfer of fumds from INDE to EEGSA through bulk tariffs. As seen in the tariff analysis section before, just the bulk tariff subsidy amounted to about US$ 364 million in the 1983-91 period. 38 Guatemala: Issues and Options in the Energy Sector 2.71 As a result of these factors, the power sector at the end of 1991 is in a financial quagmire. INDE did not generate enough funds to cover its debt service and had accrued debt service arrears of around Q 565 million (US$113.5 million), twice its gross internal cash generation in 1991. Of these arrears, Q 330 million (US$66 mnillion) were with financial institutions, Q 65 million (US$13 million) with BCIE that are being refinanced, and Q 172 million (US$34.5 million) were credits from the government to cover debt service during 1988 and 1989. 2.72 Fuel costs, which had reached US$88 million in 1980 and US$101 million in 1981, were reduced to about US$7 million in 1990. The coilapse of oil prices in 1986, and the reduction in fuel consumption made an important contribution to the gross internal cash generation growth in the second half of the 1980s. Gross internal cash generation increased almost tenfold from Q 29 million in 1980 to Q 284 million in 1990. However, in current US dollars, debt service grew at about 20 percent per year in the 1986-91 period, while operating income went from US$21 million in 1986 to US$19 million in 1991. 2.73 The power sector obtained important government contributions in the 1980s. Between 1980 and 1984 the government contributed Q 593 million, equivalent to US$593 million (US$120 million per year), mainly to the investment program. From 1985 to 1987 the government reduced its contributions to the sector to Q 50 million (US$18 million), but starting in 1988, the govermnent had to resume significant contributions or loans to INDE to cover debt service for Q 421 million (US$101 million) in the period 1988-91. For 1993, it will again be necessary for the government to make contributions or loans to the sector. The amount of Q 700 million (US$140 million) will include some loans made in 1988 and 1989 to INDE, which were not repaid. INDE's Fnancial Performance 2.74 INDE has been the main vehicle by which the sector has expanded, and therefore contracted new debt, as well as the main bearer of risk in the sector, wtether related to finances or operations (e.g., geology and construction cost overruns). However, despite having the bulk of generation and transmission, INDE's revenues have lagged behind EEGSA's. In summary, INDE's performance has mirrored the situation of the sector as a whole. 2.75 Despite improvements in gross internal cash generation, those were not enough to cover increases in debt service (see Figure 2.8). High debt service was a result of (a) persistent low levels of self financing of projects; the contribution-to-investment ratios shown in the fiancial statements tend to mask the reliance of INDE on government contributions and short term borrowing; (b) a maturity mismatch, derived from the need to amortize external debt rapidly on assets of longer economic asset life, which was not related to much shorter loan life; (c) devaluation of the Quetzal; and (d) inadequate tariff adjustments to reflect economic and financial costs. As a result, net intemal cash generation became negative after 1988. The Power Sector 39 EEGSA's Financial Performance. 2.76 EEGSA's distribution margin has played an important role in the deterioration of power sector finances (see Figure 2.9). EEGSA had a margin higher than required according to the relation between the interconnection level and the distribution level costs, which is about 28 percent. In 1991 this margin was 37 percent, allowing EEGSA to capture part of the rent which otherwise would have been obtained by INDE. As result, EEGSA was able to finance its investment program with internal funds, while INDE had to borrow abroad and obtain contributions from the govermnent for the investment program and to cover its debt service. Current Million Q 600 SooI 400 Soo, 200 100 1980 1981 1982 1983 194 1985 1086 1987 1088 1989 1990 191 1002 year -*--Gross Cash Ge. no Debt 8ervlc Figure 2.8 Financial Structure of INDE, 1980-1992 Rnancial Perspectives 2.77 To estimate the implications of alternative insttutional strategies, financial results for the Guatemalan power sector were analyzed under two different scenarios: The "INDE" alternative assumes that INDE will continue to execute future expansion in generation, whereas the "private sector" alternative assumes that electricity required will be purchased from the private sector. The scenarios represent extreme cases; hence, a third case (see Annex 8) shows mixed participation of the state and the private sector in construction of new generation capacity. 40 Guatemala: Issues and Options in the Energy Sector 2.78 Table 2.5 shows the results of the consolidated sector, INDE and EEGSA, respectively, under the INDE alternative. It shows that the consolidated power sector will face a continual shortage of funds, even if tariffs are adjusted to marginal costs; this is not surprising, since the sector will continue to be burdened by the Aguacapa and Chixoy debt. Whether the shortage of funds would be caused by an overdimensioned investment program, an underestimation of the level of marginal and financial costs, or both, can be determined only after a more detailed examination. 2.79 The financial projections show that INDE would have a US$548 million financial gap between 1992 and 2000, even after considering the disbursements of loans to finance projects for US$1,266 million. The financial gap could reach more than US$700 million if the generation projects were fimanced from new loans. This would be an unaccepable alternative under which INDE would remain a drain on govermnent resources. Current Million Q 120 100 so 40 20 1980 1981 1982 1983 1984 1986 1986 1987 1988 1989 1990 199 1992 Ybar | Gro Cash eon. ° Debt Service Figure 2.9 Financial Structure of EEGSA, 1980-1992 2.80 EEGSA's projection shows that with a distribution margin of ABOUT 28 percent after tariff adjustments, it will be able to generate enough funds to contribute to the investment program. However, about 50 percent of the investment would have to be financed by loans. The Power Sector 41 Table 2.5 Power Sector Fnancial Projections Forecasted Financial Indicators, "INDE Alternative," 1992-2000 Total Indicator 1992 1995 2000 1992-2000 Consolidated Sector Operating ratio (%) 65.7 64.4 62.5 Rateofreturn(%) 8.74 11.11 9.99 Contribution to investment (%) -16.0% 52.3% 12.9% 19.3% Financial gap (US$ millions)a o 17 166 560 INDE Operating ratio (%) 58.6 49.7 50.4 Rate of return (%) 8.49 11.22 10.04 Contribution to investment (%) -29.5% 51.9% 11.8% 17.1% Financial gap (US$ millions)' 0b 16 164 548 E1GSA Operating ratio % 93.3 94.6 95.2 Rate of return % 10.46 10.31 9.48 Contribution to investment (%) 84.5% 55.7% 43.9% 51.0% Financial gap (US$ millions)' 0 1 1 4 Note: INDE is assumed to build and mperate according to the least-cost expansion plan. Financial gap does not include financing costs of the gap. Financial projections assume that only external component of projects wil be financed with loans. bContributions from govermnent of Q 200 million for 1992 and Q 100 million, and a loan from government of Q 220 million in 1992, have been assumed for both alternatives. 2.81 The private sector alternative assumes that INDE does not execute any of the futre generation plants but that it buys all its future requirements of electricity from private sector suppliers at a rate similar to the one recently obtained by EEGSA, QC 30.5/kWh (6.1 USckWh).5 Under this assumption, INDE will generate a surplus of Q 1,209 milion (US$240 million) during the period 1992-2000. The size of the surplus depends on the actual prices charged by private suppliers. 2.82 Table 2.6 compares both options: the INDE and private sector alternatives. 5. This tariff level was taken as a reference, not as an indication of the financial cost to the sector. 42 Guatemala: Issues and Options in the Energy Sector Table 2.6 Consolidated Power Sector Financial Indicators, 1992-2000 Total 1992- Indicator 1992 1995 2000 2000 INDE alternative' Operating ratio (%) 65.7 64.4 62.5 Rate of return () 8.7 11.11 9.9 Financial gap (US$ million)b 0 17 166 560 Private sector altenatvec Operating ratio (%) 65.7 64.3 73.8 Rate of return (%) 8.7 11.43 10.36 Financial surplus (US$ millions) 0 25 52 235 aINDE will build and operate according to the least-cost expansion plan. 'Financial gap does not include the financing costs of the gap. Financial projections assumes that only external component of projects will be financed with loans. INDE will buy electricity required from private sector suppliers. The indicators correspond to the consolidated public power sector. E. Lessons of Experience 2.83 This chapter began by evaluating the institutional structure and regulatory frmwork under which the power sector has been operating during the late 1970s and early 1980s. Subsequently, the chapter showed the operational and financial impact of not having clear sectoral objectives, a strategy to carry them out, and the institutional framework to do it. Purther, those objectives should have included economic, operational, and fiscal elemnents. 2.84 Implicitly, the sector has been structured institutionally to rely on government contributions without questioning what level of demand it could afford to supply. In the past, the financial problems, and all risks, were concentrated in INDE, as EEGSA obtained a distibutionnmargin higher than required according to the interconnection level cost, thus draining resources from INDE. It appears as though the electricity pricing system in place with the private suppliers-cost-plus pricing-perpetuates the concentration of risk in INDE rather than encouraging equilibrium and viability in the medium to long term. 2.85 It appears as though no consideration was made regarding management of financial risk. As a result, the sector contracted debt to be amortized rapidly while tariffs were at levels both below their economic and financial costs. Given these circumstances, tariffs in the future will have to be above their marginal cost until efficiency is improved and equilibrium is reached. In terms of the institutional structure, the implications may call as a first step for an integration of generation and transmission under performance contracts. Overall, the issues to The Power Sector 43 tackle require a process for reform, as against a set of ad-hoc actions, as appears to be the case today. 2.86 The contracting of new generation to the private sector has alleviated the short- term investmet requirements, but the fundamental source of problems has not been addressed: the absence of a legal context (i.e., an electricity law) to encourage an accountable and reliable power system and the separation of regulatory and operational functions. 3 Hydrocarbon Sector 3.1 Guatemala has had an active oil upstream sector with a history of exploration and production since the late 1970s, as well as a growing downstream sector. Guatemala imports all of its oil requirements of about 28.000 barrels/day (bd), and it is also a marginal oil-producer- about 8,000 bd, which is mostly exported by the oil companies. Although the power sector has periodically received government transfers to cover investment and debt service, the hydrocarbon sector has been a constant source of government revenues in the energy sector, peaking at about Q 700 million in 1991, or 16 percent of government revenues. However, the main source of revenue incorporated in the petroleum price structure, the compensation fund, has gone from Q 476 million raised in 1992 to zero revenues in 1993. 3.2 Upstream, the government's promotion exploration campaigns have met with limited success. On the latest promotion in 1991, only one company, Pentagon of Louisiana, presented a proposal for exploration permits. The main causes of this lack of success are (a) the inconsistent and absent government regulation regarding the environmental impact of oil companies' operations; (b) the lack of adequate preparation at the MEM to organize and follow up a promotion campaign; and (c) the lack of proper legislation to use the only pipeline in the main oil-producing region (El Peten), which is privately owned, on a conmmon-carrier basis. 3.3 Downstream, the sector has become a major source of government revenues. Although consumption dropped from 31,000 bd in 1980 to a low of 20,000 bd in 1986, it is now rebounding to 1980 levels; this increased demnand will bring greater investment requirements to expand and rehabilitate the current infrastructure. The government has stated its goal to restructure the downstream sector to make it more efficient, both in terms of more efficient supply arrangements as well as internal distribution. As in other Central American countries, the core of the inefficiencies in the downstream sector is a regulatory structure based on a cost-pius pricing system for the private sector companies. 3.4 Within this context, the objective of this chapter is to assess the performance of the hydrocarbon sector, and, based on this assessment, to propose components that should be included in the government's strategy to (a) attract greater private sector investment in a more- competitive environment, both upstream and downstream; (b) ensure that the sector maintains and 45 46 Guatemala: Issues and Options in the Energ,y Sector increases its fiscal contribution; and (c) ensure that this is achieved in an environmentally and economically sound way. 3.5 The chapter is divided into two main parts: upstream operations and downstream operations. After an introduction on past exploration and production, a section on operations gives an assessment of current production practices and proposes an alternative production strategy to attract greater exploration by oil companies. The section on the downstream segment of the industry focuses on the regulatory aspects of downstream operations and on the changes needed to bring about a more efficient market. This includes discussion of the including roles to be played by the public and private sectors. A. Upstream Petroleum Operations Background 3.6 Geology. Guatemala contains three sedimentary basins (See Map 1): the Pet6n basin (50,000km2), the Amatique basinal trend (10,000klm2), and the Pacific basin. The Peten basin has a high hydrocarbon potential, which, despite various oil discoveries in the RubeSsanto and Xan areas, is still largely untapped. The northwest area-against the Arco de la Liberad-could also contain larger oil deposits and might yield higher levels of production than the western area of the basin. Oil shows have been identified as well in the Amatique basin, where interest has been focussed on the Iabal sub-basin. The hydrocarbon potential of the Pacific basin has not yet been established and remains speculative. 3.7 Proven remamning recoverable reserves, estimated on the basis of currently producing oil fields, amount to about 21 million barrels. This yields a reserves to production ratio (R/P) of seven years. Current production is about 8,000 bd, more than half of it yielded by the newly developed Xan oil field, in the northeast portion of the Pet6n basin. However, current petroleum demand levels of around 28,000 bd are supplied by imported crude and refined products. 3.8 In the Rubelsanto area, at current production rates, proven reserves and production are approaching the final stage of depletion. Secondary and enhanced recovery programs could counteract this decline. The specific type of secondary or enhanced recovery needed (i.e., water and/or gas injection) depends on geology and reservoir behavior. 3.9 The geology and reservoir behavior in the Rubelsanto area is characterized by lack of porosity in reservoirs. An integrated reservoir and well performance study should be camed out in both Rubelsanto and Caribe fields to identify incremental reserves based on an improved knowledge of the reservoir. The study should examine the nature of the fracture sysem, identify production and recovery factors, and make recommendations regarding the least cost method for draining almost all recoverable oil in relatively shalow reservoirs and to ascertain the most appropriate technique-and economics-for exploring the deeper reservoirs in Robelsanto. Hydrocarbon Sector 47 3.10 Past Exploration and Production. Despite interest in the country's oil potential since the 1930s, actual exploration started only in the late 1950s. In 1974, a joint venture of several oil companies produced oil in Rubelsanto (300 API oil). In 1980, a 240 km pipeline with a 50,000 bd capacity (astonishingly large for a country with a peak production of 8,000 bd) was built from Rubelsanto to the Atlantic port of San Tomas. The pipeline is to be owned by the present operator (Basic Resources) until the year 2002, when it will be transferred to the government. Thousands 10 8 6 4 1978 1980 1982 1984 1986 1988 1990 1992 A nwa daily produeton in bpd Figure 3.1 Guatemala: Oil Production (thousands of barrels per day) 1978-1992 3.11 In 1990, the oil coinpany Basic Resources took over the area of Xan, where a well previously drilled by Texaco had produced heavy oil. Basic drilled two more wells on the structure, and established production from what was progressively uncovered as the biggest oil field discovered to date in the Pet6n basin. In spite of a low recovery rate resulting from the density of the oil, the aggregate proven and probable recoverable reserves (21 million barrels) are equivalent to the total of past production in Guatemala. 3.12 Other enterprises formerly involved in exploration in Guatemala include Texaco, Repsol, Exxon, Amoco, Pam Petroleum (a small independent company), and Shell (in the Lake Izaba area). Texaco and Repsol drilled wells that produced oil in noncommnercial quantities (in the view of big companies; Exxon carried out a seismic survey and drilled the first of two contractual wells but pulled out for reasons related in part to questions about environmental regulation and unclear institutional jurisdiction in the government. With an undefined 48 Guatemala: Issues and Options in the Energy Sector environmental protection policy on the part of the government and the lack of coordination between CONAMA, the commission in charge of envirownental policy, and the Ministry of Energy and Mines (MEM), this situation affects the normal course of petroleum operations and deters oil comnpanies from entering the Guatemalan exploration scene. Impact of Regulation on Exploration 3.13 Past exploration activity has been influenced by four marked changes in petroleum legislation: o In 1949, the first phase of exploration activities was brought to an end by legislation with no incentives for investment. * In 1955, a new govermnent took office and issued a Petroleum Code under which government participation amounted to no more than 24 percent of the production from the concession area. As a result of this soft fiscal regime, 29 groups of oil companies filed 91 applications for exploration, and 15 exploration wells and 3 production wells were drilled. * In 1975, the government enacted a new petroleum law incorporating a heavier fiscal regime. (This seemed to be warranted by the first oil discoveries and the soaring oil price trend that followed the 1973 oil price shock.) Udder this regime, the government lifted a minimum of 55 percent of the crude produced on a sliding scale basis related to increasing production. At this time, two major oil companies that had made discoveries or were producing oil relinquished their rights and left the country. m The latest change, in 1983, brought in the Hydrocarbon Law and a Production Sharing model contract, which has alleviated many of the critical deterrents to oil exploration. Essentially, they provide for: Payment of a sliding scale royalty on production, at rates ranging from 5 percent to 20 percent, depending on the API gravity of the oil concerned. Recovery of the company's expenditures out of total oil produced, net of royalty payment. Sharing between the government and the company of remainder oil ("shareable oil") left after royalty payment and recovery of the company's expenditures, such sharing to be accomplished according to a sliding scale set as a function of levels of production. Payment of an income tax at the rate of 34 percent on the company's taxable income (practically, its share of "shareable oil"). Hydrocarbon Sector 49 Introduced in 1991, a seismic option under which the companies have a limited time (two years) to conduct seismic surveys, with the option to relinquish the acreage or commit to drilling an exploration well. 3.14 The new fiscal framework graphically represented in Annex 9 could still be refined, particularly in terns of its fiscal terms and regulatory provisions (Para 3.33). Instuional Structure 3.15 At the policy level, the Ministry of Energy and Mines (MEM) is in charge of supervising and managing all aspects of oil operations in Guatemala. The National Petroleum Commission (NPC), which is chaired by the Minister of Energy and Mines and includes the Attorney General and representatives from the Ministries of Defense, Finance, and Economy, and the Central Bank, acts as an advisory body for the MEM. At the technical level, the General Directorate of Hydrocarbons within the MEM monitors compliance with laws, regulations, and contractual stipulations relative to petroleum operations. 3.16 The separation of policy, advisory, and technical-auditing roles is a good measure, provided that the attributions are properly defined and that resources are available to carry out those attributions. This is not the case in Guatemala. The instiutional structure currently lacks communication among the different units. 3.17 The lack of communication raises two issues that make MEM inefficient in the activities of an appropriate promotion campaign. First, at the advisory level, NPC plays a blurred role, and it L:%s no resources to carry out its responsibilities. The NPC is responsible for (a) "expressing opinion" with respect to petroleum operation contracts, the establishment of petroleum prices, and the engagement of consulting finns requested by the ministry; and (b) conducting studies to evaluate and establish the overall petroleum policy. To do so, the Directorate of Hydrocarbons within the MEM is the NPC's ex-offlcio advisor. This practice establishes a conflict of interests between those regulating and those being regulated. 3.18 Second, at the technical level, even though the Directorate of Hydrocarbons is suitably structured in theory to monitor and regulate petroleum industry operations, it does not have the experienced and trained personnel to implement an active promotion campaign; this became clear during the last promotion campaign. Need for a Focused Promotional Effort to Exploit Hydrocarbon Potential 3.19 Future production estimates take account only of the fields that the current oil producing companies, Basic Resources and Pam Petroleum, plan to set on production, and excludes any potential oil discoveries that could result from new exploration efforts. Projected production until the year 2000 was assessed, showing for each field a nine-year production forecast based on proven, probable, and possible reserves. The depletion rate was estimated at between 15 and 25 percent for oil fields and 50 percent for individual wells (Annex 10). 50 Guatemala: Issues and Options in the Energy Sector Thousands 10 6 . . . . . . ... . 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4 09g/ g z S | @, . i g i i / ' ' - ' ' -'jz I............................................... -. . - . ................................ ... . . , , ......................................... , 1908 1994 1996 1998 1997 1998 1999 2000 _ Proven Reserves 1 Probable Reserves 0I Possible Reserves Thousand Barrels Figure 3.2 Guatemala: Oil Production Forecast, 1993-2000 3.20 The estimated "technical' depletion rates of 15 to 25 percent per year for oil fields, and 50 percent for individual oil wells do not necessarily reflect the optimal "economic" depletion rate. Because production cost data were not available, the mission did not conduct a narginal cost analysis for individual fields. Such knowledge would enable better decisions regarding the adjustment of production levels of individual fields and the development of new ones vis-i-vis international oil prices. Marginal cost analysis is not presently performed by tie staff at the Ministry of Energy. However, this information is critical to evaluate rates of return for hydrocarbon development properly. 3.21 This estimated depletion rate shows that proven remaining recoverable reserves, established according to oil industry practice, amount to about 21 million barrels. The Xan field accounts for more than 50 percent in this estimation. Probable remaining recoverable reserves, geologically estimated as a reasonable complement to the already proven recoverable reserves, would reach 18,5 million barrels. Possible remaining recoverable reserves, appraised on the assumption that all geological forecasts prove out to their most optimistic option, amount to 17.5 million barrels. 3.22 The oil production profile in Annex 10 shows oil production from proven reserves maintained at a level of approximately 8,000 bd until 1994, declining to about 5,000 bd in 1997, to about 3,000 bd in 2000, and continuing until reaching the economic liur t for a few years Hydrocarbon Sector 51 thereafter. Exploitation of probable reserves would result in maintaning a production of approximately 8,000 bd until 1997, when production would begin declining to about 4,500 bd by year 2000. 3.23 If possible reserves are brought to light in the near future, a high production rate would be maintained longer and the decline would be to 6,000 bd by the turn of the century. 