VZCZCXYZ0024
PP RUEHWEB

DE RUEHLP #0438/01 0471340
ZNR UUUUU ZZH
P 161340Z FEB 07
FM AMEMBASSY LA PAZ
TO RUEHC/SECSTATE WASHDC PRIORITY 2524
INFO RUEHAC/AMEMBASSY ASUNCION 6553
RUEHBO/AMEMBASSY BOGOTA 3874
RUEHBR/AMEMBASSY BRASILIA 7760
RUEHBU/AMEMBASSY BUENOS AIRES 5004
RUEHCV/AMEMBASSY CARACAS 2243
RUEHPE/AMEMBASSY LIMA 2339
RUEHMD/AMEMBASSY MADRID 3323
RUEHMN/AMEMBASSY MONTEVIDEO 4417
RUEHQT/AMEMBASSY QUITO 4886
RUEHSG/AMEMBASSY SANTIAGO 9474
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUMIAAA/USCINCSO MIAMI FL
RUEHUB/USINT HAVANA 0154
RHEHNSC/NSC WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS LA PAZ 000438 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/AND 
TREASURY FOR SGOOCH 
ENERGY FOR CDAY AND SLADISLAW 
 
E.O. 12958: N/A 
TAGS: ECON EINV ENRG BL
SUBJECT: GOB'S PROPOSED ELECTRICITY REFORMS 
 
REF: A. 2006 LA PAZ 817 
     ¶B. 2006 LA PAZ 2967 
 
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Summary 
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¶1. (SBU) Vice Minister of Electricity Villarroel said that 
the government hopes to pass a universal access law the first 
quarter of 2007 to expand rural electricity coverage.  In 
addition, the government has begun strengthening the 
state-owned electricity company, ENDE, and is studying ways 
to reform the regulatory system.  The government hopes to 
stimulate enough investment in the sector to export 
electricity to neighboring countries, but such investment 
seems unlikely given GOB measures which have reduced company 
profits.  U.S.-owned Duke Energy sold its 50 percent 
ownership interest in the Bolivian capitalized hydroelectric 
generator Corani to U.K.-owned Econergy on February 5 for 
half the price that it had paid for the assets in the 1990s. 
End summary. 
 
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Universal Access Law to Promote Rural Electrification 
--------------------------------------------- -------- 
 
¶2. (SBU) Vice Minister of Electricity Hugo Villarroel told 
Econoff on February 13 that, as outlined in the national 
development plan, the government's focus in the electricity 
sector is increasing access, particularly in rural areas 
which currently only have 38 percent coverage.  He explained 
that the government hopes to pass a universal access law 
within the first quarter of 2007, which he explained, would 
not significantly impact the current electricity law.  The 
expansion would be financed with internal funds and by 
seeking international aid.  The government also aims to 
promote clean energy by increasing the portion of electricity 
provided by hydro-generators (38 percent), versus 
thermal-generators, and developing geo-thermal generation 
near Laguna Colorado in southern Bolivia. 
 
--------------------------------------------- ---------- 
Strengthening State Company and Reforming Superintendent 
--------------------------------------------- ---------- 
 
¶3. (SBU) In addition, the government has begun to strengthen 
the state-owned company, ENDE, which was left weak after the 
partial privatization program of the 1990s, to fill voids 
left by the private sector, perhaps using the Colombian 
company ISA as a model.  Villarroel indicated that the 
government plans to modify the 1995 electricity law to give 
ENDE the same capacity to participate in the sector as 
private companies.  The government announced in the national 
development plan that it would reform the regulatory system 
by moving the independent superintendents under the control 
of the ministries.  Villarroel said that the ministry is 
studying ways to enact this reform. 
 
--------------------------------------------- ------------ 
Stimulating Investment: Possible Given Declining Profits? 
--------------------------------------------- ------------ 
 
¶4. (SBU) The government hopes to stimulate enough investment 
in electricity generation, which Villarroel said had been 
essentially frozen since 1999, to enable Bolivia to export 
electricity to neighboring countries.  According to industry 
representatives, since a stabilization fund was established 
in 2003, consumer rates have been basically frozen.  As 
company costs have increased, the low rates have impeded 
company expansion, and profits have steadily declined.  In 
March 2006, the GOB implemented the dignity tariff (ref A), 
even further reducing profits by mandating lower rates for 
marginal consumers.  When asked how the government plans to 
stimulate investment after implementing the lower rates, 
Villarroel responded that companies would invest because of 
the growing market, including the expected 8 percent increase 
in demand once the San Cristobal mine comes fully on-line in 
the fourth quarter.  He argued that access to markets would 
produce investments, as it had done in the hydrocarbons 
sector once Bolivia secured the Argentine market (ref B). 
 
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Duke Sale of Corani Assets 
-------------------------- 
 
¶5. (SBU) U.S. company Duke Energy International announced 
that sale of its 50 percent ownership interest in the 
Bolivian capitalized hydroelectric generator Corani on 
February 5.  Corani operates two hydroelectric power plants 
near Cochabamba.  Duke sold its assets to a U.K. company, 
Econergy International, for USD 28 million, 50 percent of the 
price paid by Duke for the assets in the 1990s (USD 56 
million).  Corani President Jose De La Fuente told Econoff on 
February 7 that Corani would maintain its current staff, 
except the board members.  He added that Public Works 
Minister Jerges Mercado was positive about the sale, and had 
told Econergy that the government does not plan to interfere 
with private sector operations.  Econergy International, 
which has offices in Boulder, Colorado, Washington, D.C., 
Brazil, and Mexico, is developing 40 clean energy projects in 
Latin America that may sell carbon credits under the Clean 
Development Mechanism, an arrangement under the Kyoto 
Protocol that allows developed countries with greenhouse gas 
reduction commitments to invest in emission reducing projects 
in developing countries as an alternative to reducing their 
own emissions.  De La Fuente said that the sale of carbon 
credits to European buyers has significant potential for 
future growth. 
 
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Comment 
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¶6. (SBU) Although the vice minister argued that growing 
demand and market opportunities would produce additional 
investment, and that investors would not be deterred by 
increased state involvement in the sector and lower returns 
resulting from government-mandated low consumer rates, the 
sale of Duke's assets in Corani is a bad sign.  The fact that 
Duke sold its assets for half of their purchase price 
indicates a loss of investor confidence in the sector.  The 
government is correct in its assessment that the 
privatization program of the 1990s has not delivered the 
hope-for results, as 62 percent of rural resident still lack 
access to electricity, because it is unprofitable for private 
companies to serve disperse rural areas of Bolivia.  However, 
if the country is to attract additional private investment to 
meet growing urban demand, the GOB must strike a balance 
between promoting access and allowing profits.  End comment. 
GOLDBERG