3.24 As a very preliminary estimation, based on the discovery of new fields in the southwest portion of the Peten Basin, south of the Mexican border, and the existence of two provinces of oil producing patch reefs, the hydrocarbon potential of the Pet6n basin may be up to nine times higher than current proven oil reserves, or about 180 million barrels of oil recoverable in place. 3.25 As can be seen, the estimated hydrocarbon potential of the Peten basin justifies a new-well-designed and appropriately focused-promotional effort. In this effort, the government should take stock of the factors that have elicited negative responses from the oil companies proposals for exploration or that have forced the companies out of the country. In 1987, 85 oil companies attended a promotion seminar organized by the MEM, and 6 of them bought the technical-contractual package, yet no contract was finalized. In November 1991, 120 companies attended another seminar in Houston, and 34 sent teams to Guatemala to deepen their evaluation, yet only one presented a proposal to explore. One of the reasons for the lack of success has been the weak institutional capacity of the MEM -more specifically of the Directorate of Hydrocarbons-to organize and supervise the promotion campaigns. Altemative Promotion and Production Strategy: Current Production and New Promotion 3.26 The proposed strategy has two objectives: to reverse the current decline in production and to increase exploration efforts. Rather than focusing only on a new promotion campaign-a strategy that has proved has proved unsuccessful in the past- the mission has recommended efforts to reverse the trend in current production while a new exploration campaign, designed along lines described below, is undertaken in parallel. As a first step toward reversing the decline in production, a consulting firm with experience in production from fractured dolomite with pressure problems should undertake an enhanced study. 3.27 To address new exploration as an objective, a sustained promotion effort should aim at small and medium-sized oil companies with substantial experience in production from fractred dolomite with pressure problems, for the western part of the Pet6n basin, and at medium-sized or major companies interested in the development of frontier areas such as the northeast portion of the Pet6n basin. 3.28 To implement this objective, the strategy to promote exploration should include components related to the organization of the campaign and components addressing regulaory and instutional issues. On the former, the promotion team, properly advised, should aim at 52 Guatemala: Issues and Options in the Energy Sector medium to small-sized independent oil companies, and be supported by an updated data package and with individual or small group presentation sessions. Box 3.1 Oil Industry Incentives Oil companies are mostly attracted by proven oil provinces (i.e., countries where substantial oil potential has been ascertained). In favorable conditions, companies are willing to invest exploration risk capital and to operate under relatively stringent contractual tems to the benefit of the host country. Conversely, where exploration risks are high, they may agree to gamble against dubious chances of success if the host country's legislation provides some incentives to compensate for the risk. Guatemalan exploration appears to be between the two extemes, but the oil finds are confined to a relatively restricted area (the Pet6n Basin) and so far seem small. It is therefore in the country's inrest to stimulate fiuther exploration so that its petroleum potential can be assessed filly. This can be done through a set of actions aimed at attacdng risk capital to an insufficiently known geologic envionm t. 3.29 This should be supplemented by having the Directorate of Hydrocarbons reorgnized and properly staffed and by improving relevant information, including reprocessing selected seismic sections in the north Pet6n basin to define exploration plays and as an appropriate tool to oil companies. Reprocessing data on oil potential in the northeast Pet6n basin, where seismic data is scarce, is also recommended. 3.30 At the regulatory level, the MEM and the environmental agency, CONAMA, should jointly establish specific guidelines for the operation of the oil industry. 3.31 Annex 11 shows the impact of the introduction of a flat royalty, rather than a royalty rate based on the API gravity, tied with an earlier government participation in production and recovery of capital costs for the company. Table 3.1 summizes the results. Overall, though the government's share is reduced, the loss is compensated by an earlier participation in production sharing, which is particularly attractive at a time when the governmuent is trying to increase its fiscal revenues. Annex 12 shows other recommended changes to current regulatory provisions. Hydrocarbon Sector 53 Table 3.1 Summary of Simulation Showing FRnancial Impact on Govemment and Company of Actual and Revised Contract Recoverable reserves (MMbs) 30.0 | Field life (years) 8.0 Exploration investment (MM$) 31.5 Operation expenditures (MM$) 28.0 Present contract Revised contracf Factor Measure Case A Case B Case A Case B Development investment MMUS$ 60 78 60 78 Techmical cost $/bbl 4 4.6 4.8 4.6 Selng price $/bbl 13.8 16.6 13.8 16.6 Company's position Net cash flow MM$'90 97.8 120.4 104.4 128.6 NPV at 10% MM$'90 16.3 22.1 18.9 25.4 IRR % 14.9 15.8 15.6 16.5 Government take MM$'90 196.2 238.3 189.6 230 Govermment to company profit ratio % 67/33 66/34 65/35 64/36 Note: NPV = net present value; IRR = internal rate of return. Source: Mission estimates (see Appendix 11). aApplication of flat royalty 10 percent, allocation of 10 per:ent production to shareable oil (to government). From startup of production and recovery of interests (e.g., 10 percent) on development investment. 3.32 Lessons from the Past. Guatemala sdll has a large, untapped petroleum potential. The current legislation requires minor adjustments to make it more attractive to prospective exploration companies; however, to increase the chances of success actions must be taken on both the regulatory and institutional fronts regarding regulatory reform. The following actions should be taken: 0 Preparation and implemenation of environmental regulation regarding petroleum exploration andproduction. Inaction on this front will be an obstacle to attracting serious and professional oil companies. * Modification of the currentftscal regime by settng a flat royalty rather than the current sldng scale system, and allocahton of a percentage of production as profit oi from the beginning ofproduction. Annex 11 shows the financial results for both the government and the oil companies. 54 Guatemala: Issues and Options in the Energy Sector o Preparation and implemenation regukaton to use the Basic Resources -owned pipeline in the Peten Basin on a common carrier basis. As it is today, Basic has a de facto monopoly for exploration and production in the Pet6n basin. 3.33 In addition, on the institutional front, the country should launch a new promotion campaign aimed at both secondary recovery and exploration. However, to ensure a greater probability of success, there is a need, first, to organize the Ministry of Mines and Energy so that is more fully prepared to attract new oil companies to Guatemala and so that it can effectively monitor the activities of the oil companies currently operating in the country. This will require better efforts to retain trained and qualified staff, build up the capacity in economic and environmental assessments, and improve commnunications both internally and with the National Environmental Comission (CONAMA). B. Downstream Petroleum Operations 3.34 This section focuses on regulatory reform in downstream petroleum operations, including modifications of barriers to entry, operation, and exit. First, some background is given on the current size of the market and on suppliers and regulation; Annex 13 provides basic statistics about the downstream petroleum sector. The discussion then turns to the genesis of the current regulatory framework and options to increase efficiency. The Govemment's Role and Its Effects 3.35 The government, through the MEM and the Ministry of Defense, is responsible for proposing and enforcing regulatory aspects related to entry and exit, namely: ex-refinery and retail prices (MEM), taxation systems to be approved by Congress, the importation of crude and petroleum products (MEM), and construction of bulk terminal facilities and gas stations (Ministry of Defense). Indeed, one could conclude that the regulatery system has all the characteristics of a cartel, but in this case established by the government (i.e., prices and margins set by the government, allocation of demand quotas by the govermment, and regulation of admission to the industry also by the government). 3.36 As shown in Annex 14, the current pricing structure was designed to ensure certain levels of fiscal revenue through the introduction of compensation funds in the pricing stracture. In practice it is a very straightforward breakdown, but without economic basis for its determination. The result is a price structure without transparency and under the discretion of the political momentum. In terms of its effect on market behavior, the price structure eliminates any incentive on product importers to be competitive, for prices are set at the level of the ex- refinery price, which tends to be higher than import prices. In addition, it locks the market into a cost-plus system without consideration for efficiency. As an indication, Table 3.2 compares ex-refinery prices with ex-terminal prices of imported products. Hydrocarbon Sector 55 Table 3.2 Comparison between Prices Ex-refinery and Prices Ex-terminal of Imported Petroleum Products, 1990 UNITS: Qtlgal Ex-Terminal Products Ex-Refinery Ex-S. Jose Ex-GUATCAL Premium 2.33304 2.21296 2.19954 Regular 2.15630 2.04894 2.03660 Jet-Kerosene 2.82793 2.39088 2.18533 Diesel 2.40374 2.20295 2.07847 Source: Ministry of Energy and Mines. 3.37 The govemment has also had an exclusive role in the importation of crudes under the San Jose Accord. Under the accord, 20 percent of the petroleum bill is available as a credit with a fixed interest rate of 8 percent over a period of five years. Currently, 50 percent of these funds comes in the form of lines of credit; the rest is financed from the FIV (Venezuelan Investment Fund), which the Ministry of Finance allocates for a tern of 12 years and an interest rate of 6 percent. In 1991, about 50 percent of crude imports came from Venezuela at a cost of US$62 million. Thus, foreign funds of about US$12 million were available. Between 1976 and 1990, this form of financing has been used almost exclusively (77 percent) by INDE. About US$18 million of INDE's US$653 million debt, as of end 1991, is with the FIV. 3.38 The benefits and costs of the San Jose accord go beyond the energy sector. As long as foreign exchange is in short supply, any scheme that provides foreign exchange credit acquires a value in excess of altzmative options to import petroleum products. The experience of other countries has shown that the San Jose accord is becoming less relevant as the economic adjustment progrms take place. In some ways, the original justification for the accord-to provide balance of payments support-is becoming less of an issue. Structure of Private Sector 3.39 As structured, private companies operate under a vertical or integrated structure in terms of imports, storage, and distribution, as shown in Figure 3.3. 56 Guatemala: Issues and Options in the Energy Sector SD 3 S/D Sb Lecrend I - Imports D - Wholesale Distribution S - Storage R = Refinery RD = Retail Distribution Figure 3.3 Current Instiutional Structure of the Guatemalan Petroleum Sector 3.40 The level of vertical integrion observed in Figure 3.3 indicates both the limited size and the restricted nature of the downstream business in Guatemala. As market demand grows in the future, one could expect the emergence of new local marketers, as has happened in countries with conditions similar to Guatemala's (i.e., Jamaica and Honduras). Demand 3.41 Guatemala presents the conditions for a growing petroleum market that will average growth rates of about 5 percent in the next five years. Petroleum demand is rebounding to the level reached in 1980. 3.42 Total market demand for oil products in 1991 was about 27,500 bd (10 million barrels), still below peak demand of about 30,136 bd (11 bbl million per year) in 1980. As Figure 3.4 shows, market demand in the last 12 years has been biased toward automotive fuels. Even though the 1982-91 period recorded growth rates for petroleum products of just 1.6 percent annually, the economic recovery has brought in the 1988-91 period growth rates of about 6 percent annually. Based on past demand pattens and future economic growth, total demand is expected to grow at 5.2 percent annually for clean products and about 4 percent annually for fuel oil. Thus, by 1995, total demand is expected to be about 34,000 bd, an 11 percent increase above the 1980 level. 3.43 The drop in demand in 1986 to 7.4 bbl million coincided with a GDP decline of about 1.4 percent per year in the 1980-85 period. By 1988, petroleum demand had increased at an average rate of 5 percent per year. In 1986 fuel oil consumption was 27 percent of 1980 levels; this is explained by the entrance in operation of the hydroelectric plant Chixoy. Ironically, the drop in fuel oil consumption also coincided with a drop in crude oil prices in the petroleum markets. Hydrocarbon Sector 57 Thoauands 6 ................................................ .......... . 4 ... ... ................................. .... I......... ........ 6 a _ .|. ......... ...... I....... . . ............ .... ........ 2 .. ........ .............. ..._... ........ 1980 1986 toll 1995 (expected) YEARS *GauoUne Super l1Gasolinn Reg. EDlesel 01 Emoarosene 2fuel Oc OLPo Figure 3.4 Historical Petroleum Demand (KB) 3.44 In terms of the geographic concenation of demand, in the metropolitan area of Guatemala City, 65 percent of the total consumption is concentrated, whereas the population represe only about a quarter of the total population. The per capita consumption of petroleum product in the metropolitan area is four times higher than the national average. The South Coast area represents 25 percent of the total market and the Pet6n area 10 percent. Vehicles are likewise concated in the metropolitan area. Supply 3.45 The Distributors. Overall, the private sector is in charge of all logistical aspects related to the importation, refining, and distribution of petroleum products and cmde, with the government playing the role of policymaker and regulator. The supply of petroleum products and crude is accomplished through two main channels: imported refined products and locally refined cmde in an average proportion of about 50/50. The local refinery is owned by Texaco and operated by its local affiliate "TEXPET," but the crude, or spike, processed in the refinery is purchased by the government from Venezuela or Mexico under the San Jos6 Accord. Under the San lose Accord, Guatemala has access to up to 20 percent of its petroleum bill at an interestrate of 8 percent and a payback period of five years. If the funds are to be used in economic development projects, particularly regional integration projects, the interest rate is 6 percent and the payback period is 20 years. Up to now, INDE has been the main user of this credit facility. 58 Guatemala: Issues and Options in the Energy Sector 3.46 Market Shares. Petroleum products are currently distributed by the local affiliates of four major oil companies: Esso, Shell, Texaco, and Chevron see Figure 3.5. Chevron has recently withdrawn from the regional market (i.e., Guatemala, Nicaragua, and El Salvador), and sold its assets to Shell, which will have close to 50 percent of the market. The number of outlets in Guatemala (about 500) appears to be too high relative to the market's size and geographic concentration. Chevron 17% Esso 25% .-. '... ....A Texaco 29% Shell 28% Fgure 3.5 Market Share by Distribution Companies, 1991 3.47 Import Ports. Guatemala is in a very good position vis-a-vis import tenminals, both in terms of the number of terminals-three-and in terms of days of available capacity-about 50 (see Tables 3.3 and 3.4). Hence, provided there is adequate regulation, storage facilihes should not be a barrier to entering the market. To put it into a regional context, Honduras started the deregulation of the petroleum market with one terminal and an installed capacity of 200,000 barrels versus 1.7 million barrels in Guatemala. Hydrocarbon Sector 59 Table 3.3 Guatemala Storage Facilities: Storage Capacity by Product Total capacity Product (1000's bbls) Crude 610.0 Premium gasoline 127.3 Regular gasoline 237.8 Aviation gasoline 38.6 Kerosene 77.3 Jet fuel 20.4 Gasoil (Dicul oil) 517.2 Fuel oil 164.4 SUBTOTAL 1795.0 LPG 57.4 SUBTOTAL 1852.4 Nonutilized tanks 128.7 TOTAL 1981.1 Source: Departments de Transformation y Distribution, MEM Informe Estadistico 1988. 3.48 There are currently three active oil import terminals. Puerto Barrios on the Atlantic coast, operated by Chevron and Shell, has a total working capacity of about 500,000 barrels, or about 57 days of available capacity for the critical petroleum product, regular gasoline. Puerto San Jose on the Pacific coast, operated by Esso, has a working capacity of about 220,000 barrels. Texaco also has a facility on the Pacific coast, which produces about 500,000 barrels, mainly for crude imports, as well as a refinery in Escuintla. that produces an additional 500,000 barrels. The installed storage capacity of fuel oil will be increased by about 200,000 barrels by the private operator of the power plant on the Pacific coast. Table 3.4 Guatemala Storage Facilities, Crude and Products Capacity Terminal Owner Location (1000's Bbls) GUATCAL SHELL/CHEVRON Puerto Barrios 508.2 TEXACO TEXACO/GUATEMALA Puerto Barrios 1 23.7 Refinery TEXPET Escuintla 513.6 Terminal TEXPET Puerto S. Jose 508.8 Terminal ESSO Puerto S. Jose 219.6 DEPOTS ESSO, SHELL, TEXACO, Guatemala City CHEVRON Note: DEPOTS = Transit depots of each company. Source: Departments de Transformation y Distribution, MEM . 60 Guatemala: Issues and Options in the Energy Sector 3.49 With the exception of "Terminales de Gas" in the harbor area of the port of St. Tomas de Castilla (29,800 barrels), the LPG depots are relatively small, consisting of tanks connected to filling plants. Field visits to LPG plants revealed poor maintenance and hazardous conditions, particularly at the terminal in Puerto Barrios. 3.50 Local Refining. Texaco has the only active refinery, a 17,000 bd hydrosidmming facility with the yields of production given in Table 3.5. Table 3.5 Petroleum Product Demand and Production, 1990 Local prodion Imports Product kbbl % kbbl % Gasoline 1170 45 1450 55 Jet/kerosene 376 66 193 34 Diesel 1665 46 1967 54 Fuel oil 1042 100 LPG 59 5 1042 95 Other 190 100 TOTAL 4311 47 4842 53 Source: MME. 3.51 As in other Central American countries, the refinery operates under an unwritten cost-plus arrangemnent that guarantees a US$3.5 million net income provided the refinery operates above 10,500 bbl/d capacity. Any increase above that threshold provides the refinery with a premium. In an open market, the profitability of the refinery would be given by the spread between the unit cost of the feedstock and the average selling price, and its opportunity cost would be given by direct product imports from larger refineries with secondary conversion capacity in the Caribbean and the U.S. Gulf coast. Overall, in an open market, hydroskimming refineries operate at a loss when running Mexican and Venezuelan crudes; the refinery in Guatemala is no exception. 3.52 A comparison of refining spike crude versus product imports through the Pacific shows a benefit of about I to 1.5 US$/bbl of importing products. At an average refinery load of 70 percent, this amounts to about US$6 million per year. This situation can change depending on the type of crude, load at refinery, and price differential between crude and products. 3.53 However, rather than evaluating the least cost supply option-a moving target in the petroleum business -the govenmment should create the environment to allow that decision to be taken by the private sector participants. Under that scenario, profits and losses will be a consequence of the refinery's level of efficiency vis-a-vis import parity prices. rTe refinery may be able to compete given its logistical position by a good import port in the Pacific and the San Jos6-Escuintla pipeline, which will reduce internal transportation costs. Hydrocarbon Sector 61 3.54 Hence, the proposed regulatory and institutional structure would aim at increasing efficiency by encouraging competition. However, to ensure that the proposed framework is better than today's, competition requires certain conditions. Most important, the market must contain many firms with none dominant, allow free entry and exit, and exhibit no externalities; among these conditions, free entry and exit is perhaps the most critical. Unfortunately, intervention in the market is sometimes required to ensure that profit objectives do not conflict with social welfare; this is the case with a natural monopoly (when it is optimal, from a cost perspective, to have only one firm). In the petroleum business, transportation of products in pipelines and refining show natural monopoly characteristics under certain levels of outputs. The levels of government intervention are described below. Strategy for a More Competitive Market 3.55 To move toward a more competitive enviromnent will require explicit government intervention in the transition phase, namely: (a) modification of current legal framework to allow free entry and exit in the sector; and (b) modification of the government's role to focus on quality control and safety and environmental standards, ensuring that competitive conditions exist while penalizing cartel behavior. Both aspects are dealt with in more detail below. 3.56 Regarding the first point, the government, through the MEM, already has capable staff to deal with the downstream sector; to change the focus of their work would require strengthened capabilities in regulatory economics. However, an enforcing agency dealing with dumping or cartel practices would still be needed. This should be approached on a multisectoral basis. In the interim, a modification of the law of commercialization of petroleum products could satisfy the immediate needs of moving to a more open market. 3.57 The governmenit, petroleum industry, and consumers of Guatemala may legitimately ask many questions for which the experience and evidence in other countries with similar characteristics to Guatemala (i.e., Bolivia, Jamaica, and Honduras) could offer some answers. Some of these questions include the following: What will likely happen to retail prices and margins once they are liberalized? How will fair competitive conditions between gas stations owned by wholesale distributors and local investors be ensured? Will the refinery survive? Will government revenues drop? Will the opening of the market to importers without safety standards lead to oil spills? 3.58 As a point of departure, it must be remembered that the main objective is to increase the efficiency of the supply and distribution system. Efficiency is seen in the quality and reliability of products, cost of products, investment capacity to expand and satisfy growing demand, and economic prices. The last 15 years have seen negligible investment, local cost of products above their competitive price, and prices that are inefficiently manipulated by the government. 62 Guatemala: Issues and Options in the Energy Sector 3.59 To move forward, the evidence has shown, efficiency through competition must take place at three levels: quality of products, quality of service, and prices. To achieve that, the industry will have to adjust. This implies the following: a. The refinery will have to structure its operations to use the import parity of petroleum products as a yardstick. When this change took place in Honduras (January 1993), the Texaco refinery there had to shut down operations, mothball the refinery. and convert to a products terminal. b. Prices will have to be liberalized. In Jamaica, liberalization led petroleum companies to react to their FOB cost and to adjust margins upward in order to consolidate. In Chile, price wars broke out in the Santiago area, while quality and service became the competitive basis in other areas. In Honduras, distribution margins were adjusted upward, but some of the gas stations started to play with their retail prices to consolidate greater volumes and market share. 3.60 There are also different modalities to follow, according to specific circumstances. In Honduras, the first phase of the liberalization was the opening of petroleum imports, since about 60 percent of supply cost is allocated on the CIF portion; in the interim, the institutional and regulatory conditions were changed to allow a full liberalization of prices and margins. In Jamaica, the first phase included the liberalization of the domestic distribution market, including prices and margins, plus the establishment of an import parity formula. The second phase will tackle the operations of the state-owned refinery. 3.61 The lessons learned in other countries indicate the need to prepare a minimum set of conditions to open the petroleum markets, both during the transition phase as well as during the fine tuning required in full implementation. Institutionally, it requires a strong government entity to ensure that the market operates within established standards (i.e., safety, enviromnental, and quality). Free Entry and Exit and the Private Sector's Role 3.62 To be able to compete effectively in the market place, private companies need a level playing field with no preference for any particular company or group; this includes equal access to foreign exchange, environmental standards to ensure that substandard operators are not allowed to continue in the business, and no fLxing of prices and margins. The oil industry lends itself to competition, and it also lends itself to oligopolistic behavior when unchecked. Hence, the need is for clear legislation spelling out rewards for efficiency and penalties for inefficiency. 3.63 The main factors affecting entry and exit are the subsidiary legislation for the construction of bulk storage terminals, the construction of gas stations, and the commercialization of hydrocarbons (decree #130-83). Such legislation should only establish the technical, safety, and environmental conditions unaer which such facilities should operate; as it is, the legislation gives unnecessary discretion to the government in terms of commercial risks-i.e., limiting Hydrocarbon Sector 63 distances between gas stations, requiring an economic analysis from the Ministry of Economy to authorize construction of oil terminals; (Article 20). 3.64 Under the current structure, the oil companies' import and distribution operations are vertically integrated, including storage of imports (Figure 3.6). Experience in other countries has shown that in the initial phases of market liberalization, some companies with storage facilities tried to retain a de facto monopoly by blocking access to their facilities or raising thruput fees to a level at which it was uneconomical for other companies to import. In such a situation (provided that the law has been streamlined), new construction of oil terminals occurs. 3.65 In the case of Guatemala, the government has given concessions to SheWChevron in the Atlantic and Esso in the Pacific; the former is under litigation and the latter has to be renewed in the next three years. Additionally, the government is the owner of the El Penate facilities in the Pacific. To remove barriers to storage facilities in the initial years, the government should begin negotiations to renew the concessions with Esso and Shell or any other private sector company willing to operate as only a terminal operator, or willing to give access to third parties under agreed economic rules to be established by the government. The distinction here is that unlike under vertical integration for imports and transport/storage, the terminal operator would have no incentive to block potential importers. Lecend I = Imports D 3 Wholesale Distribution S = Storage R = Refinery RD = Retail Distribution Figure 3.6 Institutional Structure of Petroleum Sector under Open Access to Storage Facilities 3.66 Taxation. Another barrier to a free market is the current pricing and taxation system. As structured today with the adjustment/compensation fund, revenues to the government could erode rapidly in an environment of changing international prices without adjustment of retail prices; indeed, that is exacdy what has happened in the last eight months. To tackle this issue, pricing and taxation system must be established that responds to changes in 64 Guatemala: Issues and Options in the Energy Sector international prices and that keeps government revenues at current levels while being tasy to administer. 3.67 At the import level, it has been argued that local refining provides added value and should therefore be protected from product imports by differentiation of import duties for crude and imported products. This argument does not apply to Guatemala, however, since it is not a refining center. 3.68 At the consumer level, retail prices have been set by the government as a function of fiscal revenues required; indeed, price formation starts at the retail level and works backward to accommodate fiscal requirements (see annex 14). The government receives the difference between the cost of the retail product and the retail price as revenue. To allow for cross-subsidization, government revenues, and the difference between ex-refinery and import prices, the price structure encompasses two compensation funds, named compensation refinery and compensation fund. 3.69 To make petroleum product price determination more rational and more in line with taxation of other products in the economy, the government proposed the following changes in 1992: * Replacement of the variable sales tax with a 7% VAT. • Introduction of a 10% import tax on petroleum products as well as crude oil. * Replacement of the compensation fund ("ajuste compensatorio") with a specific tax with the following rates (in Quetzales per gallon): Gasoline (premium and regular) 3.0 Kerosene, diesel, fuel oil, and LPG 0.5 Turbo jet 4.0 e Continuation of the refinery compensation. 3.70 To assess the effect of tax reform on petroleum product prices, consumption expenditures, and government revenues, a simulation analysis was performed. It can be shown that the reformed system is a step in the right direction, in the sense that it makes the structure of retail prices more similar to the structure of CIF prices, which can be regarded as opportunity costs. But the reformed system will still provide incentives for uneconomical fuel substitution between gasoline and diesel. Additional reforms should be inplemented to eliminate this unwarranted feature while keeping fiscal revenues at similar levels. 3.71 The main areas for improvement in the govermnent's enacted system are to substitute the refinery compensation fimd for an explicit tax and to structure the specific taxes as a function of the cost of supply of iuported petroleum products. Hydrocarbon Sector 65 3.72 Under 1991 prices, costs, and consumption of petroleum products, the old tax and pricing system, called system A, generated Q 768 million revenue, about 63 percent of which (Q 484 million) in the form of the compensation fund. The reformed tax system, called BI, generates 25 percent more revenue, 54 percen of which (Q 964 million) is in the form of the specific petroleum product tax. If one were to eliminate the refimery surcharge, leading to a new tax system, B2, revenues would be slightly higher-3 percent (Q 24 million)-than under the old system A (see Figure 3.7). Q million 1200 1000 964 600 768 702 400- 200- 0- A SI 82 fe ,Refinery Adjustment I MunIcIpa Tax, Sales Tax. Adjustment 2 9;. Oren Steim Import Tax. WT. Paeific Tax, AdjustMent I SI: Proposed System:. import Tex. VAT, Specific Tax Figure 3.7 Guatemala: Government Revenue under Alternative Taxation System Downstream Petroleum Sector 3.73 The selected tax and price reform should result in the "correct" price level and strucure of petroleum products. However, critenia for correct price level and structure have to be established. The most imp)ortant ones are: e Economtic growth. Economically efficient allocation of resources in the energy sector should be based on the full, long-term marginal social opportunity costs. This principle should be applied if the rest of the economy is exposed to undistorted prices. This is most lkely not the case and may be a reason to diverge from the efficiency prmiciple. t Social objeclives. Welfare and icome ditbution consideratons may warrant the subsidization of certain products in order to ascertain a minimum level of energy supply for poorer semet of society. 66 Guatemala: Issues and Options in the Energy Sector e Financial objectives. The energy sector should preserve its viability and autonomy by earning a fair rate of return and being able to self-finance investment; taxes on energy resources can be a means to raise required governrent revenue. o Other objectives. Energy conservation, simplicity of energy pricing structure, promotion of energy price stability are representative. 3.74 The opportunity costs of fuel consumption in Guatemala, which is a net importer of petroleum products, are best approximated by the border (CIF) prices of petroleum products. As shown in Table 3.6 below, price systems A and BI result in a price structure that diverges from that given by the international market. The substitution of the LPG subsidy for household use (under A) by a tax (under B1) is certainly a step in the right direction, resulting in prices that closer to the CIF structure. But while CIF prices are basically the same for gasoline, kerosene (jet fuel), and diesel, retail prices for gasoline and kerosene are at least 40 percent higher than diesel prices under system A. This large price difference between diesel and gasoline would be reduced only slightly by Bi, while kerosene would only be slightly more expensive than diesel, reflecting the CIF price difference. Table 3.6 Petroleum Products Price Structure under Altemative Taxation Systems Parameters Regular Kerosene Diesel oil Fuel oil LPG cyl CIF price (QCIgal) 361.9 350.6 330.3 156.3 275.26 Relatlveprice (Diesel 1) 1.09 1.06 1 .47 .83 Absolute retail price (Q¢Jgal) A 895 845 595 340 300 Bi 879 649 644 371 458 B2 879 583 566 362 458 Relative retail price (diesel = 1) A 1.5 1.04 1 .57 .50 Bi 1.36 1.01 1 .57 .71 B2 1.53 1.03 1 .64 .80 Source: Mission est'.,ates. aCI price is derived from 1991 weighted average SITCO FOB price, adding transport costs. 3.75 There are two obvious ways to deal with this issue: (a) a uniform tax rate (equal energy tax) on the CIF value of petroleum products; or (b) a differendated tax rate to take account of externalities created by individual petroleum products (i.e., user fees). Both scenarios have been developed and are presented in Annex 15. Under the latter, the difference between Hydrocarbon Sector 67 gasoline and diesel prices is much reduced, thus eliminating the incentive to switch from gasoline- to diesel-powered passenger cars. The second important change occurs with respect to LPG prices, which increase considerably, especially for household use. Since LPG is obviously not primarily consumed by poor households, there is no reason for subsidization or very low taxes. Poor households, especially in rural areas, consume fuelwood almost exclusively, with some kerosene and LPG. Thus, by lowering the kerosene price to 75 percent of its current retail price by taxing it relatively little (only 28 percent compared to the average 37.5 percent), there may be some incentive to switch from fuelwood to Kerosene. This substitution could be further encouraged by a comprehensive stove program (see chapter 4). The government might consider subsidizing such stoves for the poorest liouseholds, instead of reducing fuel prices indiscriminately for all consumers through lower taxes or even subsidies (as in the case of LPO under system A). Table 3.7 Petroleum Products Retail Prices under Different Specific Tax Rates Gasoline LPG Rate Super Regular Kerosene Diesel Fuel oil Cyl. G+A Jetfuel Tax rate 0.40 0.40 0.28 0.38 0.30 0.30 0.38 0.58 Retai price (QO/gal) 739 706 635 648 358 494 517 753 In % of current price 81 80 97 100 96 107 1i2 75 Source: Mission estimates. 3.76 It is proposed that in the process of deregulation, the government consider the introduction of additional reforms to the current taxation system with the objectives of narrowing the difference between gasoline and diesel prices and achieving revenue neutrality relative to the current system. The tax should continue to be levied as a specific tax, but with rates that are closer to those proposed in Table 3.7. To be more precise in the design of the taxation system, an end-use survey should be commissioned to analyze the use of petroleum products by different consumer and income groups in Guatemala. Lessons Leamed 3.77 Past practices of regulating the downstream petroleum sector through allocation of demand quotas, fixing margins and prices throughout the industry's chain, and establishing cumbersome rules to enter and operate in the market have led the sector to operate well above its economic cost, hampering investment, distorting the relative price structure at the consumer level, and, consequently, reducing government revenues in the absence of an explicit taxation system. Overall, the downstream sector has had negative effects on consumers, suppliers, and the central government. To reverse this trend, the introduction of competition and liberalization of prices and margins is a feasible tool for a country with an infrastructure, human resources, institutions, and a market like Guatemala's. 68 Guatemala: Issues and Options in the Energy Sector 3.78 To proceed with the liberalizatio.n of the downstream sector, the following actions are required: o Establish regulation that will define streamlined and safe procedures for authorizihg the installation of bulk storage terminals and gas stations. Current procedures are cumbersome and create barriers to entering the market by establishing minimum distances between gas stations. * Phase out the current pricing structure, including the refinery compensation fund, by establishing a direct taxation system along the lines defined above, including the establishment of equal import duties for crude and petroleum products. • Shift the functions of the MEM from price fixing and allocating quotas to quality control and supervision of competitive practices. This will require modifications to the current regulation pertaining commercialization of petoleum products and training for the current staff in the MEM. n Eliminate price controls, guaranteed margins to the oil companies in the supply and distribution chain, and the cost-plus system to the iefinery, allowing it to operate as a free market enterprise. 4 Fuelwood and Househ,lAd Energy Demand 4.1 Fuelwood accounts for the largest share of total energy demand in Guatemala (about 60 percent of total energy consumption). In the household sector alone, fuelwood accounts for about 95 percent of energy consumption. The industrial sector also consumes fuelwood. For the near future, fuelwood will remain the main energy source. Hence, a steady supply of fuelwood must be provided in an environmentally and economically sound way. The design of the National Forestry Plan (PAP) is a step in the right direction, but much remains to be done. Objectives of the Chapter 4.2 The objectives of this chapter are to present an overview of supply and demand of fuelwood and its impact in the forestry sector, and to assess the weight of fuelwood demand in the energy demand structure of the household sector with respect to expenditures and interfuel substitution. 4.3 The assessment of these two objectives reveals that even though fuelwood consumption is significant, it is by no means the main cause of deforestation (colonization and forest fires are). In addition, the energy pricing policy for the 1980s in the household sector provided subsidies to electricity and LPG. This policy benefited only about 5 percent of the households because the bulk of households consume fuelwood, the price of which is market determined (indeed, fuelwood is the most expensive source of energy under current supply conditions). 4.4 The chapter is broken down into two sections: (a) fuelwood supply and demand, and (b) household energy demand. A. Fuelwood Supply and Demand Institutional Aspects of the Forestry Sector 4.5 Several government agencies and NGOs are involved in the sector. The Directorate General of Forestry Services (DIGEBOS), in the Ministry of Agriculture, is the leading institution in the sector. It has three main responsibilities: 69 70 Guatemala: Issues and Options in the Energy Sector O Control and development of the forest. Protect against fires, disease, insect attacks and illegal grazing; collect, clean, store, distribute, and sell forest seed; and supervise, and evaluate, and support forest-based industries. O Reforestation. Protect watersheds and water sources for consumption and irrigation; back community forests for fuelwood production; conduct silvicultural research and support the planting of fast-growing multipurpose tree species by small and medium-sized farmers; disseminate improved cookstoves; and support natural forest management and reforestation of commercial forests and semi-arid areas through tree seedling production as well as agroforestry activities. * National parks and wiIdItfe. Carry out administration and development of parks and recreation areas; protect the flora and fauna threatened by extinction and promote their reproduction for conservation and conmnercial purposes; and participate in environmental education of the general population. 4.6 The implementation of these tasks has proved beyond DIGEBOS' capabilities. Part of the problem is that DIGEBOS has too many roles. Apart from DIGEBOS, the executive branch, through the vice president, has a series of forestry projects and the MEM participates in energy plantations. Even though fuelwood is the main energy source in Guatemala, the issue of concern is that the forestry sector, including fuelwood supply, has not been managed as a crop- oriented business but rather as a mining operation. This is shown by the high rate of deforestation, the low aggregate value of the forestry sector in the economy, the low rates of reforestation, and the inadequate quality and quantity of human resources in DIGEBOS. Fuelwood Supply 4.7 Traditionally, the fuelwood market has been classified as noncommercial. However, in Guatemala about 51 percent of fuelwood demand is obtained through established commercial markets, which leads to a commercially active market with sales of about US$250 million in 1991, almost twice the electricity sales for that year. 4.8 Regional Availability. No nationwide comprehensive forest inventory exists for Guatemala. According to the latest estimates, 43,700 km2 (40 percent) of Guatemala's total land area of 108,889 km2 is tree-bearing land (see Map 22711). In international terms, this is a relatively high percentage of forest cover. It suggests that fuelwood shortages in particular areas result from distribution problems rather than a general supply shortfall. 4.9 For an indication of the country's forest productivity, mean annual increments were estimated (Table 4.1). The figures were derived from discussions with foresters involved in the development of the forest action plan and they take into account experiences in other countries. Puelwood and Household Energy Demaid 71 Box 4.1 Basic Facts about the Forestry Sector and Fuelwood Markets e Forests cover 37,620 krm2 or 34.5 % of Guatemala's total land area. e Annual deforestation rate 500-600 km2. * Deforestation: '6% takes place in the Petdn area, due mainly to clearing for agriculture and fies. e Annual consumption of forest products: - Fuelwood: 15.0 m3- to 16 mn3 million - Forestry industry 0.11 m3 million. * Mean annual increment: 16.5 m3 million. o Forest Engineers in the country: 8 * Forest products trade in 1988: - imports:US$ 43.8 million. - exports:US$ 9.4 million. Table 4.1 Supply/Demand Balance (Excluding El Peten) Annual growth* of biomass Total growth Forest type Area (Ha) (m/hatyr) (M/yr) Demand (m3lyr) Broadleaf 838,000 1.4 1171200 Coniferous 460,000 2.6 1196000 Coffee Plantation 204000 6 1224000 Matorrales 3735000 2 7470000 Farmland, hedge 3702000 .5 1851000 rows, river banks Forest plantations 25,000 15 375000 TOTAL 8,964,000 13,289,200 15,041,000 *The stem growth rate is taken to average 3.5 m3/ha/yr, and 10.5 m31h/yr for broadleaf and coniforeus species, respectively. The growth rates used in this table take note only of the tops and branches of these trees. Sources: Mission Estimates, DIGEBOS. 4.10 In determining fuelwood supply in Guatemala, supply from the Peten region was excluded. The Pet6n encompasses approximately 21,700 km2 of forest area, with a mean anmal increment of biomass of about 3 million n3. The Pet6n generates a timber surplus, but it is neither a source of fuelwood for the rest of the country nor a demand center for fuelwood. Thus, 72 Guatemala: Issues and Options in the Energy Sector annual consumption and growth of fuelwood in Guatemala, excluding the Pet6n, are about 15 million m3 and 13.3 million in3, respectively. This results in a deficit of sustainable supply over demand of 2 million in3. In this circumstance, demand could be satisfied only b- reducing the stock of standing trees, thus contributing to deforestation. But since adequate data on forest inventory and growth rates are not available, growth estimates may be underestimated. Regional deficits can be found, particularly around Guatemala City. 4.11 A critical area is defined as an area where the harvesting methods of trees result in average yields lower than normal. The fuelwood-short regions either import it from the surplus regions or cut more wood from their own reserves than can be sustained by natural regrowth. The areas around Guatemala City and Quezaltenango are classified as "very critical," whereas the Altiplanos Occidental and Central and the watersheds of the Rios Chixoy and Motagua are "critical." Box 4.2 Basic Economics of Forestry The essential characteristic of supply is that fuelwood is part of a long-lived asset. The capital used in the production of fuelwood are trees/forests, which are subject to certain biological rates of growth. This aspect leads to a dynamic supply and demand picture in which current use affects subsequent production. In perfect markets, where individual farmers own the trees, the rate of production of fuelwood would be such that its price would be equated to the price of other capital goods (i.e., the interest rate). It, in tum, would be equal to the social rate of discount. The socially optimal rate of depletion of the asset tree/forest may lead to a constant stock, but it may also be growing or declining. This depends, among other ',ings, on the opportunity costs of the forest- bearing land. In reality, markets are not perfect. This is certainly true for capital markets in developing countries. Producers as well as consumers normally can borrow only at very high rates. The result is the overexploitation of forests. This effect is exacerbated by the common ownership of forests and the existence of environmental externalities. 4.12 Supply Measures. One way to reduce the supply deficit is to increase supply via agroforestry projects. For example, the Piramide project, as proposed by the Forest Action Plan, is designed to promote the self-sufficiency of 148,700 small and medium-sized farmers in fuelwood and other wood products. The plan projects the annual production of 1.5 million m3 of woody biomass through the planting of 74,350 ha of fast-growing multipurpose trees. Agriculral crops may be planted between the rows of the saplings during the initial two-year period. The drawback of the plan is the lack of a trained technical staff to supervise its implementation and to monitor production. Although an NGO may act as the executing agency of the project, it must still draw from the same pool of scarce forestry expertise. Fuelwood and Household Energy Demand 73 4.13 In financial terms, fuelwood from the multi-use plantation earns a positive return. All costs incurred during growing, harvesting, storing, and transportation are allocated to other wood products such as poles, which fetch higher prices. 4.14 A dedicated fuelwood plantation yields a greater volume of woody biomass and commands a higher fuelwood sales price. Its operation yields a negative net revenue, since all growing and logging costs are allocated to the fuelwood crop. The analysis indicates that dedicated fuelwood plantations are not financially viable and cannot compete with either multi-use forest plantations or natural collection from matorral and coffee plantations (Annex 16). 4.15 Fuelwood Market: Prices and Distribution Channels. Fuelwood prices have increased in constant terms in the last six years at a rate of about 10 percent annually. By contrast, the prices of petroleum p-oducts and electricity have remained constant. Table 4.2 P -Iwood Prices, Guatemala City, 1980-1992 Year in current qicarga in constant 1980 qlcarga 1980 6.1 6.1 1982 5.9 5.2 1984 5.5 4.5 1986 8.4 4.2 1988 10.6 4.6 1990 22.0 7.4 1992 25.0 7.6 Sources: INE, Mission Estimates. 4.16 Fuelwood is usually transported to the capital and to other urban locations in pickup trucks or in larger vehicles. In this informal market, truck owners set prices at the wholesale and at the retail level according to market conditions. Truckloads are described as containing so many "tareas," each the equivalent of 1.5 steres (1.5 piled m3) of fuelwood. A tarea contains five 'cargas," the basic unit for pricing. For domestic sale, the wood is usually split into smaller pieces called -lefhos," each weighing from 0.6 to 0.8 kg. For use in small-scale industries, the wood is sold as received from the trucker. 4.17 A closer analysis of the distribution channels for fuelwood and wood logged for industrial purposes shows that a significant portion of the economic rents are captured by the tuckers and the owner of the woodyard (Annex 17). The annual volume of wood logged for industrial purposes is 200,000 m3, exceeding the 120,000 m3 for which permits were issued by DIGEBOS in 1989. A way to capture that part of the rent for society (government) is through a stumpage fee. 74 Guatemala: Issues and Options in the Energy Sector 4.18 The new forest law establishes a stumpage fee, but the new rates are not related to the costs of logging, extraction, or manufacturing. They are based on the price that experienced loggers and sawmillers say they would be wiling to pay for standing timber. Rates are fixed for each region and make no allowance for differences in access or logging conditions within that region. 4.19 Lessons Learned. The weak institutional structure for managing fuelwood supply is the main issue affecting the forestry sector. The strengthening of the management of fuelwood supply would seek to transform the fuelwood market from the current extractive or mining characteristics to a more open business- or crop-like market through agroforestry projects. The introduction of multiuse tree plantations or agroforestry projects is one of the most effective ways to supply fuelwood and reverse ecological damage, particularly on steeper slopes. The area required to eliminate the gap between sustainable fuelwood supply and demand is relatively small, around 100,000 to 150,000 hectares. However, even this modest amount will require a stronger institutional framework to provide extension services. B. Fuelwood and Household Energy Demand 4.20 The household sector is the single largest consumer of energy in Guatemala. Fuelwood, which is utilized above all for cooking purposes, represents the most important energy source (see Table 4.3). Still, reliable surveys on demand patterns by fuels and by income group are not available; this is an area requiring urgent aitention from the goverrnent, particularly in view of the links between tax and price reforms related to the deregulation of downstream petroleum operations, and opening the power sector to private sector participation in distribution. 4.21 Despite this caveat, the analysis of the last energy survey, carried out in 1985, shows an energy demand structure in the household sector with the following characteristics: a. Fuelwood is almost completely used for cooking purposes (93 percent); 77 percent of fuelwood is consumed in the rural region, while the Guatemala City region consumes only 6 percent. b. Kerosene is mainly used for lighting (70 percent), all of which is in the rural region. The remaining 30 percent is for cooking purposes, only 4 percent of which is in the rural region. c. Nearly all (99 percent) of LPG consumption is used for cooking. LPG use is concented in the Guatemala City region (54 percent) and in the urban region (30 percent), but is marginal in the rural region (16 percent). Fuelwood and Household Energy Demand 76 Table 4.3 Energy Consumption In the Residential Sector by Use and Fuel (Tcal) End use Fuewood LPG Kerosene Eketricity TOTAL Cooking 22745 540 126 65 23476 Illuination - - 281 91 372 Heating 1472 3.5 - 62 1537.5 Other uses - - - 227 227 TOTAL 24217 543.5 407 445 25612.5 Source: UNDP/GUA/811002- 1987 Survey. 4.22 Interfuel substitution trends have shown a transition from fuelwood use directly to LPG, but with kerosene's participation declining. An explanation for this transition is the structure of energy prices, and accessibility to stoves and fuels. Energy Prices 4.23 Relative energy prices play an important role in affecting demand patterns. Analysis of energy prices for the different fuels during the last decade indicates that fuelwood is the only energy source that maintained its value in real terms, while electricity prices for the residentiai sector declined about 65 percent and petroleum prices, with the exception of kerosene, declined by an average of 30 percent (Table 4.4). 4.24 To evaluate the options for a sound household energy policy, a proper comparison of the cost of energy services to households should be based on useful energy, the economic cost of energy, and overall costs (including capital costs). 76 Guatemaa: Issues and Options in the Energy Sector Table 4.4 Guatemala: Energy Prices, 1980-1990 ecricity LPG Fuelwood Kero D.O. Gasoline (Qc/Kwh) Q/100 (Pounds) (Qicarga) (/gal) (Q/gal) (Q/gal) to QIJetYAKia/ghlaI units 1980 13.90 20.40 6.1 0.83 1.03 1.91 1984 12.90 20.30 5.5 1.09 1.17 1.90 1986 11.90 23.00 8.4 2.05 1.70 2.90 1988 13.00 23.00 10.60 2.42 2.25 3.05 1990 18.30 33.20 22.00 9.10 5.95 9.40 IN 1980 Q/Orwal unis 1980 13.90 20.40 6.1 0.83 1.03 1.91 1984 10.97 16.79 5.2 0.90 0.97 1.57 1986 6.06 11.72 4.2 1.04 0.87 1.48 198I 5.32 9.41 4.6 0.99 0.92 1.25 1990 4.80 8.71 7.4 2.39 1.56 2.47 5. MEM. Usel Energy 4.25 Table 4.5 compares the regulated prices of different fuels burnt in different stove types in term of useful energy. This comparison is restricted to Guatemala City and its envins. It shows that such traditiotal fuels as fuelwood are more expensive than the modern fels, including electricity. If an improved woodstove is used, the price per useful Mcal is almost three times as high as for LPG, and close to the price of kerosene. Table 4.5 Enry Price Comparison Guatemala City, Market Prices in Centavos as of August 1992 Price Of usefid Reatve price to Market price energy the cheapestfuel Fuel (CQ/Mcal) Stove type Effidency (CQ/usef McalJ) PG = 1.00) Fuehwoo 11.69 Open fie 7% 166.95 6 (Guaviala City) Improved 14% 83.48 3 LPG 12.51 Table top 45% 27.79 1.00 stove Keosene 25.10 Wick burner 35% 71.73 2.6 Pressurized 40% 62.76 2.2 131ecc (Group C) 24.49 Electric stove 65% 37.67 1.3 8SS.e prmendy not available m the market. Figures based on assumption stove was inported from Colombia. Seowrce: M , Mission estinates. Fuelwood and Household Energy Demand 77 Economic Cost of Fuels. 4.26 Table 4.6 uses the border prices of LPG and kerosene, adjusted for transportation costs; since cooldng coincides with the system's peak, the cost of electricity corresponds to the estimated marginal cost at system peak (chapter 3) for low- voltage domestic users. The costs for nontraded energy such as fuelwood and charcoal were taken to be equal to their current market prices, assuming that they reflect the economics of a competitive market. The results show that when comparing economic costs, LPG loses much of its cost advantage and kerosene in particular becomes more competitive with LPG. Fuelwood is still the most expensive fuel. 4.27 Government pricing policies have led not only to significant abuse of subsidies (i.e., industrial users of LPG acquire the fuel at the preferential price intended for household consumers) but also to some extent to fuel switching from fuelwood to LPG, especially among urban dwellers. A switching to kerosene has not occurred for two reasons. First, the price distortion favors LPG; and, second, at present only wick burners, which are not only very sooty but also less convenient to use than pressu.lzed kerosene stoves, are available on the local market. Table 4.6 Economic Cost Comparison (CO/Useful Mcal), Guatemala City, as of August 1992 Cost of useftd energy Relative cost to Economic cost (CQ/usefid the cheapestfuel Fuel (CQ/Mcal) Stove type Effciency Mcal) (LPG = 1.00) Fuelwood 11.69 Open fire 7% 166.95 4 (Guatemals City) Inproved 14% 83.48 2 LPG 19.13 Table top 45% 42.52 1.00 stove Kerosene 17.32 Wick buner 35% 49.3 1.2 Pressurized' 40% 43.3 1.01 Electricity 65.88 Electric stove 65% 101.35 2.3 (Group C) Source: Mission esdmates. aStove not presently available in the market. Figures based on assumption stove was imported from Colombia. Overail Costs 4.28 Finally, total household expenditures, including the capital costs associated with the purchase of a stove, are examined. Calculations are based on an average fuelwood consumption of 2,956 kg/household/year and assumes the use of an open fire. The quantities of the other fuels consumed per year using various appliances with differing end-use efficiencies were determined on the basis of the useful energy consumption computed for the base case. The 78 Guatemala: Issues and Options in the Energy Sector cost figures for the end-use appliances reflect their average prices, and for LPG non recurring costs of US$50 were added to cover the purchase of the cylinder (25 lbs.) and installation fees. 4.29 Table 4.7 shows that an open fuelwood fire is by far the most expensive energy source for cooking. LPG is least expensive, and kerosene is twice Ls expensive as LPG at current prices. Kerosene is competitive with LPG on economic costs. Cooking with improved fuelwood stoves is still more expensive than with kerosene stoves, though only slightly. In terms of total household energy expenditures it is clear that it would be profitable for households to switch from fuelwood to LPG, and also to kerosene, provided that prices were at their economic cost. Table 4.7 Household Energy Expenses as of September 1992 Total annual cost (US$) Stove the Capioal cost Ag maret price At economic cost Fuel Stove type (Years) (Quetzaks) Fuelwood Open fire 0 0 247 (5) 247 (3.5) improved 5 155 129 (2.6) 129 (1.8) LPG 2-3 burners 10 155 48 (1) 70 (1) Kerosene 2-3 burners 4 167 114 (2.4) 81 (1.15) Pressurized 4 112 98 (2) 70 (1) Electricity 4 burners 10 640 68 (1.4) 162 (2.3) Note: Exchange rate: QS.34/US$. 'Relaive cost to cheapest fude. 4.30 Given the above relative prices, one would expect a massive shift from fuelwood to LPG. LPG turns out not to be a realistic alternative for most low-income households. since it cannot be bought in small amounts (10-lb. cylinders are the smallest available size), and its use requires a substantial investment m end-use equipment. Based on current regulated prices, cooldng with a kerosene stove is still cheaper than with a fuelwood fire. However, low-income households contiue to use fuelwood, above all because it can be purchased or gathered in very small amounts, making it a much more accessible source of energy. 4.31 If the price were set at its economic level, kerosene would be a more attractive alternative for low-income households; aside from the purchase price of the stove, no additional investment costs are involved (with LPG, outlays for the cylinder and installation fees are also incurred), and there is no minimum purchase requirement. Further, as seen in chapter 3, under a liberalized downstream petroleum sector, the pricing and taxation system would be structured so that the kerosene price would be at about 75 percent of its current level, thus encouraging the switch from fuelwood to kerosene. Lessons Learned 4.32 From the evidence of the 1980s, goverment attempts to affect fuelwood supply and demand through energy pricing and woodstove programs were unsuccessful. The rationale for subsidies in LPG and electricity was to reach the poor, but the poor in Guatemala consume Fuelwood and Household Energy Demand 79 fuelwood, and fuelwood is now the most expensive fuel used for cooking in the residential sector. Although the high relative price of kerosene deterred its use as an alternative fuel, the relatively low price of LPG appears to have done little to encourage its use as an alternative for low-income consumers. The analysis shows that a demand reduction through improved woodstove programs or switching to commercial fuels is not very likely to occur. It follows that in the medium- to long-term, increasing the supply of fuelwood will be more successful in closing the gap between demand and sustainable supply. 4.33 In hindsight, artificially high kerosene prices had two effects: First, they hampered its use as an alternative fuel for the fuelwood consumers; and second, they indirectly allowed the rise of fuelwood prices. Recent energy surveys in Bolivia and other countries show that kerosene prices work as a capping mechanism to keep fuelwood prices at competitive levels. 4.34 The rising level of fuelwood prices in Guatemala is indicative of a combination of fuelwood scarcity around the main consumer centers, government energy pricing policies that have discouraged the use of modem fuels, and a distribution system of kerosene and LPG that apears not to have been accessible to consumers. Consequently, and to ensure that resource problems do not become widespread, action is needed both on the supply and demand side. On the supply side, conditions must be created to support the introduction of multiuse tree plantations. Moreover, a mechanism to implement a stumpage fee or resource tax on fuelwood entering the city must be designed. On the demand side, the liberalization of the petroleum market must make sure that the taxes on the substitute fuels for fuelwood, particularly kerosene and LPG, do not put more pressure on local wood resources. The empirical evidence in other countes shows that higher taxes on petroleum fuels results in a higher percentage of people using traditional fuels. Hence, reliable end-use surveys are needed on fuel choices by income, household size, availability of fuels, and region. MEM will require substantial assistance in these efforts. 4.35 Overall, the analysis, though not comprehensive enough to capture the dynamic nature of fuel choices in time, confirms that the poor spend a greater percentage of their income on ermrgy but purchase less and lower quality energy. 5 Energy and the Environment Links between Energy Activities and Environmental Effects 5.1 The main envim effects of energy activities are caused by the generin of pollutants.' Buming fossil fuels geneates acid gases (e.g., SO2, NO., halogen), grecahoe gases (e.g., CO2, CH4, N20), and various carcinogenic and mutagenic agents. Pollution per unit of energ produced depends on the type of fuel used, the conversion deiciency of fth proce used, and the migatory measures applied. The production and transport of oil and coal may cause environmentlly harmful accidents. Transport and distribution of gas can lead to release of CH4 an greenhouse gas. Hydro-production of electic power can lead to lage-scal resettlement of populations, changes m water quantity and quality, soil erosion, and smentation. The use of fuelwood for energy consumption conutes to deforestion, which can lead to soil erosion and se ion, among other effects. Objetives of the Chapter 5.2 This chapter assesses the enviomental impact of energy-related operations along with the different phases of exploration, production, transtoniation, transorion, and consumption. It also reviews the instuional and legal aspects of envi policy vis-A-vis the energy sector. As will be shown, the currant legal and instiutional setup is one of the principal obstacles to the formulation and implementation of an envi lly sou enedgy policy. 5.3 The level of energy-related atmosphenc emLision in Guatemala does not pose a serious reat to the enviromaent either at the national or at the regional level. The most serious eiromental rsks are (a) deforestation, which is at least partly caused by fudwood cOnsumtion; (b) petroleum exploration (test drilling); (c) maritime tansport of cude oil; and (d) operations at the Laga power plant. 1. Environmena is go well beyond the energy sector alone. The World Bank prepaed an environma isues paper in lune 1990. 81 82 Guatemala: Issues and Options in the Energy Sector Deforestation 5.4 One of Guatemala's most pressing environmental problems is the high rate of erosion following the clearing of forest cover, particularly in the highlands. Table 5.1 shows that more than 60 percent of the country is highly eroded. Because the slope of land and the risk of erosion are directly related, high and very high rates of erosion, occtzr mailly in the mountainous areas. Observation in the field indicates that most of the upper slopes in Guatemala are almost bare of topsoil. 5.5 Protective forest land occupies about 13,000 kn2, excluding El Pet6n (see chapter 4). However, 50 percent of this land carries no tree cover. It is therefore degenerating rapidly because of agricultural clearing, poor cropping practices, and overgrazng. Table 5.1 Defree of Erosion, Guatemala Grade of erosion Area (in2) % of country None 29,986 27.4 Light 4801 4.4 Moderate 4096 3.8 High 35936 33.0 Very high 32691 30.1 Note: The remaining 1.3 percent of the country is taken up by lakes and other bodies of water. Source: CATIE, mission estimates. 5.6 Deforestation contributes to erosion.2 On average, annual deforestation from all causes (agriculture, commercial logging, fuelwood consumption) approximates 500 kin2, or 1.3 percent of forest-covered land. Although the rate of deforestation has not reached a level that requires the imediate adoption and implementation of emergency measures, forest depletion will occur within the next 75 years, if left unchecked. 5.7 Even though deforestation is predominantly caused by agricultural and commercil logging activities, fuelwood consumption may exacerbate the problem in regions where the levels of deforestation have reached critical points in terms of the forests' protective 2. Throughout the text, dforestanon, or the clearing of forests, is understood as an overeploitation of a natual forest that n time leads to the extincdon of the resource base. Energy and the Environment 83 funtions and self-gneating capacides.3 These regions include Centro SWr, Altiplano Occidetl, Costa Sur, and Coban. In Centro Sur, only 7 percent of the area classified as protective forest actually bea&s tree cover. Altiplano Occidental has 28 percent of forest cover, Costa Sur 33 percent, and Coban 37 percent. 5.8 In the case of the Rio Chixoy power plant development, deforesation and its environmental effects are having a negative impact on the economics of the project. Prelimiuary calculations based on the soil loss rate and potential sediment inflow in the Chixoy watershed indicate that forest cover is decreasing by about 2 percent per year, mainly becase of agricultural clearing. At this rate, the dead volume of the dam would be silted up by the year 2017. If this were to happen, substantial costs (twrbine damage, rehabilitation, reduced operating life) would be incurred before the end of the plant's economic lifedme. These would be attribtable to the degradation of the natural resources in the catchment area. In other words, environmental costs would have to be borne by the energy sector even though they were not caused by energy sector operations. Watershed management is therefore of particular importance. Petroleum Sector 5.9 At the level of petroleum exploration, test drillingthat isundrtalento detrmine the production poential of prospective oil fields carries the potential risk of envion damage. Up to several thousand barrels of crude can be discharged from a single test well, and, as a rue, this initial oil output is not collected. Thus, it seeps into the ground in the immediate vicinity of the drilling site. Thiq will not necessarily lead to soil or water coam , however, because crude oil migrates into the pore spaces of the earth, traveling only over short distances. Moreover, during migration, it may be decmposed by microorganisms. 5.10 The environmental damage caused by exploratory drilling in Gumala has not been documented completely. It is clear, however, that such damage did occur in the case of the Xan I field (North Pet6n) where a nearby lake was contaminated by crude oil discharged into it. The company that was drilling the test wells recovered most of the oil, but an analysis of the ecological impact has not been carried out. 5.11 Crude oil production itself, which in Guatmala is gerally carried out in accordance with international technical stndards, poses little risk of soil or water contamination. Safety equipment reduces the danger of tion as a result of technical malfuntions or accidents to a miimum. The water that is generated during the production process is contaminated with crude oil, but it is collected in special pits excavated for this purpose. When the water evaporates, the petroleum is left as a deposit at the bottom of the pit. Part of it decompoes, and, if necessary, compacted layers are burnt off. 3. A FAO survey atributes only about 3 percent of deforesion to fuewood consumtin. 84 Guatemala: Issues and Options in the Energy Sector 5.12 However, the transport of the crude from the oil fields to the terminals or other users does pose a potential contamination threat to soil and water. From the oil field in Rubelsanto the crude is moved almost exclusively by pipeline to the Santo Tomns terminal. Generally speaking, this is the most environmentally sound mode of transportation. Th4 situation is different with respect to road transport of crude oil. Crude is currently being trucked from Yalpemech to the Progeso cement plant, but in the future it will presumably be moved by road fromn Xan to Rubelsan.o as well. A fleet of 60 tank trucks is to be used on the Xan-Rubelsanto route, and the danger of local soil or surface water contamination as a result of road accidents is much greater than the pollution risk posed by the operation of a pipeline. 5.13 These same comments apply to the transport of refined products from the refineiy at Escuintla to the main market at Guatemala City. A pipeliue might be both economically justified and environmentally more beiugn than the present system of tanker trucks. However, under the current system of regulated prices and transport margins, there is no inentive by the various economic agents to mimize operating costs or increase investment levels. 3.14 The maritime transport of petroleum and petroleum products is a potential source of contamination for Guatemala's coastal waters. However, even the 1975 oil spill, which was caused by the sinking of a tanker in the Bay of Amatique, did not lead to implementation of adequate standards, binding norms, or monitoring and enfvrcement systems. Indeed, standardized anti-pollution measures and monitoring facilities have not even been developed for the coastl or port terminals, where the various petroleum products are stored and transshipped. This area is paricularly important if, as recommended in chapter 3, the country adopts the proper competitive framework for the supply and distribution of petroleum products in order to attract safe and environmentally sound investment. The failure to set proper standards for mariime transport and to develop proper contingency plans could lead to a major enviromental disaster. Power Sector 5.15 Since only about one-third of the power generated in Guatenala is produced by fossil-fuel based plants, the overall level of emissions in the electricity subsector is relatvely low (Table 5.2). This siuaion may change now that a prvately operated 110 MW power plant has begun operations (1993). The mission was not informed whether environmental standards had been applied to the evaluation of the original proposal. Energy and the Environment 85 Table 5.2 Emission In Power Subsector, Guatemala, 1990 Measure CO NOx SOx HC Part. Co. Org. PAHs Tons/year 2394 2391 2042 232 632 1290 63 % of total 26.5 26.4 22.6 2.5 7 14.3 - Source: Mission estimates. 5.16 These apparently reassuring figures do not mean that emissions pose no threat whatsoever. Concentrations of individual pollutants, such as SO,, lead, and particulates may exceed acceptable levels in specific local areas. For example, this could be the case in the vicinity of the Escuintla and Laguna thermal power stetions. However, to determine the extent of health risks, data concerning concentrations at given points in time should be complemented withparameters relative to climatic conditions such as wind regime, inversions, and the presence of other emissions. 5.17 Risks of water and soil pollution within the power sec;tor can arise from envirormentally unsound disposal of used oil gentrated by the operation of steam power plants, diesel generating sets, or gas turbines. In addition, the disposal of cooling water directly into lakes or rivers can lead to substantialtemperature increases with possible deimental effects. The disposal of used oils from the Laguna power plant directly into Lake Laguna will lead to a significant reduction in the quality of the water and will damage the I3cal aquatic flora and fauna over the medium to long term. This in turn will give rise to environmental costs in the form of a decrease in tourism and a decrease in the ince of local fishermen. The Laguna power plant also has an open-water cooling cycle that discharges direcdy into the lake, causing some thermal pollution. Environmental Effects of Energy Consumption 5.18 On the consumption side, the bulk of the pollution caused by the utilization of traditional and commercial energy resources in Guatemala takes the form of atmospheric emissions. The household sector is the single most important source of energy-related emissions in Guatemala, mainly because it accounts for 65 percent of the country's total energy consumption (1990) and because of the almost exclusive reliance on fuelwood. Since approximately 75 percent of all fiuelwood consumption takes place in rural areas (i.e., on a decentalzed basis), high conceations of toxic emissions are not produced. 86 Guatemala: Issues and Options in the Energy Sector Table 5.3 Percentage Share of Energy-Related Emissions Attributable to the Various Sectors Sector CO NOx SOx NC Part. Cond. Org. Pb Electricity generation 0.5 3.9 11.1 0.1 1.2 0.9 2.1 0 Transport 12.3 22.8 11.3 4.1 0.8 0.2 24.1 98.6 Households 86.7 62.5 39.9 95.4 94.4 96.4 70.1 0 Commerce 0.1 0.5 0.5 -- - - 0.5 0.6 Industry 0.3 9.2 36.2 0.2 3.5 2.6 2.0 0 Agriculture and Mining 0.1 0.6 0.6 - - - 0.7 0.3 Public 0.1 0.4 0.4 - - - 0.4 0.6 Source: Missien estimates based on Energy Balance of MEM, 1988. 5.19 The situation is different at the micro level (i.e., at the level of individual end-users). Especially in the rural areas of Guatenala, most households cook on open fires in closed, poorly vendlated rooms. Women and children in particular are exposed to CO concentrations of more than 50 ppm for several hours a day. Health risks are also created by the large amount of particulates generated by fuelwood combustion and the production of carcinogenic Polycyclic Aromatic Hydrocarbons (PAHs), which are adsorbed by the particulates and can be transported by them directly into the lungs. Table 5.4 Household Sector Enissions, 1988 (Total emissions in tpy) Combustion Consumption .el tedhnoogy (tons) CO NOx SOx HC Part. Co. Org. PAis LPG directcomb. 54,664 11 98 5 27 11 0 0 Kerosene direct comb. 29,143 73 73 3 12 9 0 0 Fuciwood direct comb. 7,331,000 439,860 38,121 7,331 183,275 48,385 134,890 586 ChaUcoal producion 28,000 2,604 0 0 8,400 140 5,964 1,484 Charcoa direct comb. 28,000 168 0 6 56 42 0 0 TOTAL 442,716 38,292 7,345 191,770 48,586 140,854 2,070 Source: Mssion esimates based on energy balances. 5.20 Transport accounts for the bulk of the emissions. Gasoline-powered vehicles produce most of the emissions. The higb lead content of the gasoline used in Guatemala is a critical environmental problem. Measurements taken in 1980 and 1985 showed lead concentrations of 1.054.66mpg/m3 on weekdays and of 0.55-0.82mwg/m3 on weekends in zones in the vicinity of industrial parks, and an average value of 0.22mngIm3 in residential areas of Guatemal City. Energy and the Environment 87 5.21 The MEM has recognized the seriousness of this problem and has instructed the representatives of the TEXPET refinery and the petroleum product distributors to reduce the lead content tbrough the importation of unleaded gasoline or substitution of ethyl alcohol for lead as a gasoline additive at the refinery. Table 5.5 Transpon Subsector Emissions, 1988 (tpy) Combuton Consuption Fuel technology (tons) CO NOx SOx HC Port. Co.Org. PAH Pb LPG vehicles 1',853 3 29 2 8 3 0 0 0 Kerosene vehicles 37,008 93 93 11 15 11 0 0 0 Gasoil vehicles 322,141 5,799 5,476 1,611 741 322 74 322 0 Gasoline vehicles 310,269 56,779 8,377 465 7,446 81 146 388 341 -OTAL 62,674 13,975 2,089 8,210 417 220 710 341 SO"e: Mission estimates. 5.22 The quantities of other emissions produced in the transport sector-above all, particulates, condensable organics, and PAHs-have almost certainly been underestimated. The figures presented in Table 5.5 are based on the current average toxic emission levels for U.S. vehicles. In Guatemala, however, technical inspections of motor vehicles are not mandatory. As a result, its buses and taxis as well as many of its private passenger cars are not only quite old but also poorly tuned and maintained, leading both to higher fuel consumption and to higher toxic emission levels per unit of fuel used. Institutional and Legal Aspects 5.23 The basis of environmental legislation in Guatemala is Decree 68-86, the environmental law "Protection and Improvement of the Enviromnent." This decree establishes the environmental agency CONAMA (Comisi6n Nacional del Medio Ambiente), which reports directly to the President of the Republic. Another environmentally relevant law is Decree 4-89, the "Protected Areas Law," which establishes CONAP (Consejo Nacional de Areas Protegidas). For a description of these laws and agencies see Annex 18. 5.24 The issues that need to be addressed in the near future to ensure an environmentally sound energy policy are as follows: * The role of the environmental agency CONAMA, which is currendy a mixture of a policymaking, executive, operational, and judicial institution. * The areas of authority and responsibility for CONAMA and other govermnental institutions. 88 Guatemala: Issues and Options in the Energy Sector * The organizational and administrative structure for the necessary interagency links and coope,rative efforts between CONAMA and such relevant specialized institutions as MEM in matters of environmentally sound petroleum operations. Currentiy, the lack of clear legal demarcation and responsibilities between the MEM and CONAMA has becoi,ie an obstacle to launching a successful promotion exploration campaign. * The regulatory framework to address the question of the validity of rules and regulations that existed prior to the passage of the environmental legislation and a deternination of whether existing and future legally binding contracts which are affected by new environmental legislation (e.g., petroleum exploration and production concessions) ate valid and, if so, under what conditions.4 * Priorities or minimal standards for economic activities that are most common instead of establishing a general requirement for environmental impact analysis (EIA). Currently, the lack of a priortization for carrying out ELAs leads to arbitrary actions and hampers legitimate economic activities while doing nothing to improve environmental protection. * The balance between the number and size of areas that have been designated as protected areas and the availability of necessary administrative and technical resources in Guatemiala to enforce the law. 3 The supply of qualified specialists in the environmental sector. 5.25 The issues with which the PAL deals are also covered by the Environmental Law. Indeed, the PAL is a more elaborate version of one component of the Environmental Law. The stiplation that EIAs must be carried out for all ongoing or planned activities in protected areas is a duplication of the requirement already established in the Environmental Law. Currenly, areas are deemed "protected" arbitrarily instead of by the procedure established by the PAL. 5.26 From the information provided by CONAMA, protected areas will ultimately cover 25 to 30 percent of the country's total surface area. Even though not all of the areas in question have been put in Category I, in which all forms of resource utilization are prohibited, Guatemala has neither the administrave nor the personnel resources required to administer such a vast amount of land in an appropriate manner. 5.27 The impact of the PAL-in particular, the designation of six biotopes and forty- four areas as "protected areas," in most cases without master plans or plans of operation-has been felt above all in the petroleum subsector. Since this law was passed, CONAMA/CONAP has had the right to halt all activities, including those being undertaken on the basis of legally valid conracts. Even when ELAs have been cared out, CONAMAICONAP is under no 4. Prior to the passage of the Environmental Law, there were 285 laws and regulaions in Guatemala deaing with enviment protection. Energy and the Environmmut 89 obligation to permit the contin-ition of these contracualy sanctioned activities. Even if firms are willing to comply with new standards or meet new conditions, their operations can still be terminated. 5.28 The problem in this context is that the legally mandated annual plans of operation virtually eliminate the posuibility of any further contracts being granted for petroleum exploration and production in protected areas. The petroleum industry requires a much longer planning horizon for its activities. 5.29 The situation is even more precarious for petroleum operations in North Peten, which is presumed to have the most extensive petroleum deposits in Guatemala. In January 1990, a special decree was issued that designated the "Reserva Maya," which covers approxmiately 1 million ha, most of the Pet6n, as a protected area. The entire area was classified as a "reservation of the biosphere" and subdivided into regional core areas (biotopes and national parks) in which all activities are prohibited, as well as clAtural areas, multi-use areas, and recreation areas. Neither a master plan nor a plan of operation was prepared for any part of this huge area. The extraction of resources is permitted until further notice in areas that have not been defined as core areas and for which valid contracts are in effect. However, even where legally binding contracts are in force, the authorities still have the right to impose restrictions and conditions prior to the prepation of the master plan in order to prevent contamination that might be caused by the actvities of the contractor. The MEM was neither seriously consulted nor given sufficient opportunity to present its views prior to the adoption of this law. 5.30 In order to find a compromise between environmental protection and petroleum operations, the existng environmental legislation should be revised and supplemented in view of the special requiements of the petroleum industry. Clear and comprehensive standards and norms not only would simplify the approval process for petroleum exploration and production activities in protected areas but would also provide a basis for more environmentaly benign exploration and production activities. 5.31 The problems of the petroleum industry also highlight the need for MEM to play a more active role in the development of an enviromentally sound energy policy, serving as the executive agency for environmental protection in the energy sector. If this goal is to be achieved, the MEM must be represented in CONAMA, and an environmental unit must be set up within the MEM. Guatemala Issues and Options in the Energy Sector Annexes Annex 1: Electeicity Sales by Company and Customers iNDE: Sales and Number of Customers Nusm of Sales Share Growth from Previous Year Category Customes (GWh) (%) (%) Cuser Ses Residentid 224,582 101.99 34.3 34.3% 11.7% Comnnmrcal 19,964 38.66 13.3 13.7% 25.3% Sumal Industry 681 10.90 3.7 -24.4% -37.1% Large Industry 162 117.18 39.4 50.0% 1.7% GovermentMunicipal 3,618 6.41 5.5 -7.7% -9.5% Public Lighting 521 12.38 4.1 1A% 9.2% Subtotal Reti 249,542 297.51 100.0 1.1% 4.7% Bulk EEGSA 1 1,303.68 91.7 3.1% Municipa Companies 12 84.13 5.9 8.9% Export (El Salvador) 1 34.63 2.A 293.2% Subtotal Bulk 1,422.44 100.0 TOTAL 1,719.95 BEGSA, SALES AND NUMBER OF CJSTOMERS, 1989 Residentia 262,867 434,56 30.6 5.7% 10.0% Commercial 67,990 361,00 25.4 3.6% 6.4% Indusral 1,716 477,94 33.6 9.4% 12.4% Municipd 1,051 113,36 8.0 4.5% 5.5% Governent 1,403 33,89 2.4 -1.3% 2.5% TOTAL 335,027 1,420,76 100.0 5.2% 9.3% 93 Annex 2: Guatemala Power System Statistics 95 TABLE 1: GUATEMALA POWER SYSTEM - Annual Net Energy Demand _ tD _,~ ~ ~ ~ ~ ~ ~~Ata _F orecast --T _ _Growth (%) a ANNUAL ENERGY (GWh) 1989 1990 1991 1/ 1992 1993 1994 1995 1996 1997 1998 1999 20( 1992-2000 1. JNDE NET ENERGY GENERATION 2,113.6 2,227.6 2,167.2 2,290.3 2,218.2 2,337.1 2,439.3 2,619.3 2,808.5 3.007.8 3,217.7 3,438.9 5.26 (a) Detail Saks 346.9 383.8 4122 480.7 549.3 571.7 606.3 642.8 681.3 722.2 765.5 811.5 7.82 (5) ResIdential 109.3 131.0 141.0 165.8 191.2 189.8 195.2 201.1 207.8 220.3 233.5 247.5 6.45 (+) Commerci 48.6 51.6 33.0 37.0 40.1 37.2 3t.A 36.0 35.4 37.5 39.8 42.2 2.77 (+) mlusta 155.9 168.6 186.3 218.3 250.4 277.8 37 4 336.9 367.9 390.0 413.4 438.2 9.97 (+) Oter 33.1 32.7 51.9 S9.6 67.6 66 9 67.3 68.8 70.2 74A 78.8 83.6 S.44 (+) Bulk Sales 1,596.4 1,680.1 1,S85.0 1,631.0 1,501.5 1,594.7 1,660.6 1,797.3 1,941.3 2,092.9 2,252.7 2,421.1 4.82 (5)To EEOSA 1,509.6 1,585.0 1,485.0 1,517.0 1,378A 1,461.7 1,517.0 1,642.2 1,173.8 1,912.0 2,057.3 2,210.1 4.52 (+) To Municpa Uilies 86.8 95.2 100.0 114.0 123.1 133.0 143.6 155.1 167.5 180.9 195A 211.0 8.65 (+) Enegy Losses 170.3 163.7 170.0 178.6 167.4 170.? 172.4 179.2 185.9 192.7 199.5 206.3 2.18 (% on Net Energy Genetion) 8.1 7.3 7.8 7.8 7.5 7.3 7.1 6.8 6.6 6.4 6.2 6.0 -2.93 2. EEGSA NET ENERGY GENERATION 1,599.0 1,732.2 1,822.2 1,947.3 2,211.6 2,319.1 2,429.5 2,544.9 2,666.2 2,793.6 2,927.3 3.067.' 5.96 (=)DetilSales 1,420.8 1,511.0 1,598.4 1,707.8 1,946.5 2,048.2 2,153.0 2,262.7 2,378.1 2,499.4 2,626.9 2,760.9 6.26 (=) Residenal 434.6 473.6 500.6 535.2 609.1 641.9 674.7 709.1 745.3 783.3 823.3 865.3 6.27 (+) Commercial 358.8 393A 406.8 447.3 512.0 536.4 563.9 592.6 622.8 654.6 688.0 723.1 6.60 (+)hdusil 477.9 497.5 538.4 562.4 640.0 674.5 709.0 745.1 783.1 823.1 865.0 909.1 5.99 (+) Other 149.5 146.5 IS2.6 162.9 185.4 195.4 205.4 215.9 226.9 238.4 250.6 263.4 6.25 +) Buk Saks 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - (-) To INDE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - (+) To Municipal Utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - (+) Energy Losses 178.3 221.2 223.8 239.5 265.1 270.9 276.5 282.2 288.1 294.2 300.4 306.8 (% on Net Energy Generation) 11.1 12.8 12.3 12.3 12.0 11.7 IIA 11.1 10.8 10.5 10.3 10.0 -2 26 3. TOTAL NET ENERGY DEMAND 2,203.0 2,374.9 2,504.4 2,720.7 3,0Q1.4 3,194.5 3,351.8 3,522.0 3,701.0 3,889.4 4,087.7 4,296.5 6.18 () Total Sales 1,854.4 1,990.0 2,110.6 2,302.5 2,618.9 2,752.9 2,902.9 3,060.6 3,226.9 3,402.5 3,587.8 3,783A 6.70 (+) Energy Losses 348.5 384.8 393.8 418.2 432.5 441.6 448.9 461.4 474.1 4L6.9 499.9 313.1 2.98 (% on Net Enegy Generation) 18.8 19.3 18.7 18.2 16.5 16.0 15.5 15 1 14.7 14.3 13.9 13.6 -3.48 (1) PtMcy =ata TABLE 2: GUATEMALA POWER SYSTEM: Load Shape Factors and Montly Net Energy and Peak Demand iTEM JaUy Febury 3Ma Ap MO June Jy Augs Septeme Octoe Novembae Dcemr An-uml Year 1991 DaMl - Net Eergy Demand (GWk) 208.8 188.0 199.7 202.0 206.3 198.9 212.8 210.8 165.7 208.7 207.5 215.1 2,424.5 - bMidday Peak LOad (OM) 350.3 348.1 355.0 366.4 362.7 354.8 358.0 365.9 371.8 373.0 392.5 383.6 392.5 - Aflrmo Peak LaMW ) 462.0 457.0 467.1 448.9 443.7 436.2 443.5 464.0 372.3 483.4 492.5 495.1 495.1 * Minmm Daly Lad MW) 126.2 19.0 145.1 143.9 161.4 169.2 160.5 109.5 125.3 149.8 168.1 154.8 109.5 Lad Sbam Facos (%): - Net Enr Maddy Distrbos 103.4 93.0 98.9 100.0 102.1 98.5 105.3 10C4 s 82.0 103.3 102.7 106.4 100.0 - Lod Factor 60.8 61.2 57.5 62.5 62.5 63.3 64.5 61.1 61.8 58.0 58.5 58.4 55.9 - M-day Peakhiy Pak Rdao 75.8 76.2 76.0 82.1 81.7 81.3 80.7 78.9 99.9 77.2 79.7 77.5 79.3 . MMn m LodDay Peak Ratio 27.3 34.8 31.1 32.1 36.4 38.8 36.2 23.6 33.7 31.0 34.1 Jl.3 22.1 Moaddy Demand (GWh): 1/ 1992 234.4 211.0 224.2 226.7 231.5 223.2 238.8 236.6 185.9 234.2 232.9 241.3 2,720.7 1993 262.9 236.6 251.4 2543 259.7 250.4 267.8 26S.3 208.5 262.7 261.2 270.7 3,051.4 1994 275.2 247.7 263.2 266.2 271.8 262.1 280.4 277.8 218.3 275.0 273.5 283.4 3,194.3 1995 288.7 259.9 276.2 279.3 285.2 275.0 294.2 291.5 229.0 288.6 286.9 297.3 3,351.8 1996 303.4 273.1 290.2 293.5 299.7 289.0 309.1 306.2 240.6 303.2 301.5 312.4 3,522.0 1997 318.8 287.0 304.9 308A 315.0 303.7 324.8 321.8 2S25 318.6 316.8 3283 3,701.0 1998 335.0 301.6 320.4 324.1 331.0 319.1 341.4 338.2 265.7 334.9 332.9 345.0 3,889A 1999 352.1 317.0 336.8 340.6 347.9 335.4 358.8 355.4 279.3 351.9 349.9 362.6 4,087.7 2000 370.1 333.1 354.0 358.0 365.6 352.5 377.1 373.6 293.6 369.9 367.3 381.1 4,296.5 2001 391.9 352.7 374.8 379.1 387.1 373.2 399.3 395.6 310.8 391.7 389.4 403.5 4,549.0 2002 414.9 373.5 396.8 401.3 409.9 395.2 422.8 418.8 329.1 414.7 412.3 427.2 4,816.4 2003 439.3 395.4 420.1 424.9 434.0 418A 447.6 443.4 348.4 439.1 436.5 452.4 5,099.5 2004 465.1 418.6 444.8 449.9 459.5 443.0 473.9 469.5 368.9 464.9 462.2 479.0 5,399.3 2005 492.4 443.3 471.0 476.3 486.5 469.0 501.8 497.1 390.6 492.2 489.4 507.1 5,716.6 Moeh Peak Dend (MW):&ul 1992 513.3 507.8 519.0 498.8 493.0 484.6 492.8 515.5 413.6 537.1 547.2 550.1 550.1 2 1993 570.0 563.8 576.3 553.9 547.4 538.2 547.2 572.5 459.3 596.4 607.6 610.9 610.9 1994 590.8 584.4 597.4 574.1 567.4 557.8 567.2 593.4 476.1 618.2 629.8 633.2 633.2 1995 613.8 697.2 620.6 596.4 589.5 579.5 589.2 616.5 494.6 64.2 654.3 657.8 657.8 1996 638.6 631.7 645.6 620.5 613.3 602.9 613.0 641.3 '14.6 668.2 680.7 684.3 684.3 1997 664.4 657.2 671.7 645.5 638.1 627.3 637.8 667.3 535.4 6952 708.2 712.0 712.0 1996 691.3 683.8 698.9 671.7 663.9 652.7 663.6 694.3 557.1 723.3 736.9 740.8 740.8 1999 719.3 711.6 727.3 698.9 690.8 679.2 690.5 722. 579.7 752.7 766.8 770.9 770.9 I 2000 748.6 740.5 756.9 72.4 718.9 706.8 718.6 751.8 603.3 783.3 798.0 802.2 8022 2001 784.8 776.3 793A 762.5 753.7 740.9 753.3 788.2 632.4 821.1 836.6 841.0 841.0 2002 822.7 813.8 831.7 799.3 790.1 776.7 789.7 826.2 662.9 860.8 877.0 881.6 881.6 2003 862.4 853.1 871.9 837.9 8282 814.2 827.9 866.1 694.9 0.3 9193 924.2 924.2 2004 904.0 894.2 914.0 873.4 86.2 853.5 867.8 907.9 728.5 95.9 963.7 9t8.8 968.8 2005 947.7 937A 958.2 920.8 910.2 894.8 909.7 951.8 763.7 991.6 1,0103 1.015.6 1.015.6 ( I) eWa m-zl s Wm a,eMg IWZ-NN WE at. Ea K s WM rW bY pe yea nun 1991. GUATEMALA POWER SYSTEM - Charterstics of Exdsting and Future Theemal Power 'lants A. Existing Thermal Power Plants - Main Characterisitics _ aiwmW Fd r HMt eat valu I PR Pn e Cost PowerDPlant C Date Copy pewaI m an tmnmarpe aUkg) I (WWWiU) I g4uitaViapor2 19 77 NDB3 3.09 45.0U 305 OS 2,81 MAuel Oil 10,380 87.0 248 09725.35 Esquallla Gas I & 2 1968 INDE 25.00 20.00 4,028 3,709 3,445 Diesel 9,600 170.60 65.91 1.91 67.82 E_tula Gas 3 & 4 1976 INDE 50.00 40.00 3,605 3,320 3,084 Diescl Oi 9,600 170.60 58.99 1.73 60.72 Esquinda Gas 5 1985 INDE 40.00 32.00 3,344 3,079 2,860 Diesel Oil 9,600 170.60 54.12 1.78 56.50 Esquinda Gas 6 (STIO) 1991 INDE 45.00 42.00 3,201 2,948 2,738 Diesel Oil 9,600 170.60 52.39 1.71 54.10 Laguna Vapor I & 2 1948 EGSA 7.00 7.00 3,819 3,612 3,519 Fuel Oil 10,380 87.60 30.48 2.46 32.94 lagpa Vapor 3&4 2/ 1959 BESA 26.00 21.00 3,347 3.166 3,085 Puel 01 10,380 87.60 26.72 1.42 28.14 Laguna Gas 1 31 1964 EBSA 12.50 10.OD 4,028 3,709 3,445 Diesd Oil 9.600 170.60 6S.91 2.12 68.03 Lagua Gas 2 & 3 1978 EGSA 46.00 25.00 3,887 3.579 3.324 Diesel OD 9.600 170.60 63.60 1.85 65.45 Laga Gas 4 1989 BESA 30.00 28.50 3,406 3,137 2,914 Diesel OD 9,600 170.60 55.74 1.82 S7.S6 Disel San Felipe 1965 INDE 1.44 1.20 3,718 3,718 3,718 Dies Oil 9,600 170.60 66.07 2.00 68.07 Diesel Pueto Baurios 1977 INDE 6.00 3.60 3,213 3.213 3,213 Diesel Oil 9,600 170.60 57.09 2.00 S9.09 U TOTAL - - 314.94 305.30 _ _ - - - _ _ _ (1) RebabItia scbeduled by June 1993 (30MW) (2) Unit 3 6iw ed by Api 1993 (IMW) (3) Aviable by June 1993 B. EIsdng Thma Pow . PlanB - ross Ene Generation (GWh) Thermal Yeus CapacW Factor'% vower i'iant I Y 84 18 1986 1987 1988 1989 199M 1991 Maximum Mean M Esquina Vapor I 0.00 12.80 S.30 23.30 6.70 6.40 0.00 0.00 8.06 2.36 0.00 Esqbna Vapor 11 325.60 288.60 0.00 0.00 0.00 3.70 67.00 209.00 70.13 24.07 0.00 Esqinda Gas I & 2 14.90 30.50 0.20 9.20 6.40 2.20 1.70 42.00 19.18 6.11 0.09 Esqui ndGas 3 & 4 11.93 145.20 0.50 7.20 IS.60 9.70 7.60 82.00 33.15 7.98 0.11 Esquina Gas 5 0.00 2.10 1.60 16.10 5.00 0.10 0.00 0.00 4.S9 0.89 0.o0 Esquinda Gas 6 (S7IG) 0.00 0.00 0.00 0.00 0.00 6.00 0.00 0.20 1.52 0.20 0.00 Lagn Vapor I & 2 5.00 5.10 0.63 9.25 14.80 6.83 5.75 19.68 32.09 13.66 1.02 LarmVapor 2 & 3 IS.00 15.30 1.88 27.75 44.40 20.48 17.25 59.03 25.92 11.04 0.82 LaPi Gas 1 0.90 51.20 0.30 7.80 7.00 0.00 0.00 0.00 46.76 7.67 0.00 Laguna Gas 2 & 3 184.90 108.90 3.70 68.40 9S.40 65.00 S2.50 66.00 4S.89 20.00 0.92 Laguna Gas 4 0.00 0.00 0.00 0.00 0.00 0.00 33.00 116.00 44.14 7.09 0.00 Diesel San FWipe 0.60 1.90 0.01 0.15 0.19 0.17 0.07 0.15 15.06 3.21 0.08 Diesel Puerto Bamrios 0.00 4.90 3.20 4.50 1.60 0.30 0.60 0.40 9.32 3.69 0.57 rTOAL: 558.83 666.50 17.31 173.65 197.09 120.87 185.47 594.45 27.37 8.30 0.28 C: Candat Themal Power Projecs - Main Chactezis Iherma Commision- I Owne I Iaab (M) fe-at Re allkWh Fudel Hcat Vahl FurJ Price c ddnCs Uvw) P?ower Plalt IiOg Dawe Company I 1M Dependable M== nuI AVenig IM im M] e TYO g)a (US$/ton)-u4 Fuel I VaOMI oa ZUnill 1995 INDBAu1 15.00 12.00 - - - _ ou_n - _ 344 3.44 vaporm 1996 INDEAul 100.00 90.00 2,811 2,659 2,S90 Fuel 01 9.600 87.60 24.26 0.69 24.95 Geoe II 2000 INDE-uI 55.00 45.00 - - - Gehrmal - - - 2.82 2.82 TOTAL: - - 170.00 147.00 - - - - - - - - Annex 3: Characteristics of Future Hydro tnd Tharmal Power Plants 1. The man characteristics of thennal existing power plants and thermal candidates for the expansion plan are described below: (a) The Zunil 1 (15 MW) geothermal plant was supposed to start operations in 1989 but it has been delayed until 1995. It will be the first geothermal plant in the system aSC experience with its operation could provide guidelines as to whether or not this resource should be developed more intensively. (b) Two possible alternatives exist for a second geothermal plant (55 MW): Zunil II or Amatitlgn. At present pre-feasibility studies for both projects are being ex- ecuted in order to determine which is more attractive. (c) A steam unit of about 100 MW can be installed within the exisftng thermal sation at Escuintla. Units at this project would use bunker fuel; this would be the last unit that can be added to the station. No firther conventional steam units were envisioned as part of the expansion program. 2. EEGSA has acquired considerable expertise in operating combined cycle systems in its Laguna station. Further additions of this type of thermal plants should be also put into service m future owned by EEGSA or private investors. HA Power Plants 3. Project candidates merit the following comments (cost data referenced below are in 1991 US$ and does not include interest during construction): (a) Santa Maria I (68 MW) and El Palmar (55 MW) are located on the Samala river and are relatively simple developments which do not entail significant risks. Costs are around US$ 1,600/kW for Santa Maria II (based upon feasibility studies) and US$ 1,300/kW for El Palmar (based upon pre-feasibility studies). Based on average production, and 12% of opportnity capital cost, their equiva- lent energy cost is on the order of US$ 53tMWh, for Santa Maria II, and US$ 50/MWh for El Palmar. Based on firm energy, these production costs increase by about 35%. 99 100 Guatrmala. Issues and Options in the Energy Sector (b) Bobos is a small (9.0 MW) project on the Bobos river, with a high investment cost (on the order of US$ 1,900/kW). However, its energy cost is only US$ 34/kWh based upon its average production and US$ 40/kWh based upon its firm energy. Its feasibility study is ready. (c) Serchil (80 MW) is located on the middle Chixoy river basin. Its unit cost is on the order of US$ 1,500SkW. Based on average and firm production, energy costs are around US$ 72/kWh and US$ 120 US$/kWh, respectively. Its large reservoir would permit to generate the energy in peak demand hours and to regulate Chixoy plant inflows. (d) Jocotin is a 40 MW project with relatively high costs (around US$ 2,250/kW) which, in energy cost terms, represents roughly US$ 107/kWh (average) and US$ 156/kWh (firm). These values obviously call into question the economic feasibility of its development. (e) Chulac (334 MW) and Xalala (320 MW) are large developments with costs of about US$ 1,5001kW and energy costs on the order of US$ 54/kWh. Technical feasibility studies - 'st be complemented, particularly in terms of geological surveys. (f) Camotan and Oregano are two identified hydro projects in cascade on the river Grande de Zacapa. Their cost is about US$ 1,700/kW and generation costs could be around of US$ 84/kWh. 4. Geological studies for Chulac and XalaIM were to be funded by the V Energy Project (World Bank's loan 2724-GU), which disbursement was suspended in 1989. It is expected that this loan could be re-activated in the second semester of 1992, consequently the complemen- tary studies of C(hulac and Xalala should be launched. EMU Balances S. Load dispatching simulation was carried out using 5.6% as operating reserve. This value is an intermediate value between loss-of-load-probability (LOLP) for the existing system (5.2%) and for the expanded system (6.0%). The operation of the original proposed exposion plan gave the following uacceptable supply shortages for dry hydro conditions. Annex 3. Charcteristics of Future Hydro and Thermal Power Plants 101 (% of demand) YEAR CAPACITY ENERGY 1993 2.2 0.3 1994 5.6 0.3 1995 8.1 0.4 1996 5.0 0.2 1997 7.8 0.4 1998 19.5 2.9 1999 21.0 3.5 2000 19.0 2.8 6 Energy deficit higher than 1.5% and capacityhigherthan7.0% are unacceptable, as they cannot be alleviated with only operation measures, but by disconnecting loads and no atending consumers. Plant retirements scheduled for 1995 were postponed and 100 MW steam additional plants were installed in 1997 and 1998. Supply situation from 1997 improved as follows: (% of demand) | YEAR | CAPACITY ENERGY 1993 2.2 1.4 1994 5.6 1.3 1995 7.4 2.3 1996 5.0 1.2 1997 0.0 0.0 1998 0.0 0.0 1999 0.3 0.0 2000 0.0 0.0 Annex 4: Characteristics of Transmission Projects PROJECr YEAR COST DESCRIPTlON (UIS$ million) Center-West Region Inter- 1993 24.7 230 kV and 110 km line connecting connection System the existing Esquintla S/E with a (Phase I) new S/E in San Sebastian. Atlantic Region Intercon- 1995 27.2 230 kV and 165 km line connecting nection System two new substations: Las Verapaces P-1 Rio Dulce, through Chulac. Peten Region Interconnec- 1998 17.3 1J8 kV and 201 kn line conecting tion System (Phase I) the reinforced substations Rio Dulce, Popttn and Santa Elena. Enlargement of the Sub- 1994 11.2 Enlargement of the existing 230/69 station Guate-Este kV Guate-Este substation, installing a 150 MVA transformer. Center-West Region Inter- 1995 19.8 230 kV and 50 km line conneciDng connection System the substations San Sebastian and La (Phase 11) Esperanza. Interconnection of the 1996 3.6 Step-up 13.2/230 kV substation with Santa Maria II Hydro Pro- a 80 MVA transformer sectio- ect nalizing the San Sebastian-La Esperanza line. Interconnection of the El 1998 5.2 230 kV and 20 In line and 80 MVA Palmar Hydro Project 13.2/230 kV substaion connecting El Palmar to San Sebastin S/E. Erection of the Jutiapa 1995 5.7 230/69 kV substation with a 50/60 Substation MVA transformer sectionalizing the Guatemala-El Salvador line. Interconnection of the 1999 12.2 230 kV and 55 km line and 150 Serchil Hydro Project MVA 13.2/230 kV substation con- necting Serchil to La Esperanza S/E. Center-West Region Inter- 1999 10.3 230 kV and 110 kn line connecting connection System La Esperanza and Guate-Sur substa- (Phase In) tions. Interconnection of the 1999 4.9 13.2/230 kV 80 MVA step-up sub- Zunil II Geothermal Pro- station sectionalizing the San Sebas- ject ti4n-La Eseanza line. 103 GUATEMALA - Energy Sales (GWh) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1/ Retail - ,,e, - seRs:id 307.28 319.77 323.38 342.601 359.8S 374.98 411.10 451.99 487.10 539.61 600.30 565.62 - Commercial 231.11 240.29 242.55 245.30 255.08 260.38 276.84 338.96 376.25 404.44 442.32 416.77 - Ibdustrial 511.86 481.74 381.07 361.36 369.42 400.70 456.25 534.57 S51.21 633.56 664.73 626.33 - Government 107.86 110.91 119.58 126.03 127.9S 131.43 132.50 146.88 152.26 164.04 159.94 150.70 x - Pubic Lihidng 7.11 7.61 8.89 9.18 9.63 9.96 10.33 10.61 11.59 12.90 14.04 13.23 Tota RFeail Sals 1,165.22 1,160.32 1,077.47 1,084.47 1,121.92 1,177.45 1,287.01 1,483.00 1,578.40 1,754.56 1,881.34 1,772.66 Bulk Sales: aD - To EBOSA 695.62 663.20 641.27 819.43 742.4S 788.12 1,228.24 1,264.87 1,303.68 1,509.63 1,584.95 1,493.39 3 m - To MunkicaUdties 58.28 56.13 55.87 54.67 56.76 60.83 67.38 77.272 84.13 86.76 95.18 100.02 It Prelim data. a/ Sales fiom INDE GUATEMALA - Annual Subsidy O 991 US$ million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 19911t Relai Coosiiers: - Residenial (S.52) (7.94) (3.88) (7.43) (0.38) 4.98 14.27 17.44 19.45 23.03 28.46 28.50 - Commercial (4.80) (6.60) (6.92) (5.58) (4.28) 0.06 6.92 9.97 8.52 9.90 12.23 10.34 - Industrial (11.26) (14.44) (13.09) (10.05) (8.48) (2.54) 8.53 13.70 5.44 10.50 12.79 10.11 0 - Govemment 0.43 (0.44) (0.53) 0.18 0.67 2.43 5.09 6.06 5.98 6.98 7.26 5.02 - Public Liting 0.10 0.05 0.04 0.06 0.09 0.22 0.42 0.46 0.56 0.48 0.43 0.53 CL Total Retail (21.05) (29.36) (24.38) (22.81) (12.38) 5.16 35.22 47.64 39.95 50.90 61.17 54.49 Consumers CD c Bulk Consumers: a/ iC - EBOSA (0.98) (3.25) (0.11) 4.50 8.59 9.60 46.20 51.04 55.75 64.42 61.35 62.29 6 - Municipalties 0.69 0.20 0.70 0.84 1.10 1.89 3.20 4.02 4.29 4.41 5.49 5.88 mom _/ Prelimitny dat. ;' Se from INDE 0 j/ Marg Cost (US ce/Wh): 1W= 7.40 MV= 8.30 LV- 9.20 0 GUATEMALA - Subsidy Distrbution for Residential Consumers EXISTING TARIPF: Nunber of MontflyConsunmpion Average Consumer Consumr Consmr ConsUmer Average increse Range Consnmers Rate 3/ Cost Revenue 4 Subsidy Subsidy Monthy Bil RAe (kWkl/nmob) (%) 1/ erage Tota 2/ (US cents/kWh) ('000 US$) ('000 US$) ('000 USS) (%) (US$) . (kWh) (Mhm) 0-14 5.7 4.5 69.7 10.7 7.4 6.4 (1.0) (13.8) 0.5 n/a 15-60 26.9 34.6 2,527.7 5.2 131.9 232.5 100.6 76.3 1.8 n/a 61-100 20.0 72.8 3,956.5 5.0 197.4 364.0 166.6 84.4 3.6 n/a 101-200 28.5 129.2 10,007.5 4.8 480.0 920.7 440.7 91.8 6.2 n/a 201-300 9.2 220.2 5,505.5 4.7 256.1 506.5 250.4 97.8 10.2 n/a 301-400 3.4 313.0 2,892.2 5.1 147.5 266.1 118.6 80.4 16.0 n/a 401-S00 1.8 405.8 1.985.2 5.1 101.3 182.6 81.4 80.4 20.7 nUa 501-7S0 2.1 551.4 3,146.9 6.9 217.4 289.5 72.1 33.2 38.1 n/a 751-1,000 1.0 783.4 2,129.1 6.9 146.2 195.9 49.6 34.0 53.8 n/a 1,001-1,500 0.8 1,066.4 2,318.5 6.8 158.7 213.3 54.7 34.4 73.0 n/a 1501-2000 0.3 1,559.6 1,271.5 6.8 86 7 117.0 30.3 34.9 106.4 n/a >2,000 0.3 4,480.4 3,652.8 6.8 248.0 336.1 88.1 35.5 304.2 n/a Ca Totd 100.0 145.2 39,463.2 5.4 2,178.7 3,630.6 1,451.9 66.6 7.8 nla 0 1/ Totad Number of Residenti Consumers: 271,767.5 21 EOSA Resklential Year 1990 $ales (MWh) 473,567.0 3/ EBxchange RAte (quetWzaUS$): 5.06 4/ Marginal Cost for Dmstridon (US c:tskWh): 9.20 0 PROPOSED TARIPF: Number of Monthly Consuwpion Averag Conumer consumer Conswnr Consumer Average Increase Rang Consumem Averae Total Rafts S cost Revetnue Subsidy Subsidy Monthly DiM Rafte ^kfhmonth) ()(kWh) OMW) (US cents/kWh) ('000 US$) ('000 US$) ('000 US$) (% (US$) (% 0-14 5.7 4.5 69.7 6.0 4.2 6.4 2.2 53.3 0.3 (43.8) 15-60 26.9 34.6 2,57. 6.0 151.7 232.5 80.9 53.3 2.1 15.0 I 61-100 20.0 72.8 3,936.5 6.6 262.2 364.0 101.8 38.8 4.8 32.8 101-200 28.5 129.2 10,007.5 7.9 791.0 c1'20.7 129.7 16.4 10.2 64.8 201-300 9.2 220.2 5,505.5 9.3 510.6 506.5 (4.1) (0.8) 20.4 99.4 301400 3.4 313.0 2,892.2 10.1 291.6 266.1 (25.5) (8.8) 31.6 97.7 401-50') 1.8 405.8 1,985.2 10.5 208.9 182.6 (26.2) (12.6) 42.7 106.3 501-750 2.1 551.4 3,146.9 10.9 343.4 289.5 (53.9) (15.7) 60.2 58.0 751-1,000 1.0 783. 2,129.1 11.2 239.2 195.9 (43.3) (18.1) 88.0 63.6 1,001-1,500 0.8 1,066,4 2,318.5 11.4 265.2 213.3 (51.9) (19.6) 122.0 67.1 1501-2000 0.3 1,559.6 1,271.5 11.6 147.7 117.0 (30.7) (20.8) 181.1 70.3 >2,000 0.3 4,480.4 3,652.8 11.9 433.4 336.1 (97.4) (22.5) 531.6 74.8 Total 100.0 145.2 39,463.2 9.2 3,649.0 3,630.6 (18.4) (0.5) 13.4 71.9 Rats Range kWhimondh US cents/kWh First: 50.0 6.0 Foliowing: 50.0 8.0 * SI PROPOSED RESIDENTIAL RATE: Following: 100.0 11.0 Folloing: 200.0 12.0 Followin: 400.0 12.0 ___________________________ Higher than 800 kWh: __ _ _ _12.0 Annex 6: Guatemala - Marginal Cost and Reference Tariffs Marginal Cost Network Capacity Energy Cost fUS$/MWh) Average Cost (US$/MWh)' Level (US$/kW Peak Off-Peak Total Peak Off-Peak Total ________ ________ -y ear) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Generation - Cost :9.40 56.10 48.60 50.23 66.40 59.90 61.53 Transmission - Losses f%) 3.20 3.00 2.00 2.25 - Cost 22.70 Accumulated 84.00 56.75 49.57 51.37 72.73 65.55 67.35 Subtransmission - Losses f%) 3..Yj 2.50 2.00 2.13 - Cost 27.00 Accumulated 113.52 58.17 50.56 52.47 79.77 72.16 74.06 Medium Voltage - Losses (%) 5.00 4.00 3.80 3.85 - Cost 33.50 Accumulated 152.70 60.50 52.48 54.49 89.55 81.54 83.54 Low Voltage - Losses (%) 9.00 8.00 7.20 7.40 - cost 11.90 Accumulated 178.34 65.34 56.26 58.53 99.27 90.19 92.46 Reference Tariff Supply Capacity Energy (US cents/kWh) Average Rate (US$/MWh) Level (US$/kW Peak Off-Peak Total Peak Off-Peak Total -month) Interconnection2 7.00 5.68 4.96 5.14 7.27 6.56 6.73 High Voltage2 7.57 5.82 5.06 5.25 7.30 6.54 6.73 Medium Voltage4 4.58 6.78 6.02 6.21 7.67 6.91 7.10 Low Voltage - Residential _ 10.61 9.70 9.92 10.61 9.70 9.92 - Other 4.32 7.83 6.92 7.15 8.82 7.91 8.14 1 - Global Load Factor: 0.60 2 Full generation and transmission costs have been assumed. - Load Factor: 0.60 - Coincidence Factor: 1.00 3 Full generation, transmission and subtransmission costs have been assumed. - Load Factor: 0.70 - Coincidence Factor: 0.80 4 Generation and transmission have been considered as collective components. - Load Factor: 0.70 - Coincidence Factor: 0.80 5 All system components have been assumed as collective - Load Factor: 0.50 -Coincidence Factor: 0.80 6 Generation, transmission and subtransmission have been considered as collective components. - Load Factor: 0.60 -Coincidence Factor: 0.80 7 Proportion of peak-period: 0.25 109 Annex 7 Guatemala Power Sector: Actual Financial Statements Summary 111 Guatemala: Consolidated Sector (Currnt Q. Millions) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL - AVERAGE EXCHANGE RATE (Q ) 1.00 1.00 1.00 1.00 1.00 2.74 2.85 2.69 2.63 3.40 4.30 5.06 5.06 SALHS I~U lftiSA ( )1V O O ° ° ° 0 0 0 0 ° SALES TO OTHER UTtIES (Gwh) 0 0 0 0 0 0 0 0 0 0 0 0 0 SALES PINALCONSUMERS (GW 1243 1220 1135 1147 I188 1242 1363 1571 1675 1860 1990 2104 2303 AVERAGE RATE TO EBOSA ( IK2w) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 AVER. RATE TO OTHER UTIL (/Iwh) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 AVER. RATE FINAL CONSUM. (/Kwb) 11.28 13.77 13.37 13.10 12.78 12.83 12.74 12.74 15.62 16.05 21.65 27.32 39.70 SALES TO BESA 0 0 0 0 0 0 0 0 0 0 0 0 0 SALES TO OTHER UTIIXES 0 0 0 0 0 0 0 0 0 0 0 0 o SALES FINAL CONSUMERS 140 168 152 IS0 152 159 174 200 262 299 431 575 914 OTHIER REVENUES 6 5 3 3 2 3 6 ( 15 431 2 67 TOTAL REVENUES 146 173 t55 153 154 162 179 192 2f 299 431 S 982 FUEL 88 10t 71 45 57 59 3 21 25 20 39 190 282 OPERATING WXP. (Exc. Pod.) 1/ 4S 56 62 6S 67 79 115 135 154 244 289 294 363 TOTAL OPERATING EXPENSES 133 158 133 109 124 138 118 156 179 264 328 484 645 OPERATING INCOME 12 16 22 44 30 24 61 41 78 35 103 94 337 OTHER NET INCOME 0 0 12 7 (1) 0 (2) 4 (5) 17 (361) (13) 4 INTERESTCHARGED TOOPERATIONS 4 3 11 11 4 5 29 32 7 96 127 135 107 INCOMETAXES 0 0 0 0 0 0 0 0 0 1 3 5 20 NET INCOME 9 13 23 39 25 19 30 14 (S) (45) (387) (59) 213 GROSS INTERNAL CASH GENERATION 29 36 61 79 71 64 131 113 143 191 284 248 511 0 Lesa: INTEREST CHARGED TO OPBRAT. 4 3 11 11 4 S 29 32 77 96 127 135 107 AMORTIZATION 13 19 14 24 31 29 36 57 S1 70 34 159 482 DEBT SBRVICE 17 22 25 35 35 33 65 89 158 167 161 294 S89 NET INTERNALCASH GENERATION 11 IS 36 44 36 31 66 24 (14) 24 123 (46) (78) GOVERNMENTCONTRIBUTtON 120 213 93 119 52 17 28 5 41 96 29 255 259 OTHER CONTRIBUTtONS (2) (3) (7) (11) (2) 10 9 11 26 9 7 12 4 0 TOTAL OWN FUNDS 118 211 86 109 50 27 38 16 67 106 36 268 263 LOAN DISBURSEMENTS 35 55 162 63 15 72 43 14 28 22 66 83 S76 TOTAL SOURCES 16S 280 284 215 102 130 146 54 81 151 226 304 760 INVESTMENTS 206 261 247 117 118 114 83 67 112 119 219 250 605 INTEU3T DURING CONSlRUCTION 0 0 0 C 0 0 0 0 0 0 0 9 10 INC.(DECR)WORIaNG CAPITAL (41) 18 36 43 (34) 17 36 (13) (50) 31 4 45 114 X OTHER USES 1 0 0 56 17 0 27 1) 19 1 4 0 37 TOTAL USES 165 279 2S4 215 101 131 147 3 80 151 226 304 766 o (FINANCIALGAP)OREXCEDENT 0 0 0 0 1 0 0 1 0 0 0 0 (s) FICED ASSETS 1/ 696 949 1,179 1.276 1,374 2,082 2,194 2,242 2,339 3,016 4,217 4,395 4,823 CURRENT ASSETS & OTHER ASSETS 119 154 164 221 218 244 327 351 432 646 720 884 896 TOTAL ASSETS S15 1,104 1,343 1,496 1,592 2,326 2,521 2,593 2,771 3,661 5.007 5,279 5,719 LONG TERM DEBT 203 239 387 417 388 428 458 422 842 930 1.259 1.034 1,361 SHORT TERM I OTHER LUABTIES 130 157 133 97 144 125 130 172 303 4S4 813 1,048 692 TOTAL LLABILITIES 333 396 520 514 531 5S3 588 S94 1.145 1.385 2.072 2.082 20S2 EQUITY 481 708 823 983 1,060 1,773 1.933 1999 1,626 2.277 2.934 3,197 3.666 TOTAL EQUITy PLUSLIAB. 815 1,104 1,343 1,496 1,592 2,325 2,521 2,93 2,771 3,661 5.006 5.279 5,719 PERFORMANCE INDICATORS TARIWF INCREASE FINALCONSUMERS n/a 22.07% -2.87% -2.05% -2.45% 0.41% 40.74% 0.01% 22.64% 2.76% 34.88% 26.20% 45.30% OPERATING RATIO 91.47% 90.93% 85.80% 71.33% 80.35% 85.05% 65.90% 79.03% 69.76% 88.16% 76.02% 83.78% 65.69% RATE OP RETURN ON REV. ASSETS 7.22% 5.96% 6.18% 12.26% 8.42% 2.23% 3.26% 2.13% 3.92% 1.47% -7.58% 2.05% 8.74% % INTERN.GEN./CONSSRUCT. 5.58% 5.57% 14.50% 37.64% 30.95% 27.14% 79.24S 36.40% -12.97% 20.29% 56.44% -17.79% -12.76% DEBTSERVICE COVERAGE 1.66 1.67 2.44 2.26 2.05 1.93 2.01 1.27 0.91 1.14 1.77 0.84 0.87 DEBS=T/DEBT+,EI "Ull)RATIO 40.9% 35.9% 38.7% 34.3% 33.4% 23.8% 23.3% 22.9% 41.3% 37.8% 41.4% 39.4% 35.9% DISTR BU1ION 1 ARGl /a nDa n/a n/a n/a nh/ n/a n/a ala n/a n/a nta n/a if hUchdc a="ew malat GUATEMALA - INDE (Current Q. Millons) 1980 1981 193 19W3 194 1915 1986 1917 1916 1919 199 1991 192 ACSUAL ACTUAL AC1UAL ACTUAL ACIUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACIUAL ACTUAL - AVERAGE EXCHANGE RATE (QIA)1. 1.00 1.00 2.74 2.85 2.69 2.63 3.40 4.30 5.06 5.06 5A~S, 10 FMUSA (Uwlh) 090 003 641 519 742 785 1225 1205 1304 IsIu 1515U 1493 1517 SALES TO OTHER UTLIIES (Ss1 58 56 S6 55 57 61 61 77 84 90 90 100 114 SALES FINALCONSUMERS (Owb) 177 188 149 153 15S 179 235 284 298 349 39 406 481 AVERAGE RATE TO DOS (/2CtIa 8.03 9.37 8.83 8.22 8.03 9.89 7 61 7.S6 8.51 3.71 13.86 17.26 27.30 w AVER. RATE TO OTHER UL 8.54 10.48 9.47 9.40 9.3S 9.31 9.32 8.96 10.27 8.71 13.86 16.86 27.30 AVER. RATE FINAL CONSUM. ( 12.97 16.17 15.66 14.96 14.32 14.23 13.60 13.79 18.18 17.10 22.24 29.66 39.94 SALES TOE SA 56 62 57 67 60 78 93 96 111 131 220 258 414 SALES To oTHEuTILxnIE 5 6 5 5 5 6 6 7 9 8 12 17 31 SALES FINAL CONSUMS 23 30 23 23 23 25 32 39 54 60 87 120 192 OTHIE REVENUES 0 (3 4) () (2 (1) 5 ()5)00 0 65 TOTALREVUES 84 993 86 108 137) 39 16 19°9 319 395 702 FUEL S8 64 41 26 32 34 3 9 7 7 IS 94 200 OPERA 1NGN EXP.(EzOc. b) I/ 20 23 28 32 36 45 72 84 90 142 184 198 212 OPERAINGINDCOME 6 8 13 35 18 29 63 46 72 51 120 103 290 OTIHERNETINCOME 0 1 11 6 (2) (1) (4) 0 (9) 12 (3641 (1J 0 OTIIERNETINCOMEMROMSECTOR 0 0 0 1 IS 0 8 7 11 7 6 16 0 INTERESTCHRAROED TOPERAATONS 2 1 10 11 4 4 27 29 68 91 120 124 83 NET INCOME 5 7 15 31 30 24 39 24 5 (21) (358) (23) 208 GROSS INDrNALCASH GENERATION 12 15 36 54 45 50 109 94 108 171 251 206 411 Le2n DrrESCHARGW)TO WPERAT. 2 1 to I11 4 4 27 2968 91 220 124 83 AMORTIZAIMN 7 12 13 21 24 25 31 52 3O 69 33 157 482 DEBT SERVmE 9 13 22 32 2U 29 59 81 148 159 153 281 S6o NETDITrNALCASHGENERAIOI 4 2 14 22 17 21 51 13 (4) 11 98 (75) (154) GOVERNIENTCONTEIUITON 120 213 93 119 52 17 28 3 4 96 29 255 59) OTHBR CONTRIDUTONS () 0 1 0 0 12 7 38 21 6 2 0 0 TOTALOWNFUNDS 118 213 94 120 52 29 35 43 62 102 32 255 259 LOAN DU 1RSMEN2S 35 54 160 60 13 68 3S 6 28 22 66 68 429 1wrAL SOURCES 158 269 267 202 82 118 121 61 S0 135 15 247 533 INVSMENTM 197 261 238 111 110 107 61 46 82 56 175 186 513 INTUESTDURUNOCONSTRUCTIO1 0 0 0 0 0 0 0 0 0 0 0 9 20 INC.DCWORKING CAPITAL (401) 8 29 35 (46) 11 33 16 (51) 79 21 52 I5 CY11 USES 00 0 56 17 0 27 2) IV 0 0 0 0 TOTAL USES 18 269 267 202 81 118 121 60 S0 135 Iff 247 539 (FINANCIALGAP) OR8XCEDENT 0 0 0 0 1 0 0 1 0 0 0 0 ¢@ FIXD ASSET If 644 89 1,124 123 2.321 1,931 1.999 208 2,107 2,6.3 3.797 3.911 4.316 CURRENT ASSEIS a OT AS 101 130 140 192 1 76 189 274 290 360 613 696 822 m TOTAL ASSEtS 744 1,029 1,264 1.415 1,496 2.120 2.2t3 2,338 2,467 3,2S1 4,494 4.733 5.004 LONG lIM DEBT 199 236 386 417 388 428 4S8 422 838 927 128 1,021 1.4 SHORTITM & OTHERUABUfE 105 131 110 8O 123 202 103 134 251 402 741 959 560 TOrAL LAD2UIES 304 367 496 496 511 529 561 5SS 1.089 1329 1999 1.981 1.785 sounfy 441 661 768 919 98 159 1.713 1,78 2.37 1.I 249 2,752 3,219 ETOTAL EQUTRY PLUS LIAR. 744 1,029 1,264 1,415 1.496 219 2274 2.338 2,466 321 4'494 4,733 5.0)4 PERMULNCE INDICATORS TARFF INCREASE FINAL CONSUMERS aa 24.6S% -3.16% -4.48% 4.26% 0.64% -4.40% 1.34% 31.87% -5.93% 30.03% 33.38% 34.66% O?DRATING RAtIO ~~~~~~~~92.42% 91.37% 83.48% 62.74% 79.13% 72.99% 54.34% 66.69% 57.55% 74.28% G2.39% 74.00% 58.63% RATUOP REtURNON SREV. ASS 5.17% 3.83% 4.41% 12.36% 5.80% 2.96% 3.66% 2.62% 3.99% 2.41% 4.04% 2.98% 8.49% % INTERN.GEN./CONSTRUCT. 2.02%LOI 0.77% 5.83% 20. 15% 15.72% 19.30% 82.61% 27.50% .48.44% 19.90% 55.87% -38.71% -29.49% DEIISERVICECOVERAGE 2~~~~~~.47 1.15 1.62 1.70 1.63 1.71 1.36 1.15 0.73 1.07 2.64 0.73 0.73 40.8% 35.7% 39.2% 35.1% 34.1% 25.0% 24.7% 23.7% 44.1% 40.9% 44.5% 41.8% 3.7% sta lsa ahl af/ a nh a /s a/a WI a a/a aWs saa ala 1/ Jmdain 91il * GUATEMALA - EEGSA (Current Q. MMions) 1980 1981 1912 195 1954 1915 1916 1987 1918m 1989 1990 1991 199 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL s - AVRGEECHANGE RATE (9e~ .0 1.00 1.00 1.00, 1.00 2.74 2.85 2.69 2.63 3.40 4.30 5.06 5.06 4 (uW11J 0 U r 0 u SALES'M SOT alHil UllLtlll g 0 0 0 0 0 0 0 0 0 0 0 0 0 SALES FINAL CONSUMERS (Gwh) 1006 976 931 939 974 1002 1061 1209 1293 1421 ISI0 I598 1708 AVERAGE RATE TO EOSA (8 :o 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 AVER. RATE TO OHRM UTaL (/Kwh 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 AVER. RATE FINAL CONSUM. (lKwh) 11.14 13.50 13.24 13.01 12.73 12.80 12.76 12.73 15.38 16.26 21.97 27.39 40.46 SALES TOEEASA . 0 0 0 0 0 0 0 0 0 0 0 0 0 SALES Mo{YImIIRuTllJl0 0 0 0 0 0 0 0 0 0 0 0 O SALES FINAL CONSUMERS 112 132 123 122 124 128 135 IS4 199 231 332 438 691 OTHERt REVENUES 5 9 7 5 4 4 0 0 0 0 0 2 3 TOTAL REVENUES 118 140 130 127 128 132 136 154 199 231 332 440 694 FUEL 30 38 31 18 24 25 1 13 18 13 25 96 8 OPERATING OXM. (Eu. Ped.I 81 95 91 100 91 112 137 146 175 234 324 353 565 TOTAL OPERATING EXPENS 112 133 122 118 115 137 137 159 193 247 349 449 647 OPERATNO INCOME 6 8 9 9 12 (5 (1) (5) 6 (16) OIIHERNErINCOME 0 01 1 1 1 2 4 45 3 5T 43 INTEST CHARGED TO OPERATIONS 2 2 1 1 1 0 2 3 9 6 6 10 24 INCOME TAXES 0 0 0 0 0 0 0 0 0 1 3 5 20 NET INCOME 4 6 8 9 12 (5) (2) (4) 1 (17) (24) (20) 5 GROSS INTERNAL CASH GENERATION 16 21 25 25 26 14 22 19 35 20 33 42 100 Les INTEREST CHARGED TO 2 2 1 1 1 0 2 3 9 6 6 10 24 -. OpERAT.0 AMORTIZATION 7 7 1 2 6 4 5 4 1 1 1 2 0 DEBT SERVICE 9 9 3 3 7 4 6 7 10 7 3 12 24 NETINTERNAL CASHENERATION 8 13 22 22 19 10 15 12 25 13 26 29 76 GOVERNMENTCONTRIBUriON 0 0 0 0 0 0 0 0 0 0 0 0 0 OTHER CONTRIBUTIONS 2 2 2 3 2 3 4 6 7 10 11 16 21 TOTAL OWN FUNDS 2 2 2 3 2 3 4 6 7 10 I I 16 21 Kr LOAN DISURSEMENTS 0 1 2 3 2 4 a8 0 0 0 is 147 m TOTAL SOURCES t0 16 26 27 23 17 27 26 32 23 36 60 244 t INVESTMENTS 8 1 9 6 7 6 22 21 30 63 44 64 91 INTEREST DURING CONSTRUCnON 0 0 0 0 0 0 0 0 0 0 0 0 0 INC.ADECR)WORK1NG CAPITAL (1) 10 8 7 12 6 4 (29) 1 (42) (9) 1 99 OTHmt USES I~~ 0 0 0 0 0 0 1 0 1 40 3 TOTAL USES 7 11 17 13 19 12 25 (7) 30 22 39 65 227 (FINANCIAL GAP) OR EXCEDENT 2 5 9 14 3 5 2 33 2 1 (2) (5) 17 FIXED ASSETS 1 52 51 55 3 53 11 95 19233740 44 507 CURRENT ASST & OTHER ASSETS 32 36 41 49 54 62 90 123 ISO 115 153 217 277 TOTAL ASSETS 84 88 96 102 107 213 284 317 412 493 643 701 784 LONG TERM DEBT 5 3 1 0 0 0 0 0 S 3 I 13 136 SHORT TERM & OTHER LIABILITIES 38 38 40 38 32 31 64 101 159 135 202 244 200 TOTAL LIABILITIES 43 41 41 38 32 31 64 101 164 138 203 257 336 E EI SlY 41 47 55 64 75 182 220 216 248 355 440 444 447 TOTAL EOUrrY PLUS LUAB. 84 88 96 102 107 213 284 318 412 493 643 701 784 PERFORMANCE INDICATORS TARIFF INCREASE FINAL nWa 21.12% -1.87% -1.74% -2.18% 0.53% -0.27% .0.23% 20.79% 5.72% 35.09% 24.69% 47.74% CONSUMER OPERATING RATIO 94.U4% 94.65% 93.43% 92.83% 90.36% 103.78% 101.03% 103.15% 96.96% 106.86% 104.97% 102.07% 93.32% RATE OF REURN ON REV. ASSETS 12.41% 15.29% 16.71% 17.55% 24.49% -5.02% -0.85% -2.71% 3.19% -5.54% -3.22% -0.96% 10.46% % INT"RN.EN.ICONSTRUCT. 91.11% 2038.21% 236.11% 389.70% 258.09% 163.29% 69.82% 55.82% 84.17% 20.61% 58.61% 46.01% 83.06% DEBT SERVICE COVERAGE 1.85 2.47 9.26 7.81 3.77 3.41 3.42 2.59 3.53 2.80 4.35 3.41 4.20 DEBT/(DEBT+EQUIT RATIO 51.3% 46.9% 42.9% 37.5% 29.7% 14.6% 22.6% 31.8% 39.8% 27.9% 31.6% 36.6% 42.9% DISTIBUTIONMARG IN 27.95% 30.61% 33.34% 36.86% 36.88% 22.72% 40.41% 40.64% 44.65% 46.44% 36.91% 37.00% 32.54% 1/ d w evan ho Annex 8: Power Sector Financial Projections 1. MTis Annex includes a summy of financial projections elaborated to evaluate financial specives of Guatmla Power Sector. Two diffeet scas were workd to anye fancial paeectives. First scenario called "INDE ALTERNATIE' assumes that INDE will conue exectg fure expansion in generatio as it was in the past, and secod scenario called PRJVATE SECTOR ALTERNATIVE assumes that electricity required will be purcbased frm the private sector. These scenarios represent extreme cases, and a redistic approach could be anyway between them, with private sector exec:iti some projects and INDE executmg some others according to its financial capabilities. Geneal a dot.: The following assumptions are conmmn to both scenarios. 2. A tarff increase to reach average icremental cost of eleticty in 1993 was asmed. 30X for all final consum sales, to reach an average price of QC 4S.S (US$ 9). 51% for bulk sales to reach the ierconecon level cost Q¢ 32.8 (USO 6.5). 3. Govnent conbutions for QM. 200 in 1992 an QM. 100 in 1993 we included. These levels were discussed with Govenment authorities. Addidonally, it will be necessary to cover the debt service in 1992 a loan from the Govenmment of QM. 232. 4. It was not schdWuled a repayment program for the 1992 loa from t Government, neiter it was scheduled to repay other lons made by the Govrme in 1988 and 1989, or the debt service of the Decree 13-81 Bonds. 5. It was aumed that the V Distributionprogram wil be rsAheduled and tie grace period of the Loan will be eaded by two years. INDE Altkentive Assumptions: 6. Genaion expansion plan was asumed to be excuted by INDE. Comasoned dates were adjusted to vike acount of the energy sales from Texas-Ohio (about 100 MW). 115 116 Guatemala: IUsues and Opions in the Enegy Sector New commission dates will be: Provecto Capacit Cgmiioned Zunil I Geotiermal 15 MW 1995 Vapor m stm 100 MW 1996 Rio Bobos Hydro 8 MW 1997 Sta Maria II Hydro 60 MW 1998 El Palmar Hydro 23 MW 1999 Geotherm. II Geothermal 55 MW 2000 Serchil Hydro 110 MW 2001 7. 90% of the external compon of the projects was assumed to be financed with ext l loans. All other investments were assumed to be financed with own resowues. Under this assumption, 62% of the 1992-2000 investment program will be financed with loans. PRIVATE ALTERNATIVE assumptions: 8. This alternative assumes that INDE won't execute any of the future generation plants and, instead, it will buy from prvate suppliers amounts of electricity similar to these tbat would be geneated for those plans. Electricity purchases to private suppliers was assumed at a rate similar to the one obtained by EEGSA recently, Q¢ 30.5/Kwh (USC 6/Kwh). Annex 8: Power Sector Pinancial Projections 117 ~~~~~~~~~~~~~~~~~~~~ -.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ X s l n~cec.o~ @~ 4@O~oo i: X s@|g sf 0 e I § zzoo80OOWOOFo;|;! °;83g°°V§{B°° . T0-E° i| % 1 O eoe8eoc$°° °°a°°E ge"_@o¢4ggao@ glR.fR¢^ ;f M > t1 - 888 eoi§ts ggf°°n$° -mfi.t4i§ t e~~~~~~~~~~~~0 21.tR*,#gzl°pE8R¢2a^@tit:2#§* - *o*.4g:a°g52lo05_o 5§!> i§o |§ B">!3oRggg*s38~~~~ 3iE°3t.^a2a°S-"fa gf$ I gg8da;9XftXgt§"8s°° a!g! 5; j~~~~ ~ 'dl0;: |i0{0Ee#di.i lli GUATEMAIA - EEGSA (lrew Q. Mil -) NDEs Alwainut - U90 1991 - 1il9I2 1993 1994 19 996 1997 199 - 1999 2D 92-200a Aul Aau - - - - - - - - -- AVERAGE EXCHANGE RATE (Que) 4.30 S.o5 5.06 5.06 5.06 s.0O 5.O6 5.066 5.06 5.06 UA Lf TO'EE9 A (UW19 u u u u u u u UU SAtESTOOTIIER VtMT (wb) 0 0 0 0 0 0 0 0 0 0 SALES FINAL CONSUMERS (b) ISIO 198 170B 1946 2048 2153 2263 2378 2499 2627 2761 203 AVERAGE RATE TO EBOSA (IICw 0.00 0OD OD 0.00 0.00 0.00 0.00 0.00 0.0. 0.00 0.00 O.OD AVER. RATE TO OTHER UllL. (K ) 0. 0.00 0.00 0.00 0.00 0.00 0.00 0..C 0.00 0.00 0.00 0.0 AVER. RATE FNAL CONSUM. (IKwl) 21.97 27.39 40.46 45.75 45.74 45.74 45.74 45.74 45.74 45.74 45.74 45S30 SALBS TOEOSA 0 0 0 0 0 0 0 ° WSll TO OTHER UTlUIB O O O O O O O O O O O O SALES FIAL CONSUMERS 332 437.8 691 890 937 98S 103l lO0e 1143 1202 1263 9234 OTHER REVENUeS 0 2.1 3 3 3. 3 0 0 0 0 0 13 TOTAL REVENUES 332 439.9 694 893 940 988 1035 1088 1.144 1202 1263 9247 FUEL 25 95.7 82 10 0 0 0 0 0 0 0 92 4 OPERATING 8XP. (OzL Fo.) 11 324 3S3.3 SSS 836 891 935 984 low5 10.0 1145 12 M6B2 TOTAL OPERUATNG EXPENSES 349 449 647 8s4 891 935 9t4 1035 1089 1145 102 4773 OPERATN INCOME (1M (9 46 4t 49 53 52 53 55 S7 61 474 OTIH NET ICOME 3 5 3 4 4 4 4 4 4 4 4 33 INtREST CHARGED TO OPERATIO34 6 10 24 24 2S 31 3S 39 42 43 46 311 INCOME TAXES 3 5 20 21 21 22 21 21 21 22 22 192 NETINCOME 24 a2m 5 6 3 4 0 (3) CS) (4) (5) 3 GROSS INTENAL CASH GENERATION 33 42 100 l03 109 115 116 120 125 130 136 1054 Lca: INTEREST CHARw TO OPERAT. 6 10 24 24 28 31 35 39 42 43 46 311 AMORTATION 1 2 0 24 24 24 24 34 39 28 38 234 S DEBT SERVICE S 12 24 48 52 54 5S 73 81 71 85 546 NET INItAL CASH GENERAT10N 26 29 76 56 S7 61 5S 48 44 59 51 50Su GOVERN tm CONTr11 oIITOI 0 0 0 0 0 0 0 0 0 0 0 0 0H CONISBUTIONS It 16 21 22 23 24 25 26 27 28 29 224 TOTALOWNFUNDS I1 16 21 22 23 24 25 26 27 28 29 224 LOAN D RS3SMENrS 0 IS 147 S2 42 48 51 55 48 50 S4 547 TOTAL SOURCES 36 60 244 129 121 133 133 120 119 137 134 1279 INVEST M 44 64 91 108 92 105 109 11 107 112 119 961 IrtERESTDtRINGCONSTRUCTlON 0 0 0 0 0 0 0 0 0 0 0 o INC.OECR) WORKI CAUSTAL (9 I 99 28 16 IS 3 2 (2) 2 7 14 OTHER UJES 4 0 37 0 0 0 0 0 0 0 0 37 TOTAL USES 39 65 227 136 109 122 113 120 16S 114 t26 172 (P1NACIAL GAPOREMCEDN 80) () 17 M 13 11 20 9 14 23 8 10S FIXED ASSETS IJ 490 4t4 507 544 561 587 614 646 663 682 705 CURRENT ASSS &OTHER ASSETS 153 217 277 305 320 337 346 36D 370 384 404 TOTAL ASSETS 643 701 784 849 8BI 924 96D 1006 1033 1067 1110 LONG TERM DEBT 1 13 136 164 182 207 224 239 259 271 287 SHORT TERM & OTHER LtABILIIE 202 244 200 231 242 255 276 30S 320 345 378 TOTAL LLA.BIliIES 203 2S7 336 395 424 452 499 54S S79 617 664 EQUITY 440 444 447 454 457 461 461 458 454 449 44S TOTAL EQUIrY PLUS LIAB. 643 701 784 849 88I 923 980 306 1033 1066 1109 TARj _M CS E 35.09% 24.69% 47.74% 13.06% .0.02% 0.00% 0.00% 0.00% 0.00% 0.(0% 0.00% OPERATING RAZTIO IQ4.97% 102.07% 93.32% 94.64% 94.79% 9462% 95.01% 95.14% 95.22% 95.23% 95.19% RATE OP RETURN ON REV. ASSES -3.22% .0.96% 10.46% 30.11% 9.85% 1031% 9.47% 9.0% 9.10% 925% 9.48% % INrBRN.GEN.tONSRtUCT. 5.61% 46.01% 8306% 51.64% 61.56% 57.97% 5277% 40.64% 41.21% 56.46% 47.61% DEDT SERVICE COVERAGE 4.35 3.41 420 2.17 2.10 2.11 1.99 1.66 154 t.94 1.72 MSr/p STQUrrY) RATIO 31.6% 36.6% 42.9% 46.6% 48.1% 50.0% S2O% 54.4% 53.3S 5.9% 5s.8% DISTRIDIN MAIGI 3691% 37.0% 32.54% 28.21% 280% 28.0 28.2 28.2 2.ms 22 28.20% it low am* mR GUATEMALA - EEGSA (CuzQbmilions) 2 __~~~~~~~~~~~~i 1991 IW s ws IM im s 1- E AOtL Actual a l - -L_ER_ATIV_ AVERAGE EXCHANGERATE 4 30 5 5.06 5.06 50 50 5.06 3ALi&3fU1 =S IIjWf 0 1 SALESTO OI UTnMIE (Gwh) 0 0 0 0 0 0 0 0 0 0 0 0 SALESFINALCONSUMEtS (Gwh) 1510 1598 1708 1946 2048 2153 2263 2378 2499 2627 2761 20383 AVERAGE RATE TO EEGSA (/Kwh) 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0.00 AVER. RATE TO O1HR UTIL. (/Kwh 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 AVER. RATE FINAL CONSUK (/Kwh) 21,97 27,39 40,46 45,75 45.74 45,74 45,74 45.74 45.74 4574 4574 45,30 SALESTOEEGSA 0 0 0 0 0 0 0 0 0 0 0 0 SALESOOTHERUTLITIES 0 0 0 0 0 0 0 0 0 0 0 0 SALES FINAL CONSUMERS 332 438 691 890 937 985 1.035 1.088 1.143 1.202 1263 9.234 OTIERREVENUES 0 2 3 3 3 3 0 0 0 0 0 13 TOTAL REVENUES 332 440 694 893 940 988 1.035 1.088 1.144 1.202 1.263 9.247 FUPEL 25 96 82 10 0 0 0 0 0 0 0 92 OPERATINGEXP.(Exc.Fuel.) I/ 324 353 565 836 891 935 984 1.035 1.089 1.145 1.202 8.682 TOTALOPERAT1NOEXPENSES 349 449 647 845 891 935 984 1.035 1.089 1.145 1.202 8.773 OPERATIINOCOME (17) (9) 46 48 49 53 52 53 55 57 61 474 OTHER NET INCOME 3 5 3 4 4 4 4 4 4 4 4 33 INT CRESTdHARGED TO OPERATIONS 6 10 24 24 28 31 35 39 42 39 41 301 INCOME TAXES 3 5 20 21 21 22 21 21 21 23 24 196 NETINCOME (24) (20) 5 6 3 4 (0) (3) (5) (1) (1) 10 GROSS nTE1NALCASH GENERATIO 33 42 100 103 109 115 116 120 125 130 136 1.054 Lcsa:INTEESTCHARGEDTOOPERAT 6 10 24 24 28 31 35 39 42 39 41 301 AMORTIZATION 1 2 0 24 24 24 24 34 39 28 38 234 DEBT SERVICE 8 12 24 48 52 54 58 73 81 67 79 536 00 NETINTERNALCASHGENERATION 26 29 76 56 57 61 58 48 44 63 57 518 GOVERNMENTCONTRIBUTION 0 0 0 0 0 0 0 0 0 0 0 OTHERCONTRIBUTIONS 11 16 21 22 23 24 25 26 27 28 29 224 TOTALOWNFUNDS 11 16 21 22 23 24 25 26 27 28 29 224 LOANDISBURSEMENTS 0 15 147 52 42 48 5I 55 48 50 54 547 d TOTAL SOURCES 36 60 244 129 121 133 133 129 119 141 140 1.2S9 9 INVESTENITS 44 64 91 108 92 105 109 IS 107 112 119 961 INEREST DUR1NG CONSTRUCTION 0 0 0 0 0 0 0 0 0 0 0 0 DIC.(DECR) WORKIMOCAPffAL (9) 1 99 28 16 18 3 2 (2) 3 7 175 OTHER RUSES 4 0 37 0 0 0 0 0 0 0 0 37 TOTALUSES 39 65 227 136 109 122 113 120 105 115 126 1.173 (PlNANClALGAP)OREXCEDENT (2) (5) 17 (7} 13 11 20 9 14 27 13 116 FDSE ASSET'S I/ 490 484 3077 54 561 587 614 646 663 682 705 CURRENTASSETS&OTHERASSETS 153 217 277 305 320 337 346 360 370 384 404 -. TOTALASSETS 643 701 7S4 S49 881 924 960 1.006 1.033 1.067 1.110 LONOTERMDEBT 1 13 136 164 182 207 224 239 259 271 287 SHORT TERM & OTHER LBLITIES 202 244 200 231 242 255 276 30g 292 304 332 TOTAL LIAB,LITIES 203 257 336 395 424 462 499 548 551 575 619 EQTITY 440 444 447 454 457 461 461 458 454 452 452 TOTAL EQUnTYPLUJSLIAB. 643 701 784 849 881 923 960 1.006 1.005 1.028 1.071 TARIFFlNCRm ASEFINALCONSUMER 35,09% 24,69% 47,74% 13,06% -0,02°/ .0,00% -0,00% 0,00% 0,00% 0,00% -0,00Yo OPERATING RATIO 104,97/o 102,07/ 93,32% 94 64% 94,79% 94,62% 95,01% 95,14% 95,22% 95,23% 95,19Yo RATE OF RETURN ON REV. ASSETS -3,22% -0,96% 10.46% 10.11% 9,85% 10,31% 9,47/o 9,20°h 9.10% 925% 948%/ %INTERN.GENJCONSTRUCT. 58,61% 46,01% 83,06% 5164% 61,56% 57,9/ 52,77P/ 40,64% 41,21% 56,46% 47,61% DEBT SERVICE COVERAGE 4,35 3,41 4,2 2,7 2,10 2,11 I'"9 1,66 1,54 1,94 1,72 DEBT/(DEBT+EQUITY) RATIO 31,60% 36.6%/a 42,92% 46,6 48.1% 50,001% 52,0% 5464% 5343% 53,90/ 558% DIRBTIO M N 36.91% 37.00% 3254% 282l% 28.20% 2S,20%/ 28,20% 28200/ 28,20% 2R0/. 2581N.2 co GUATEMALA - CONSOLIDATED SECTOR (Cw4 Q Maon) _~~~~ _ PBtIYAESECTOR/AtLRAIV Resl Aclu - AVERAGE EXCHANGE RATE ( ) 430 5.06 5,06 5,06 5.06 5.06 5.06 506 506 5.06 5.06 SALES)OTlHERUTLlLflES (Owb) 0 0 0 0 0 0 0 0 0 0 0 0 SALES FINAL CONSUMERS (Gwb) 1990 2104 2303 2619 2753 0 0 0 0 0 0 7.674 AVERAGE RATE TO EEGSA (/IC 0,0 0,00 0,00 0,00 0.00 0,00 0,00 0.00 0,00 0,00 0,00 0.00 C) AVER. RATE TO OTHER UTIL (/ICh) 0,00 0,00 0,0 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0.00 0.00 AVEILRATEFINALCONSUMt (/Kvb) 21,65 27,32 39,70 45,01 45,04 0,00 0,00 0,00 0,00 0,00 0,00 0,00 SALES T(> EEGSA 0 0 0 0 0 0 0 0 0 0 0 0 SALESTO To o luT1xfES 0 0 0 0 0 0 0 0 0 0 0 0 SALES FINALCONSUMERS 431 S75 914 1.179 1.240 0 0 0 0 0 0 3.333 f OTIRREVENUES 1 2 67 3 3 4 1 1 1 1 I 8. TOTALREVENUES 431 577 92 1.12 1.243 4 1 1 1 1 1 3.413 FUEL 39 190 2S2 152 IS5 0 0 0 0 0 0 619 OPERATINGEXP. (Ec. Fuel.) 1/ 289 294 363 597 629 0 0 0 0 0 0 1.590 TOTAL OPERATING EXPENSES 328 484 645 749 814 0 0 0 0 0 0 2.209 OPERATINGINCOME 103 94 337 432 429 4 1 1 1 1 1 1205 OTHERNETINCOME (361) (13) 4 4 4 5 4 4 4 4 4 3? INTRESTCHARGEDTOOPERATIONS 127 135 107 104 91 112 107 109 102 89 102 922 INCMETAXES 3 5 20 21 21 22 21 21 21 23 24 196 NETINCOME (3S7) (59) 213 312 320 (126) (123) (125) (118) (10n (122) 124 iltOSS INTERNALCASH GENERATION 284 248 511 608 609 0 0 0 0 0 0 1.728 o LsAM NTERESTCHARGEDTOOPERAT. 127 135 107 104 91 112 107 109 102 89 102 922 AMORTIZATION 34 159 482 249 256 178 146 160 166 146 125 1.908 DEBT SERVIE 161 294 59 353 348 289 253 269 267 235 227 2.830 5 NETINTEiRNALCASH GENERATION 123 (46) (78) 256 261 (2S9) (253) (269) (267) (235) (227) (1.102) GOVERNMENTCONTRIBUTION 29 255 259 100 0 0 0 0 0 0 0 359 OTERCONIRtBUTIONS 7 12 4 7 8 8 10 I1 12 11 12 84 0 TOTALOWN FUNDS 36 268 263 107 S S 10 11 12 11 12 443 LOANDISBURSE 9M S 66 83 576 304 250 127 84 107 77 52 59 1.636 TOTAL SOURCES 226 304 760 666 520 (154) (159) (151) (178) (171) (156) 978 DVESINETS 219 250 605 506 381 257 217 243 212 176 184 2.781 INlERESTDURINGCONSTRUCllON 0 9 10 14 34 IS IS 14 IS 20 0 144 NCDECR)WOKGCAPITAL 4 45 114 141 71 0 0 0 0 0 0 326 OtJHEl USFS 4 0 37 0 0 0 0 0 0 0 0 37 TOTALUSES 226 304 766 661 486 272 236 257 230 196 184 3.288 ( ANCIAL GAP) OR EXCEDENT (0) (0) (5) 5 33 (426) (394) (408) (408) (367) (340) (2.311) FDEDASSETS 1/ 4.287 4.395 4.823 5.152 5.372 5.444 5.469 5.504 5.512 5.485 5.44S CURRENT ASSETS &OTHER ASSETS 719 883 896 1.013 1.064 309 309 309 309 309 309 TOTAL ASSETS 5.006 5.279 5.719 6.165 6436 5.753 5.778 5.813 5.820 S.794 5.754 LONGlTERMDEBT 1.259 1.034 1.361 1.408 1.4S1 1.462 1.386 1.327 1.258 1.186 1.120 SHORTTERM&OTHERLIABILllES 263 230 239 249 258 269 279 289 300 312 324 TOTAL LlABIUllES 1.522 1.264 1.599 1.657 1.739 1.730 1.665 1.616 1.558 1.497 1.444 EQUITY 2.934 3.197 3.666 4.078 4.39S 0 0 0 0 0 0 TOTALECtUITYPLUSLIAB. 4457 4.461 5.266 5.735 6.137 1.730 1.665 1.616 1.558 1.497 1.444 v3UOMAC INDGR TAR1FF INCREASE FINAL CONSUMERS 34,8W8 26,20% 45,30% 13,36% 0,07% .100,00% Ufa n/a n/a ala J/a OPERATINRATIO 76,02%. 3,78%/ 65,69% 63,41% 65,52% 0,00% 0,00% 0,00% 0,00%o 000/o 000% RATE OF RETURN ON REV. ASSETS .7f58% 2.05% 8,74% 11,11% 10,85% 0,00% 0,00% 0,00% 0,00o 0,00% 0,00o %INTERN.GENJCONSTRUCT. 56,44% -17.79o -12,76% 49,12% 62,93% -106,32% -107,35% -104,So -116,30% -119,70% -123,05% DEBT SERVICE COVERAGE 1,77 0,S4 0,87 1,72 1,75 0,00 0,00 0,00 0,00 0,00 0,00 DEBT/(DEBT+EQITlY) RATIO 30,4% 24,0% 28,0% 26,9% 27,0% 30,1% 28,8% 27,8% 26,8o 25,8% 25,1% DISRlBUTIO)N MARGIN n/a nJa n/a n/a n/a n/a n/a m/a via n/a n/a I includes asses ravaabon. GUATEMALA * INDE _w _ 1y1 1992 * 3 "F Mi11 I IV"SEC I w Acl Actul - AVERAGEEXCHIANOERATE (uct. 4.30 5.06 5.06 5.06 5.06 5.06 506 S,06 S,06 5.06 5.06 1A~ 1OVi~A ( U a) 15 i493 1517 1371 142 1517 I4Z 1774 1912 2057 22W# 15.47( SALESTOOTIIERU IUiE (G(h) 90 100 114 123 133 144 155 168 11 I5 211 1.424 SALES FINAL CONSLIMERS (Gwh) 3S9 406 481 549 572 0 0 0 0 0 0 1.601 AVERAOERATE 7OEEGSA (A/wh) 13,86 17,6 27,30 32,84 32,84 32,84 32,84 32,84 32,S4 32,84 32,84 32,30 AVER. RATlE T OTHR U1L. (Wh 13,S6 16,6 2?,30 32,34 32,84 32,84 32,,4 32,84 32,84 32,84 32,40 AVER. RATE FINALCONSM . (/vb) 22,24 29,66 39,4 45,10 45,36 0,00 0,00 0,00 0,00 0,00 0,00 o,ao SALESTOEEOSA 220 258 414 453 480 498 539 583 628 676 726 4.996 SALESTOOTHERUTILITIES 12 17 31 40 44 47 S1 55 59 64 69 461 SALESFINALCONSUMERS 87 120 192 248 259 0 0 0 0 0 0 699 OTERREVENUES 0 0 65 0 0 0 0 0 0 0 0 67 TOTALREVENUES 319 395 702 741 783 546 591 638 688 740 795 6.224 FUEL 15 94 200 143 IS5 0 0 0 0 0 0 527 OPERATINGEXP.Exc.FteL) 1/ 184 198 212 214 218 0 0 0 0 0 0 645 TOTALOPERAINEXPENSES 199 292 412 357 404 0 0 0 0 0 0 1.172 OPERATI1NG INOME 120 103 290 385 380 S46 591 638 683 740 795 5.052 OTIHERNETINCOME (364) (18) 0 0 0 0 0 0 0 0 0 4 OTHERNETIN00MEFROMSECrOR 6 16 0 0 0 0 0 0 0 0 0 0 INERESTCHAROEDIOO RATONS 120 124 S3 S0 63 St 72 70 60 S0 61 621 NETINCOME (35S) (23) 208 305 317 465 519 568 628 691 734 4.435 GROSSINTERALCASHGENERATION 251 206 411 S05 500 0 0 0 0 0 0 IA16 Les :NTERESTCHAROEDTO OPERAT. 120 124 83 S0 63 81 72 70 60 50 61 621 AMORTIZATION 33 157 482 226 232 154 123 126 126 IIS 86 1.673 DEBTSERVK:E 153 281 565 305 296 235 195 197 16 168 148 2.294 NET INERNAL CASH GENERATION 98 (75) (154) 200 204 (235) (195) (19 (186) (168) (148) (878) (OVERNMTCONIRIBULMON 29 255 259 100 0 0 0 0 0 0 0 359 OTHERCONTRMUTIONS 2 0 0 0 0 0 0 0 0 0 0 0 S TOTAL OWN FUNDS 32 255 259 100 0 0 0 0 0 0 0 359 0 LOAN NDI3U ISEhENTS 66 68 429 252 209 79 34 51 29 2 5 1.0S9 TOTAL SOURCES 195 247 533 552 413 (156) (161) (145) (157) (166) (143) 571 INVESTMENT 175 186 513 398 289 152 108 12 los 65 65 1.820 nUERESIDtNG CONSIRUCllON 0 9 10 14 34 51 18 14 1S 20 0 144 M1DECR) WORKING CAPITAL 21 52 15 113 55 0 0 0 0 0 0 183 OTIIERuses 0 0 0 0 0 0 0 0 0 0 0 0 TOTALUSES 195 247 539 525 377 168 126 139 123 84 65 2.146 (FAC:IAL GAP) OR EXCEDENT (o) __o _ 27 36 (324) (288) (2S4) (280)_ (250) (208) (1L576 FDCED ASSETS if -3.773.91 4.364 h 8 4.55715 .5s4ss483 43 CURRENTASSETS&O`JWRASSETS 696 822 6S8 783 S24 272 272 272 272 272 272 II. TOTAL ASSETS 4.494 4.733 5.004 5.391 5.635 5.129 5.126 5.130 5.120 5.075 5.011 LONGTERM DEBT 1.258 1.021 1.224 1.244 1.299 1255S 1.162 1.088 999 914 S33 SHORTTERM&OTHERLIABILITIES 231 217 217 217 218 218 219 219 219 220 220 TOTAL LLABILIIES 1.488 1.238 1.442 1.462 1.517 1.473 1.381 1307 1.218 1.134 1.054 EQUIrY 2.495 2.752 3219 3.624 3.941 0 0 0 0 0 0 TOTAL EQUFrYPLUSLIAB. 3.983 3.990 4.661 5.0S6 5.458 1.473 1.381 1.307 1.218 1.134 1.054 MAR-90 l NOW-A MAL; CONSUMERS 30,03% 33,38%f 34,66% 12,92% 0,57% *100,00% n/a nta n/a nta nta OPERATDINGRATIO 62,39% 74,00% 58,63% 48,11% 51,52% 0,00% 0 0,00% 0,00%h 0,00% 0,00% 0,00o RATE OF RETURN ON REV ASSETS 4,04% 2,9S° 8,49% 11,24% 11,00% 0 0,00% 0,00% 0,00% 0,00% 0,00% 00% %INTERN.GENJCONSTRUCT. 5,S7% *38,71% -29,49% 48,47% 63,33% *140,10% -154,21% -14152°h 151,66% -198,99% -225,67% DEDTSERVICECOVERAOE IA4 073 073 165 169 000 000 000 000 000 0.00 DEBTI EBT+EQUlTY) RATIO 33,1% 26,2% 28,7 27% 26,9% 25,5° 23,S% 22,i% 21,0% aUTIONMAGIN Wna n/a na nla n/a nla nla nt nra na _ It tVIIUc sma ravaitat*c. Annex 9: New Fiscal Framework for Petroleum Sector % Gross Unit S.P. Profit Sharing $ 14/bbl ($ 1 0/bbl) 14 100 12 ~~~~~~~~oaRoy. 120 0 _ | 22% , 0| |R || || ;Operating Expenditutres _ >8 80 10 _ . " a Gove~~~rnment Share + Inc. Tx _ 8 Exploration & 60 . r I I I l S 01E g > 0 GL: ~~~~~Sh. Development ~~~~~35% 6 Expenditure 40 SHAREABLE OIL Comp. 4- Sh. 20 30% 2 Company Share Net of Inc. Tax 1 2 3 4 5 6 7 8 YEARS Assumptions Recoverable reserves 30 MM BBL Cost Recovery Operating Expenditure $9.9/B ff Total Govt. Take 65% Exploration 1.1 Development 2.0 g Government Take Company Take 35% Technical Ce.t $4.0/B Selling Price $14.0/B Gross Profit $10.0/B Company Take 123 Annex 10: Recoverable Reserves and Production Policies of Petroleum Sector Proven Recoverable Reserves: 21,185 ('000 bbls) Oil Field 1992 1993 1994 1995 1996 1997 1998 1999 2000 Total Rubelsanto 150 100 75 50 375 Chinaja 100 75 50 225 Caribe 300 250 200 150 100 50 1050 Tierra Blanca 400 350 300 250 200 150 100 50 1800 Subtotal 950 775 625 450 300 200 100 50 0 3450 XAN 2000 2000 2000 2000 1800 1600 1400 1300 1100 15200 Yalpemeh 50 250 150 100 50 600 Chocop 360 350 300 250 215 180 130 100 50 1935 Total 3360 3375 3075 2800 2365 1980 1630 1450 1150 21185 Probable Recoverable Reserves 18,587 ('000 bbl) Oil Field 1993 1994 1995 1996 1997 1998 1999 2000 Total Rubelsanto 1617 1380 1096 848 492 237 200 150 6020 Chinaja 100 50 150 Caribe 300 250 200 150 50 50 1000 Tierra Blanca 400 350 300 250 150 150 100 50 1750 Subtotal 2417 2030 1596 1248 692 437 300 200 8920 XAN 1100 770 540 380 260 180 130 100 3460 Yalpemech 200 100 50 350 Las Casas 961 1329 961 479 205 137 4072 Clhocop 360 350 300 250 215 180 130 1785 Total 5038 4579 3447 2357 1372 934 560 300 18587 Possible Recoverable Reserves: 17,570 ('000 bbls) Oil Field 1993 1994 1995 1996 1997 1998 1999 2000 Total Rubelsanto 780 1442 1224 1045 888 593 265 6970 Caribe 240 190 150 120 700 Tierra Blanca 200 150 100 450 Subtotal 240 1170 1742 1444 8120 XAN Yalpemech 0 540 520 400 320 270 250 200 150 2650 LasCasas 300 450 540 500 400 320 270 250 200 3230 Chocop 720 700 600 500 430 360 260 3570 Total 540 2160 3522 3044 2365 1978 1683 1403 875 17570 125 Annex 111: Financial Impact of Actual and Revised Contract This case has aggregated the Rubelsanto, Chinaja Oeste, Caribe and Tierra Blanca fields. The aggregation of the fields allows for the characterization of the fields as a single production unit for operational, cost, and economy of scale purposes. The overall input is reasonably reliable for the purpose of this analysis. For the sake of simplicity, it is assumed that past production and the prospective future production (issuing from proven and probable reserves) are aggregated and put on stream as of the beginning of 1990. The analysis disregards the economic impact of the 1975 Petroleum Law (changed in 1983 to provide for softer terms), so as to reflect the economic viability of the project in question for a newcomer under the present law. a) Technical assumdtions - proven recoverable reserves (16 MMB produced + 6 MMB producible): 22 MMB - probable recoverable reserves: 8 MMB - Total reserves 30 MMB - production period (starting 1990): 8 years - assumed production profile: Year 90 3.0 MMB 8,220 BOPD 91 4.5 MMB 12,330 BOPD 92 6.8 MMB 18,630 BOPD 93 6.8 MMB 18,630 BOPD 94 4.4 MMB 12,050 BOPD 95 2.6 MMB 7,120 BOPD 96 1.3 MMB 3,560 BOPD 97 0.6 MMB 1,640 BOPD 30.0 MMB b) Economic assumptions Unit cost Expend. MM$ MM$ - seismic 500 km 0.015 7.5 - exploration wells (3,300 m) 4 6.0 24.0 - development wells 13 3.5 45.5 - flowlines, treatm., gathering 15.0 - opex 3.5/yx8 28.0 127 128 Guatemala: Issues and Options in the Energy Sector total expendiures 120.0 unit cust of production: 120 = $ 4.0/B 30 Coban blend selling price (constant 1990) netted back to well head: (26°API, 3 %S): $ 13.8/B c) Expenditure schedule MM$ Year 84-86 seismic and exploraton drillig 31.5 Year 87-89 development drilling and infrastructure 60.5 Year 90 (start up of production) - 97 opex M8. 120.0 d) Fiscal terms royalty (260 API) 16% eincome tax 34% sharing of shareable oil (from Repsol): Oilron ion ompnv Governme (1000 BOPD) sbare h share 1 > 15 70 30 15 -30 65 35 30 - 40 60 40 40 - 50 55 45 50 - 60 50 50 60 - 70 45 55 70-85 40 60 85- 100 35 65 < 100 30 70 e) Results Company's NCF (real terms) 100.7 MM$ - Company's DCF (at 10%) 18.2 MM$ - Company's DCF (at 15%) 0.8 MM$ - Company's IRR 14.8% - Govermment's take (real terms) 193.2 MM$ - Goverment to Company profit ratio (%): 65.7/34.3 Annex 11. Financial Impact of Actual and Revised Contract 129 Remarks: (i) the Government take, percentage wise, is sufficiently high and in line with common practice elsewhere; (ii) Government participation in shareable oil starts in the latter part of the third year from start up of production; (iii) the company's rate of return can be considered fair, given the limited size of the assumed oil reserves. 2.4 Sensitivity on economics by chananF some oarameters in the base case 2.4.1 The base case under paragraph H - 2.3 above is re-analyzed after reducing by 20% the expaendi and increasing the Coban Blend S.P. to $ 15/B. Such changes may be considered Mugmigt& but not impossible to attain. (a) Revised assumptions Mm$ Seismic 6.0 Exploration wells 19.2 Development wells 36.4 Infrastucture 12.0 Opex ~2L4 Total expenditure 96.0 (constant 1990) Unit cost of production $ 3.2/B Coban blend S.P. $ 15.0/B (constant 1990) (b) Results - Company's NCF 125.0 MM$ DCF (10%) 32.2 MM$ DCF (20%) 1.4 MM$ IRR 21.0 % POT 7.7 years (1.7 years from start up of production) - Government take 229.0 MM$ - Government to company profit ratio (%) 64.9/35.1 130 Guatemala: Issues and Options in the Energy Sector Remarks: (i) the percent reduction in the Goverment's take is negligible, while its take in absolute terms is substantially higher; (ii) the Government participation starts in the latter part of the second year from start up of production; (iii) the company's IRR increases substantialy. The reduction of expenditures and the increase of the S.P. is obviously bendicial to both sides. Subcase 2: The base case is reexamined with the following parameters changed: - reduce by 10% the expenditures; - set the S.P. at $ 14.0/B; - allocate 10% of production to shareable oil, from start up of production; - allocate 90% of production minums royalty payment to cost recovery; - set a tlat royalty rate at 15% level. Results - Company's NCF 109.7 MM$ DCF (10%) 23.9 MM$ DCF (15%) 5.4 MM$ IRR (%) 17.7% POT 8.3 years (2.3 years from start up of production) - Government take 201.5 MM$ - Government to Company profit ratio (%) 65.3134.7 Remarks: (i) the Government has the advantage of participating in the sharing of production from the very beginning, even though such advantage relates to a modest 10% of the production, initially; this represents, however, an assured and earlier income; (ii) under the assumed cost and price scenario, and the slight changes in the fiscal terms, the company would still achieve an acceptable return on its investments; the impact on its return, which is attributable to the slight delay in recovering its costs (less than one year) is in the order of a fraction of 1%. Subcase 3 Refer to the base case, allocate 10% of production to shareable oil from start up of producion and allow recovery of interest on developmet inveslments. Annex 11. Fiancal Im pact of Actual and Revised Conact 131 - Company's NCF 110.4 MM$ DCF (10%) 22.0 MM$ DCF (15%) 3.0 MM$ IRR % 15.8 - Government take 183.5 MM$ - Government to Company profit ratio (%) 62.4/37.6 Remars: Allocation of 10% producdon to shareable oil from start up of prion - aUowing earlier government access to oil sharing - is compensed by reonmet of interest on development investment. ?cion 2.5 To conclude, it is n_ d that a slight che to the fiscal frame be enacted by: (a) convatng the sliding scale royalty rate into a flat 15% rate, (b) allocain 10% of the production of shareable oil from the begning of the production phase; and (c) alowing the company to recoup, out of the cost, of oil interest on development investments. his would accommodate both the companies (flat royalty rate) and the Govemen (earLer partiipation in sharing). Annex 12: The Petroleum Law and the Production Sharing Model Contract (P.S.C.) The main features of the P.S.C. are summrized as follows: Duration: Exploration six years, with an initial three year compulsory drilling phase and a subsequen three year optional drilling phase; withdrawal allowed at the end of the initial three year term. Area: Not to exceed 3000 Km2 onshore and 4800 km2 offshore. Relinquish_ents: 50% overall at the end of the fifh year; all the contract area, less exploitation areas, by the end of the sixth year. Work commitments: Drilling of one exploratory well within initial three years; drilling of two exploratory wells eah year, over the following three years; drilling of at least one development well per year, over four years, during development phase. Operatng costs: Totaly incurred by Contractor. Royalty: At a rate ranging between a ninimum 5% for a 150 API crude (or lower gravity) to 20% for a 300 API crude, such latter rate increasing or decreasing by 1% for each 10 API increase or decrease; royalty to be paid in cash or in kind, at State's option. Recovery of costs: Out of total production, after deduction of royalty. State participation: "Shareable oil" remaining after royalty payment and recovery of costs, accmes to the State in percentges ranging between a minimum 30% and 70%, according to increasing levels of production. The complement to 100% accrues to Contractor. income tax:Due on Contractor's taxable income at the rate of 34%; interest on Conactor's capital cosut not allowed as a deducble item. 133 134 Guatemala: Issues and Options in the Energy Sector Contractor's proceeds: May be retained abroad to the extent not needed to meet payments accruing to the State (royalty, State participation, income tax). Training contributions: Different amounts (to be agreed), according to whether operations relate to exploration phase or to production phase. Welfare contributions: Amount to be agreed. Internal market supply: Contractor's crude oil entitlement to the extent needed or at 55% level, whichever is greater (this sounds odd; it should be the other way around!); however, the State is committed to assign initially to internal consumption the share of crude accniing to it. Surface rentals: Amounts to be agreed. Additional Comments to Production Sharing Contract 1. Term of Contract. A 25 year overall term (including production) is overly restrictive in the event of the discovery of a sizeable field in the 6th year, developed over the following 4 years, and exploited during the ensuring 15 years. Provision for a 5 year extension is recommended, subject to the existence of economically recoverable residual reserves. 2. Assignmnt Assignment of a company's interest to an affiliate should be allowed without prior approval of the Ministry, subject to the parent company's guarantee of its afffliate's compliance with the transferred commitments. 3. Termination. Specify that contractor's decision to terminate the contact at any time during the "compulsory drilling" 3 year exploration phase is subject to compliance with its work obligation, or corresponding penalty payment thereof. Specify whether the "optional drilling" second three year exploration phase is a one year at a time phase, whereby contractor can withdraw at each year end, from the fourth to the sixth. 4. Approval of a commercial discovery and releva development plan. While the Regulations of the Hydrocarbon Law provide for the Ministry to approve (or disapprove a notification of commercial discovery and the relevant development plan within 70 days from the date of its submission, no provision governs the event that no response comes from the Ministry within said time limit. It is suggested that lack of response within the prescribed time limit be deemed as a tacit approval, in as much as production from the discovery (appraisal) well(s) prior to such approval is subject to a higher royalty rate of 35%. Consumption of Petroleum Products (bbls) Product 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 199 .Super 97 944 971 798 813 690 692 806 912 1043 1008 890 916.7 G. Reglar 1263 1064 g17 1152 1247 1319 1283 1414 107 1621 1700 1509 1554.27 Kerosme 484 562 534 456 471 451 373 275 271 288 275 195 Diesel 3662 3409 3048 2812 3048 2820 2815 3294 375 3635 4335 4387 4650.22 Fuel Oil 3314 2315 1817 1517 1673 821 900 1046 1118 1078 1264 1830 C LPG 509 544 572 665 738 858 951 1023 1094 1118 1003 1224 x Others 1223 1339 1329 908 1075 1049 503 776 786 798 854 345 -7121.19 Total 11422 10177 9198 8308 90S 8008 7516 8634 9263 9581 10439 10400 - Change % -10.90 -9.62 -9.68 9.11 -11.66 -6.14 14.87 7.29 3.43 8.96 -0.37 -100.00 0 C % ot Total 3 G) G.Super 8.47 9.28 10.01 9.61 8.97 8.62 9.21 9.34 9.85 10.89 9.66 8.56 @1 G. Reglar 11.06 10.45 10.62 13.87 13.76 16.47 17.07 15.38 16.27 16.92 16.29 14.51 C Kerosine 4.24 5.52 5.81 5.49 5.20 5.63 4.96 3.19 2.93 3.01 2.63 1.88 Diesel 32.06 33.50 33.14 33.85 33.62 35.21 37.44 38.15 38.59 37.94 41.53 42.18 CSD Fuel Oil 29.01 22.75 19.75 18.26 18.46 10.25 11.97 12.11 12.07 11.25 12.11 17.79 LPG 4.46 5.35 6.22 8.00 8.14 10.71 12.65 11.85 11.81 11.67 9.61 11.77 0 Odiers 10.71 13.16 14.45 10.93 11.86 13.10 6.69 8.99 8.49 8.33 8.18 3.32 a Total 100 100 100 100 100 100 100 100 100 100 100 1o0 Sup+Reg 19.52 19.73 20.63 23.47 22.72 25.09 26.28 25.71 26.11 27.81 245.94 23.07 0 Retail Prices (QlGal) Q/1000 lbs/QIOa lL Date Premium Regular Kerosene Diesel Fuel oi mu l Feb 80 1.92 1.88 0.87 0.98 064 20.4 0.744 ( 0 Aug 80 2 1.96 0.9 1.03 0.62 20.4 0.744 C Jul81 2.09 2.04 1.12 1.24 0.899 20.4 0.744 to i Seot 82 1.95 1.9 1.12 1.2 0.848 20.3 0.740 Nov 83 2.07 1.9 1.09 1.17 0.7203 20.3 0.740 3 Jul 85 3.1 2.9 1.09 1.17 0.7287 20.3 0.740 3 Jan 86 3.1 2.9 22.05 1.7 1.56 23 0.839 =9 Aug 88 3.25 3.05 2.42 2.25 1.45 27 0.985 Aug 89 3.31 3.11 2.48 2.31 1.48 23.95 0.874 Nov 89 3.9 3.7 3 2.7 1.75 28 1Uf21, Sept 90 6.95 6.75 6.55 2.7 1.75 56.95 2.077 Dec 80 9.6 9.4 9.1 5.95 2.4 82.25 3.000 Feb 91 9.6 8.95 8.4 5.95 3.4 82.25 3.000 Annex 14: Price Structure Region Iteraon Fomua A FOB B Freight FM Worldscale*(AFRA +/-premium)*factor utiliztionIc C insuance C = 0.06% * (A + B) D Transit losses D = 0.5% * A (Gasol.): 0.35% * A (oeros. Y Diesel) E CIF E = A +B + C + D F Port Charges * Bank's Commission H Import cost H = E+F+G I Terminal cost J Tenninal's utilities K Ex-terminal cost K = H+I+J L Competion L=M-K Refinery/Imports M Ex-refliy price N Distnbution costs 0 Freight P Wholesala costs P = M + N + O Q Municipal tax R National tax S Sub-total S = P + Q + R T Compenation T=U-S U Price of wholesale to retailer U=X-W-V V Tempeatur correcdon V = 1% * U (gasolineKerosene); 0.96% * U (diesel) W Cost for retail storage X Retail prce Y Net comY n L + T 137 Annex 15: Descripion of Petroleum Pricing System for Guatemala 139 Annex 15: Description of Petrolewn Pricing System for Guatemala 140 ~~~~0.e~~~~~~e ~~~~ - - - _ ~~~~~~~~ + - '| i t " ; R i t E 8 e . 8 8 ; 3 R 3 ¢ E ° 8 . o g . s g s t 7 ! § 2 g g X o W i 5tEl0RER84lgi3sle ERi.RqEeF3 ".288E85b< 0 LEVEL AND STRUCTURE OF PETROLEUM PRODUCT PRICES UNDER DIFFERENT PRICING SYSTEMS PRBEMKM REULAR KEROSENE DIESEL FUEL OIL L!P CYL LPG G+A AVnr ABSOLUTE PPIEUS DN CENTAVOWS/AL C[P PRICE 382.94 361.99 350.59 330.35 156.30 275.26 275.26 367.92 A 960.00 89S.00 845.00 595.00 340.00 300.00 400.00 1100.00 B1 906.14 879.43 649.31 644.33 371.89 458.96 458.96 1001.82 B2 896.38 871.72 583.21 566.99 362.12 4S8.96 458.96 953.05 B3 778.68 743.32 593.91 625.84 372.82 469.66 469.66 792.55 Cl 729.03 695.96 670.38 646.04 371.34 515.91 515.91 672.68 C2 739.27 705.65 634.75 647.81 358.79 493.82 517.38 753.38 PRICE A = 1 CDF PICE 0.399 0.404 0.415 0.555 0.460 0.918 0.688 0.334 B1 0.944 0.983 0.768 1.083 1.094 1.530 1.147 0.911 B2 0.934 0.974 0.690 0.953 1.065 1.30 1.147 0.866 33 0.811 0.831 0.703 1.052 1.097 1.566 1.174 0.720 Cl 0.759 0.778 0.793 1.06 1.092 1.720 1.290 0.612 C2 0.770 0.788 0.751 1.089 1.055 1.646 1.293 0.685 CD PRICE I A 2.507 2.472 2.410 L.80I 2.175 1.090 1.453 2.990 BI 2.366 2.429 1.852 1.950 2.379 1.667 1.667 2.723 E2 2.341 2.408 1.663 1.716 2.317 1.667 1.667 2.590 B3 2.033 2.053 1.694 1.894 2.385 1.706 1.706 2.154 Cl 1.904 1.923 1.912 1.956 2.376 1.874 1.874 1.828 C2 1.931 1.949 1.810 1.961 2.296 1.794 1.880 2.048 PRICE DESEL - I CIF PRICE 1.159 1.096 1.061 1.000 0.473 0.833 0.833 1.114 A 1.613 1.504 1.420 1.000 0.571 0.504 0.672 1.849 31 1.406 1.365 1.008 1.000 0.57 0.712 0.712 I.555 B2 1.581 1.537 1.029 1.000 0.639 0.809 0.809 1.681 B3 1.244 1.188 0.949 1.000 0.596 0.7S0 0.750 1.266 Cl 1.128 1.077 1.038 1.000 0.575 0.199 0.799 1.041 C 1.141 1.089 0.980 1.000 0.554 0.762 0.799 1.163 LEVEL AND STRUCTURE OF PETROLEUM PRODUCT PRICES UNDER DIFFERENT PRICING SYSTEMS PREMIUM REGULAR KEROSENE DESEL FUEL OIL LPG CYL LPG G+A AVIEr ABSOLUTE PRICES IN CENTAVOSWGAL CIF PRICE 382.94 361.99 350.59 330.35 156.30 275.26 275.26 367.92 A 960.00 895.00 845.00 595.00 340.00 300.00 400.00 1100.00 DI 906.14 879.43 649.31 644.33 371.89 458.96 458.96 1001.82 B2 896.38 871.72 583.21 566.99 362.12 458.96 458.96 953.05 B3 778.68 743.32 593.91 625.84 372.82 469.66 469.66 792.55 Cl 729.03 695.96 670.38 646.04 371.34 515.91 515.91 672.68 C2 739.27 705.65 634.75 647.81 358.79 493.82 517.38 753.38 PRICE A - I-. CF PRICE 0.399 0.404 0.415 0.555 0.460 0.918 0.688 0.334 I Bl 0.944 0.983 0.768 1.083 1.094 1.530 1.147 0.911 o B2 0.934 0.974 0.690 0.953 1.065 1.530 1.147 0.866 B3 0.811 0.831 0.703 1.052 1.097 1.566 1.174 0.720 O Cl 0.759 0.778 0.793 1.086 1.092 1.720 1.2°0 0.612 C2 0.770 0.788 0.751 1.089 1.055 1.646 1.293 0.685 CF PRICE = I A 2.507 2.472 2.410 1.801 2.175 1.090 1.453 2.990 3 Bl 2.366 2.429 1.852 1.950 2.379 1.667 1.667 2.723 B2 2.341 2.408 1.663 1.716 2.317 1.667 1.667 2.590 B3 2.033 2.053 1.694 1.894 2.385 1.706 1.706 2.154 Cl 1.904 1.923 1.912 I.M56 2.376 1.874 1.874 1.828 C2 1.931 1.949 1.810 1.961 2.296 1.794 1.880 2.048 f PRICE DESEL-1 I CF PRICE 1.159 1.096 1.061 1.000 0.473 0.833 0.833 1.114 A 1.613 1.504 1.420 1.000 O.S71 0.504 0.672 1.849 - Rl 1.406 1.365 1.008 1.000 0.577 0.712 0.712 1.555 B2 1.581 1.537 1.029 1.000 0.639 0.809 0.809 1.681 B3 1.244 1.188 0.949 1.000 0.596 0.750 0.750 1.266 C1 1.128 1.077 1.038 1.000 0.575 0.799 0.799 1.041 C2 1.141 1.089 0.980 1.000 0.554 0.762 0.799 1.163 Annex 16: Direct Loss and Returns From a Multipurpose Tree Plantation - Las Chapernas (Quetzales/hectare) Year Operation Total Inputs & Costs First Rent to land Q. 3000/ha @ 5%/yr Q. 150.000 Depreciation on fixed investment 20.00 of Q.200/ha for tools, etc. at 10% Cost of seedlings, 2,500 at QO.20 500.00 Opening of planting holes 52.50 Distribution of seedlings in field 49.00 Planting of seedlings 60.20 Weeding around seedlings 89.60 Total Q. 921.30 Second Rent to land 150.00 Weeding around seedlings 89.60 Weeding between tree rows 175.00 Total Q. 414.60 Third Rent to land 150.00 Weeding around seedlings 89.60 Weeding between tree rows 175.00 Total Q. 414.60 Fourth Rent to land 150.00 Weeding between tree rows 84.00 Total Q. 234.00 Fifth Rent to land Q. 150.00 Sixth Rent to land Q. 150.00 Seventh Rent to land 150.00 Tree felling 56.00 Cutting to post dimensions 126.00 Cutting into fuelwood 196.00 Piling posts 17.50 Piling fuelwood 38.50 Total Q. 584.00 Total Costs Q. 2,868,50 Outputs & Retums Seventh Rent to land 4,200.00 Sale of fuelwood at roadside, 46.8 465.00 steres @ Q.9.93 Total Revenue Q. 4,665.00 Note: Daily cost of labour - Q.7/-. Source: Adapted from "Analisis Financiero de una plantacion de Caesalpinia velutina en la Costa Sur de Guatemala." 143 144 Guatemala: Issues and Options in the Energy Sector Direct Cost and Returns From a Fuelwood Plantation - Las Chapernas "A" (Quetzales/hectare) Year Operation Total Inputs % Costs First to fourth Rent to land - 4 years at Q. 150 600.00 Raising and maintaining plantation 1,384.50 Q. 1,984.50 Fifth Rent to land 150.00 Tree felling 186.62 Cutting into fuelwood 662.13 Moving fuelwood to loading point 124.15 Total Q. 1,122.90 Q. 3,107.40 Outputs and Returns Fifth Sale of fuelwood at roadside, 148.07 steres @Q.15.63 Q. 2,314.33 Source: Adapted from "Estudio de Rendimientos y Costos de Faenas para la Produccion de Arboles de Uso Mdltiple en Guatemala". Annex 17: Fuelwood Market Distribution Channels Some contractors buy from producers at the roadside and sell directly to woodyards in the cities. Some woodyard owners buy directly at the roadside, transport to their yard, split the wood and sell to the public. The following five cases illustrate the foregoing: * A farmer whose land includes an area of natural forest sells the right to cut a small volume of fuelwood for domestic use to a neighboring farmer. In this case the costs involved are those o the farmer's labor cost and cutting rights charged by the land's owner of land. * A laborer who cuts one carga of wc d in a matorral about 50 km from the Capital, carries it to the roadside i iere he sells it to a woodyard operator who transports it to the Capital for sale in his woodyard. * A farmer who has raised an agroforestry plantation on his own or rented land and sells the best quality trees for poles and small timbers and the remainder for fuelwood. i A farmer in the same region who sells all the trees from his plantation for fuelwood to a woodyard operator who sells it in a nearby city. * The operator of a small woodyard within 20 km of the capital who buys pick- up loads o fuelwood delivered at his yard where he retails it to the public. 145 146 Guatemala: Issues and Options in the Energy Sector Fuelwood Financial Costs and Market Prices Quetzales/Carga Case I Case 2 Case 3 Case4 Case S Source of Fuelwood Adjoining Area of Agroforestr Fuelwood Rural farmer's land matorral y planation plantation Woodyard Species Mixed broad- Oak Caesalpinia Leucaena Mixed leaves velutina Leucocephala broadleaves Cutting rights harge 4.00 by owner Growing and 3.20 (logging 1.52 6.36 logging cost only) Roadside cost 7.20 6.00 1.52 6.36 Purchase price by 6.00 3.00 4.70 10.00(at wood- woodyard operator yard gate) Transport at Q.0.0- 2.00 (80 1.13 (45 0.25 (10 km) 25/cargalkan kin) kin) Loading/ unloading 0.25 0.25 0.25 (assumed) Splitting into lenos 0.50 0.50 0.50 0.50 (assumed) Woodyard Operating 0.50 0.40 0.40 0.40 Costs (Assumed) Cost to woodyard 9.25 5.28 6.10 10.90 operator Sales price to 0.25 0.08 0.09 0.15 consumer/leno Equivalent sales 20.00 6.40 7.20 12.00 price/ carga Annex 18: Environment: Institutional and Legal Aspects of Environmental Policy 1. Objectives and Institutions. Guatemala's environmental law, Decree 68-86, entitled "Protection and Improvement of the Environment" created the legal foundation for the regulation of the enviromnental sector as well as the environmental agency CONAMA (Comisi6n Nacional del Medio Ambiente), the executive organ charged with implementing this law. 2. The Environmental Law is based on two principles: * The protection and the improvement of the environment and of natural and cultural resources are the basic prerequisites for the country's social and economic development; o Guatemala recognizes the U.N. iesolution regarding the environment (Stockhelm, 1972). 3. CONAMA. The environmental agency CONAMA, whose head reports directly to the President of the Republic, is charged taking these principles into account. CONAMA has a legal mandate to impose sanctions, including fines and the suspension of licenses, and it can set deadlines for the implementationt of corrective measures which it requires offenders to carry out. Fines are paid into the common fund of ths Treasury and the money is used for CONAMA's programs. According to its statutes, the coordinator of CONAMA, who is appointed by the President of the Republic, has at his disposal a technical advisory council, a team of specialists and a team of administrators. The technical advisory council (Consejo T6cnico Asesor) is composed of 10 members: one appointed delegate and one representative each from 9 different institutions. 4. CONAP. In addition, the "Protected Areas Law," Decree 4-89, established the specialized agency CONAP (Consejo Nacional de Areas Protegidas) and the procedures to be followed to officially designate an area as protected. CONAP is a council consisting of 14 members who represent various institutions and organizations. Although CONAP is subject directly to the authority of the President of the Republic, it is presided over the coordinator of CONAMA and thus is also subject to the authority of CONAMA. 5. Protected Areas. On the basis of an inventory of all characteristics (physical, social, economic, cultural, biotic), a given area, which may be further subdivided into sub-areas falling into specific protection categories, is provided with an appropriate classification under the Guatemalan System of Protected Areas (SIGAP). In accordance with the provisions which apply 147 148 Guatemala: Issues and Options in the Energy Sector to each category, a master plan must be prepared, on the basis of which an annual plan of operations is prepared. For the year in question, the plan of operations specified all permissible activities and types of resource utilization within the area as well as any conditions or environmental standards which must be met. 6. Also, a total of six biotype and 44 areas have been placed under special protection. They have not yet been officially designated as protected areas and inventories have not yet been carried out in them. 7. CONAP has the task of supervising and coordinating SIGAP and of evaluating the master plans and plans of operation that are required under the Protected Areas Law. All enterprises which are currently operating in protected areas or wish to set up operations in such areas have to conclude a contract with CONAP setting forth the conditions and standards for the continuation or initiation of their activities. These terms are established on the basis of an EIA that is prepared by the interested enterprise and subsequently evaluated by CONAP. Joint UNDP/World Bank ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) LIST OF REPORTS ON COMPLETED ACTIVIES Region/Countsy Atdvity/Report Title Dkte Number SUB-SAHARAN AFRICA (AFR) Africa Regional Anglophone Africa Household Energy Workshop (English) 07/88 085/88 Regional Power Seminar on Reducing Electric Power System Losses in Africa (English) 08/88 087/88 Institutional Evaluation of EGL (English) 02/89 098/89 Biomass Mapping Regional Workshops (English - Out of Print) 05/89 - Francophone Household Energy Workshop (French) 08/89 103/89 Interafrican Electrical Engineering College: Proposals for Short- and Long-Term Development (English) 03/90 112/90 Biomass Assessment and Mapping (English - Out of Print) 03/90 -- Angola Energy Assessment (English and Portuguese) 05/89 4708-ANG Power Rehabilitation and Technical Assistance (English) 10/91 142/91 Benin Energy Assessment (English and French) 06/85 5222-BEN Botswana Energy Assessment (English) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Household Energy Issues Study (English - Out of Print) 02/88 - Urban Household Energy Strategy Study (English) 05/91 132/91 Burkina Faso Energy Assessment (English and French) 01/86 5730-BUR Technical Assistance Program (English) 03/86 052/86 Urban Household Energy Strategy Study (English and French) 06/91 134/91 Burundi Energy Assessment (English) 06/82 3778-BU Petroleum Supply Management (English) 01/84 012/84 Status Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five-Year Plan (1983-1987) (English and French) 05/85 036/85 Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85 Peat Utilization Project (English) 11/85 046/85 Energy Assessment (English and French) 01/92 9215-BU Cape "'erde Energy Assessment (English and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90 Central African Republic Energy Assessement (French) 08/92 9898-CAR Comoros Energy Assessment (English and French) 01/88 7104-COM Congo Energy Assessment (English) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90 C6te d'Ivoire Energy Assessment (English and French) 04/85 5250-IVC Improved Biomass Utilization (English and French) 04/87 069/87 Power System Efficiency Study (Out of Print) 12/87 - Power Sector Efficiency Study (French) 02/92 140/91 Ethiopia Energy Assessment (English) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 149 Regioa/Couwtiy Activily/Repoil ltle Date Number Ethiopia Agricultural Residue Briquetting Pilot Project (English) 12/86 062/86 Bagasse Study (English) 12/86 063/86 Cooking Efficiency Project (English) 12/87 -- Gabon Energy Assessment (English) 07/88 6915-GA The Gambia Energy Assessment (English) 11/83 4743-GM Solar Water Heating Retrofit Project (English) 02/85 030/85 Solar Photovoltaic Applications (English) 03/85 032/85 Petroleum Supply Management Assistance (English) 04/85 035/85 Ghana Energy Assessment (English) 11/86 6234-GH Energy Rationalization in the Industrial Sector (English) 06/88 084/88 Sawmill Residues Utilization Study (English) 11/88 074/87 Guinea Energy Assessment (Out of Print) 11/86 6137-GUI Guinea-Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB Recommended Technical Assistance Projects (English & Portuguese) 04/85 033/85 Management Options for the Electric Power and Water Supply Subsectors (English) 02/90 100/90 Power and Water Institutonal Restructuring (French) 04/91 118/91 Kenya Energy Assessment (English) 05/82 3800-KE Power System Efficiency Study (English) 03/84 014/84 Status Report (English) 05/84 016/84 Coal Conversion Action Plan (English - Out of Print) 02/87 -- Solar Water Heating Study (English) 02/87 066/87 Peri-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English - Out of Print) 11/87 -- Lesotho Energy Assessment (English) 01/84 4676-LSO Liberia Energy Assessment (English) 12/84 5279-LBR Recommended Technical Assistance Projects (English) 06/85 038/85 Power System Efficiency Study (English) 12/87 081/87 Madagascar Energy Assessment (English) 01/87 5700-MAG Power System Efficiency Study (English and French) 12/87 075/87 Malawi Energy Assessment (English) 08/82 3903-MAL Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy Assessment (English and French) 11/91 8423-MLI Household Energy Strategy (English and French) 03/92 147/92 Islamic Republic of Mauritania Energy Assessment (English and French) 04/85 5224-MAU Household Energy Strategy Study (English and French) 07/90 123/90 Mauritius Energy Assessment (English) 12/81 3510-MAS Status Report (English) 10/83 008/83 Power System Efficiency Audit (English) 05/87 070/87 Bagasse Power Potential (English) 10/87 077/87 Mozambique Energy Assessment (English) 01/87 6128-MOZ Household Electricity Utilization Study (English) 03/90 113/90 Namibia Energy Assessment (English) 03/93 11320-NAM 150 Region/Country Activity/Report Ttle Date Number Niger Energy Assessment (French) 05/84 4642-NIR Status Report (English and French) 02/86 051/86 Improved Stoves Project (English and French) 12/87 080/87 Household Energy Conservation and Substitution (English and French) 01/88 082/88 Nigeria Energy Assessment (English) 08/83 4440-UNI Energy Assessment (English) 07/93 11672-UNI Rwanda Energy Assessment (English) 06/82 3779-RW Energy Assessment (English and French) 07/91 8017-RW Status Report (English and French) 05/84 017/84 Improved Charcoal Cookstove Strategy (English and French) 08/86 059/86 Improved Charcoal Production Techniques (English and French) 02/87 065/87 Commercialization of Improved Charcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) 12/91 141/91 SADCC SADCC Regional Sector: Regional Capacity-Building Program for Energy Surveys and Policy Analysis (English) 11/91 -- Sao Tome and Principe Energy Assessment (English) 10/85 5803-STP Senegal Energy Assessment (English) 07/83 4182-SE Status Report (English and French) 10/84 025/84 Industrial Energy Conservation Study (English) 05/85 037/85 Preparatory Assistance for Donor Meeting (English and French) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Seychelles Energy Assessment (English) 01/84 4693-SEY Electric Power System Efficiency Study (English) 08/84 021/84 Sierra Leone Energy Assessment (English) 10/87 6597-SL Somalia Energy Assessment (English) 12/85 5796-SO Sudan Management Assistance to the Ministry of Energy and Mining 05/83 003/83 Energy Assessment (English) 07/83 4511-SU Power System Efficiency Study (English) 06/84 018/84 Status Report (English) 11/84 026/84 Wood Energy/Forestry Feasibility (English - Out o0 Print) 07/87 073/87 Swaziland Energy Assessment (English) 02/87 6262-SW Tanzania Energy Assessment (English) 11/84 4969-TA Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 -- Industrial Energy Efficiency Technical Assistance (English - Out of Print) 08/90 122/90 Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86 Power Efficiency Improvement (English and French) 12/87 078/87 Uganda Energy Assessment (English) 07/83 4453-UG Status Report (English) 08/84 020/84 Institutional Review of the Energy Sector (English) 01/85 029/85 Energy Efficiency in Tobacco Curing Industry (Englii.,) 02/86 049/86 Fuelwood/Forestry Feasibility Study (English) 03/86 053/86 151 Region/Counby ActivitylReporft Rte Date Number Ugamda Power System Efficiency Study (English) 12/88 092/88 Energy Efficiency Improvement in the Brick and Tile Industry (English) 02/89 097/89 Tobacco Curing Pilot Project (English - Out of Print) 03/89 UNDP Terminal Report Zaire Energy Assessment (English) 05/86 5837-ZR Zambia Energy Assessment (English) 01/83 4110-ZA Status Report (English) 08/85 039/85 Energy Sector Institutional Review (English) 11/86 060/86 Power Subsector Efficiency Study (English) 02/89 093/88 Energy Strategy Study (English) 02/89 094/88 Urban Household Energy Strategy Study (English) 08/90 121/90 Zimbabwe Energy Assessment (English) 06/82 3765-ZIM Power System Efficiency Study (English) 06/83 005/83 Status Report (English) 08/84 019/84 Power Sector Management Assistance Project (English) 04/85 034/85 Petroleum Management Assistance (English) 12/89 109/89 Power Sector Management Institution Building (English - Out of Print) 09/89 Charcoal Utilization Prefeasibility Study (English) 06/90 119/90 Integrated Energy Strategy Evaluation (English) 01/92 8768-ZIM EAST ASIA AND PACIFIC (EAP) Asia Regional Pacific Household and Rural Energy Seminar (English) 11/90 -- China County-Level Rural Energy Assessments (English) 05/89 101/89 Fuelwood Forestry Preinvestment Study (English) 12/89 105/89 Fiji Energy Assessment (English) 06/83 4462- FL Indonesia Energy Assessment (English) 11/81 3543-IND Status Report (English) 09/84 022/84 Power Generation Efficiency Study (English) 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries (English) C 1/87 067/87 Diesel Generating Plant Efficiency Study (English) 12/88 095/88 Urban Household Energy Strategy Study (English) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II (English) 12/90 124/90 Lao PDR Urban Electricity Demand Assessment Study (English) 03/93 154/93 Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87 Gas Utilization Study (English) 09/91 9645-MA Myaunmar Energy Assessment (English) 06/85 5416-BA Papua New Guinea Energy Assessment (English) 06/82 3882-PNG Status Report (English) 07/83 006/83 Energy Strategy Paper (English - Out of Print) - -- Institutional Review in the Energy Sector (Einglish) 10/84 023/84 Power Tariff Study (English) 10/84 024/84 152 Region/Countiy Activy/Report Title Date Number Philippines Commercial Potential for Power Production from Agricultural Residues (English) 12/93 157/93 Solomoa Islands Energy Assessment (English) 06/83 4404-SOL Energy Assessment (English) 01/92 979/SOL South Pacific Petroleum Transport in the South Pacific (English-Ou: of Print) 05/86 -- Thailand Energy Assessment (English) 09/85 5793-TH Rural Energy Issues and Options (English - Out of Print) 09/85 044/85 Accelerated Dissemination of Improved Stoves and Charcoal Kilns 'English - Out of Print) 09/87 079/87 Northeast Region Village Forestry and Woodfuels Preinvestment Study (English) 02/88 083/88 Impact of Lower Oil Prices (English) 08/88 -- Coal Development and Utilization Study (English) 10/89 -- Tonga Energy Assessment (English) 06/85 5498-TON Vanuatu Energy Assessment (English) 06/85 5577-VA Western Samoa Energy Assessment (English) 06/85 5497-WSO SOUTH ASIA (SAS) Bangladesh Energy Assessment (English) 10/82 3873-BD Priority Investment Program 05/83 002/83 Status Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scale Uses of Gas Prefeasibility Study (English - (Out of Print) 12/88 -- India Opportunities for Commercialization of Nonconventional Energy Systems (English) 11/88 091/88 Maharashtra Bagasse Energy Efficiency Project (English) 05/91 120/91 Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. 1, II and III (English) 07/91 139/91 WindFarm Pre-Investment Study (English) 12/92 150/92 Nepal Energy Assessment (English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Energy Efficiency & Fuel Substitution in Industries (English) 06/93 158/93 Pakistan Household Energy Assessment (English - Out of Print) 05/88 -- Assessment of Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 Sri Lanka Energy Assessment (English) 05/82 3792-CE Power System Loss Reduction Study (English) 07/83 007/83 Status Report (English) 01/84 010/84 Industrial Energy Conservation Study (English) 03/86 054/86 153 Region/Country Activity/Report Title Date Number EUROPE AND CENTRAL ASIA (ECA) Eastern Europe The Future of Natural Gas in Eastern Europe (English) 08/92 149/92 Poland Energy Sector Restructuring Program Vols. I-V (English) 01/93 153/93 Portugal Energy Assessment (English) 04/84 4824-PO Turkey Energy Assessment (English) 03/83 3877-TU MIDDLE EAST AND NORTH AFRICA (MNA) Morocco Energy Assessment (English and French) 03/84 4157-MOR Status Report (English and French) 01/86 048/86 Syria Energy Assessment (English) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89 Energy Efficiency Improvement in the Fertilizer Sector(English) 06/90 115/90 Tunisia Fuel Substitution (English and French) 03/90 -- Power Efficiency Study (English and French) 02/92 136/91 Energy Management Strategy in the Residential and Tertiary Sectors (English) 04/92 146/92 Yemen Energy Assessment (English) 12/84 4892-YAR Energy Investment Priorities (English - Out of Print) 02/87 6376-YAR Household Energy Strategy Study Phase I (English) 03/91 126/91 LATIN AMERICA AND THE CARIBBEAN (LAC) LAC Regional Regional Seminar on Electric Power System Loss Reduction in the Caribbean (English) 07/89 -- Bolivia Energy Assessment (English) 04/83 4213-BO National Energy Plan (English) 12/87 -- National Energy Plan (Spanish) 08/91 131/91 La Paz Private Power Technical Assistance (English) 11/90 111/90 Natural Gas Distribution: Economics and Regulation (English) 03/92 125/92 Prefeasibility Evaluation Rural Electrification and Demand Assessment (English and Spanish) 04/91 129/91 Private Power Generation and Transmission (English) 01/92 137/91 Chile Energy Sector Review (English - Out of Print) 08/88 7129-CH Colombia Energy Strategy Paper (English) 12/86 -- Costa Rica Energy Assessment (English and Spanish) 01/84 4655-CR Recommended Technical Assistance Projects (English) 11/84 027184 Forest Residues Utilization Study (English and Spanish) 02/90 108/90 Dominican Republic Energy Assessment (English) 05/91 8234-DO Ecuador Energy Assessment (Spanish) 12/85 5865-EC Energy Strategy Phase I (Spanish) 07/88 -- Energy Strategy (English) 04/91 -- Private Minihydropower Development Study (English) 11/92 -- 154 Region/County Actvity/Report Title Date Number Guatemala Issues and Options in the Energy Sector (English) 09/93 12160-GU Haiti Energy Assessment (English and French) 06/82 3672-HA Status Report (English and French) 08/85 041/85 Household Energy Strategy (English and French) 12/91 143/91 Honduras Energy Assessment (English) 08/87 6476-HO Petroleum SupDly Management (English) 03/91 128/91 Jamaica Energy Assessment (English) 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study (English) 11/86 061/86 Energy Efficiency Building Code Phase I (English-Out of Print) 03/88 -- Energy Efficiency Standards and Labels Phase I (English - Out of Print) 03/88 -- Management Information System Phase I (English - Out of Print) 03/88 -- Charcoal Production Project (English) 09/88 090/88 FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88 Energy Sector Strategy and Investment Planning Study (English) 07/92 135/92 Mexico Improved Charcoal Production Within Forest Management for the State of Veracruz (English and Spanish) 08/91 138/91 Panama Power System Efficiency Study (English - Out of Print) 06183 004/83 Paraguay Energy Assessment (English) 10/84 5145-PA Recommended Technical Assistance Projects (English- (Out of Print) 09/85 Status Report (English and Spanish) 09/85 043/85 Peru Energy Assessment (English) 01/84 4677-PE Status Report (English - Out of Print) 08/85 040/85 Proposal for a Stove Dissemination Program in the Sierra (English and Spanish) 02/87 064/87 Energy Strategy (English and Spanish) 12/90 -- Saint Lucia Energy Assessment (English) 09/84 5111-SLU St. Vincent and the Grenadines Energy Assessment (English) 09/84 5103-STV Trinidad and Tobago Energy Assessment (English - Out of Print) 12/85 5930-TR GLOBAL Energy End Use Efficiency: Research and Strategy (English - Out of Print) 11/89 Guidelines for Utility Customer Management and Metering (English and Spanish) 07/91 -- Women and Energy--A Resource Guide The International Network: Policies and Experience (English) 04/90 -- Assessment of Personal Computer Models for Energy Planning in Developing Countries (English) 10/91 -- Long-Term Gas Contracts Principles and Applications (English) 02/93 152/93 Comparative Behavior of Firms Under Public and Private Ownership (English) 05/93 155/93 12/13/93 155 1ORD 16761 NOVEMBER 1982 ! ! I I M E X I C O 0 MEXICO_. I I,,,, i, * j 3~~~~~~~~~~~~~~~~~ E L I Z e KIo,.et.- 0 20 40 60 80 M.ies 0 10 20 10 40 50 . / ~~~P E T^ E Nj H' f H ET ENANGOI XAAi A JTN A G / A L T A V E R A P A Z ) Z A B A L / I a her0X>, U HE *PIJERW O U / q i > r ¢s > ;, , / 3 ,~~~~~ H ON DOU RA S \SAN4 M.AkCOS t-S ] > os* t t\A., ._ . A . ; P sadectut \ BAJA { @¢1x°^° o Xo"OWUCOB./ eRAP zS. EL ZACAPA /'E EM LA LZaap PIXCAUS ~~~~~~~GUATEMALA [ C~~~~~~~~~~~~~~~~~~rCIUML j~~~~~~~~~~~~~~~~~~~~~I AI JA LAPA-' / GOVERMENT h \ eTAteutEU JEELZ ) t EL O ilfVields r~~~~~t 1.; -.-. 69kVP .5^O8fTl w J? E 5 C U; NI I A \¢aNfl C R sEN &\< 1'Ol wells ~~I~~ALA **, 230 kV, doubl~k" A ilrfi e lin - | > , 2 f. ;g J' * ~~~~~~~~~~~~~~~~~~~~~~~~~~St¢om, Gas, Deisel MlsEXICO _fr ,*x/^Geothermal f 8LZE>}t EL SALVADOtR TrnsisinkVns ,>A ' HONDURAS . 'N230 AV Gvoh,841 >K_] =Mt = 230 kV double lIne EL SALVADOR i SRivers NICARAGUA t* Notional capitol o Deportment copitols - - -Deportment boundaries COSTA RICA t*i. s =^.nu ._.-International boundaries PANAMA IP IBRD 25082 MEXICO | L 9~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ICA I~~~~~~~~~~~~~~~~~~~ < BEUZE . - :- :,~~~~BLIZ 0c X t '00 6 I | n Z4;!4L6 17 \ - fCARIBBEAN 20 SEA v4 2 LAND USEA t 9 m7 7 , , < X ~~~~ ~ ~~~~~~~2 t 1 Broadleaf Forests \ t 6 v ~~~~~~~~~~~~~~~~~~~~~3 Mangrove Forests t7 \~~~~~~/\ t~~~~~ 4 F 10 S~~~~~~~ Forest Associated wsith Grazing Land 6 ~~~~~~ < S 8 < ~~~~~~~~~6 Cultivated . 6 tt 8 _>J ~~~~~~~~~~~~~~~~~~Cultivated Land Associated with ~~~ 6<\ t EL 7 ~~~~~~~~~~~~ Forest,Grozing Land and Matorral { ~~~~S,ALVADOR Grazing Land and/or Shrubby Cove- rnis mop hos b pewd , W ~~~~~~~~~~~~~~~8 Asslcioted with Cultivated Land on boos s* PACFIC OCA 7~~~~~~~ 99wop inemol~~~~~~~~~~~ ~ ut Bro dleWfrForests ~~~~~~~~~~~~~~~~~~~~~~~~~~2 Cnfrous and ied ,F.or.,5^ ! aest prts r of oteddtt "- * National Capital tonitw oy ow or an >4 International Boundaries ondo,onmont OfO6pulivaedLontAsoiatd it s boonnS G JULY 1993 IBRD 25083 Nhs .Wp bo beoe eoed by T-he Word Book.staff CUBA ol ood i0 for the ote.o or of ThaWWOrl ok Th. 'oehdomornof. owod ond Iho booodooe shOo'O A on b.. eo ide no, .on the Gns pxnten the kw so ol my lbrbyt o wdorseo,oo o'o ;for MDXCO sh boook_o_o SANTA AMELIA ISEA>eo MEXICO 'AN' T GUAYACAN ATM _C- ESCONO DO 14ITZAMINA I OMACTUN I BOLONKITU I & IOCH-OCUP IASO PETFNf LA PITA I ~> OPAASLOSI ______A___I O SAN FRANCISCO I IA CANCHAGAN I 0 HUAPAC IX TZUNCAL l-X MANABIQUE IAIB.IC a ~ MANGLAR I See Inset A for Deta,il CANCUEN L IL yAx ,ex AGUA NEGRA I LLAS CASA X UV-INGSTON I | / o -SAN JORGE I_ / GUATEMALA - Asuo EXPLORATION ARMA C ^ZSAND G U A T E M A L A DISCOVERY WELL LOCATIONS Wells: Guatemola u City Produong 0 Potential Production \N\ 0 Q Dry SAN JOSE I O Notionol Copitol EL Internotional Boundaries SALVADOR MADRE VIEJA I PETREL I PACIFIC OCEAN t I Io I *SOLEDAD INSET A SAkN ROMAN I & * SAN ROMAN It MEXICO RRA ANCA GUATEMALA EL SAUCE_, _C I TUCAN I SAN DIEGO AREI 0 0 57-lA LAS MERCEDES* * 0 ~~~~~~CH-INAIA 0 *VAPEMECH I NUEVE CEos4- OESTE TZUWL I 0 e 641- W RUBELSANTO III & VI G-3 TORTUGAS LA FEUCIDAD I & LA CHISEC ESTE I CHISEC I & nI JULY 1993 IBRD 25084 Th,s -p bos been pped GUATEMALA by The Wo,td Book sto,ff endusss'ey tno the coweenrOecn BASIN SETrING of feders -nd is for theBAISE N etTnOi of rheWolddbork Cio.p The der,oso,ons coed ond the boundaons sho- povt of TheWs bC-p, Pre-Jurassic Sediments / MetoMorphics any joduiot ens the Itgtzeo stotus oany teritoly or onV endorscnt or -cceptInce o Volcanic Belt such bounda Notiona Copitol Serpentinites * Ntoa aia -SInternational Boundories Fault Lines I Present Oil Producing Areas a =~ REFORMA MEXICO S - MMCO u.oi5 0 5 n s rO £5 VO ____________________ ~~NORTH PETEN BE I EN AOA PACIFICC BASIN BEIZ 5SANO ME)XICAN 9_CMAYA (1986) TS t A ~~~~~~~~~LA LIBERTADf < 42 ~~~~~~~~~~~CARIBBEAN N OCEAN~~~~~~~~~~E W ,IN93 / ~~~~~~~SOUTH PETENN WIN>-- > \ ~~~~~~~MOTAGUA fAULTTZNEO_NE K { ~~~~~~~~~~~~~HONDURA ) IOCOTAN ~~~~~~~~~~~~FAULT , - ~ZONE 1 ~~~~~~~~~Guatemolo VOLCANIC \ ~~~~PACIFIC - > ~~~BASIN . _ 4 ~~~~~~~~SALVADOR ss it- ~~PACIFIC ' MAK ' X ~~~~ ~ ~~~~~~~~~~~OCiEN -,) l ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~JULY 1993 IBRD 25085 CUBA .EXCO -.-7r, _ * v~~~~V. MEXICO 5' ; t EK Ct< . \