VZCZCXYZ0026
PP RUEHWEB

DE RUEHSN #1006/01 2991953
ZNR UUUAA ZZH
P 261953Z OCT 09
FM AMEMBASSY SAN SALVADOR
TO RUEHC/SECSTATE WASHDC PRIORITY 1787
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS SAN SALVADOR 001006 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ENRG EINV EPET ECON ES
SUBJECT:  EL SALVADOR'S IMPENDING ENERGY CRISIS 
 
Ref A: 09 SAN SALVADOR 487 
Ref B: 09 SAN SALVADOR 817 
 
¶1. (SBU) SUMMARY:  Unless new electrical generation capacity is 
brought on-line in El Salvador, the country will begin to experience 
blackouts in the next 3 to 4 years.  Two large privately funded 
projects currently in the planning stages are viewed as the key 
toward meeting the country's future energy needs.  However, these 
projects are far from assured due to uncertainty in the local and 
regional markets. The successful development of a regional market 
for electrical energy is key to addressing El Salvador's long-term 
energy needs.  END SUMMARY. 
------------------ 
SHORT-TERM OUTLOOK 
------------------ 
 
¶2. (SBU) Fourteen major electricity generating companies currently 
operate in El Salvador, with an installed capacity of 1300 Mega 
Watts (MW) and an operating capacity of 1,100 MW.  In December 2008, 
the maximum registered demand was 916 MW.  According to Abraham 
Bichara, the Executive Vice President of AES, demand grew at a 
steady 6 percent per year from 2000 to 2007, before the effects of 
the global economic crisis reduced the demand for power.  Bichara 
said AES projects that energy demand will return to pre-2008 growth 
levels in 2010, and that unless new generators are brought on-line, 
the country could experience blackouts in 3 to 4 years. 
----------------------------------- 
PLANNED STATE-OWNED ENERGY PROJECTS 
----------------------------------- 
 
¶3. (SBU) Approximately 60 percent of energy output in El Salvador is 
generated by the state-owned hydroelectric company, CEL, and the 
geothermal company, LaGeo, a joint venture between CEL and the 
Italian company Enel.  Nicolas Salume, President of CEL, told 
Econoffs he recognizes the country is facing an impending energy 
crisis, but that politics are getting in the way of expanding new 
generating capacity.  Salume pointed to the wave of opposition from 
inside and outside the government against the relatively small 66 MW 
hydroelectric dam project "El Chaparral." (Ref B) 
¶4. (SBU) To avoid similar political struggles in the future, Salume 
said CEL will focus its efforts on expanding the capacity of 
existing facilities. In order of priority, Salueme said CEL plans to 
add 80 MW to the " 5 de Noviembre" hydro plant ($100 million), 87.5 
MW to "Cerron Grande" hydro plant ($48 million), and 100 MW to the 
oil-fired plant Talnique over the next 2 to 3 years. 
 
--------------------------- 
NEW PRIVATE SECTOR PROJECTS 
--------------------------- 
 
¶5. (SBU) Cutuco Energy's Country Manager, Irene Lopez, told Econoff 
that Cutuco plans to start construction on its LNG plant in 2011. 
Lopez said the LNG plant represents an estimated investment of $950 
million.  The three-year project includes a Natural Gas Terminal 
next to the Port of La Union, a regasification plant, a 525 MW 
combined cycle power plant, a desalinization plant, a natural gas 
pipeline system and two power transmission lines.  Lopez stated the 
plant is designed to meet regional demand by connecting to the 
Central American Interconnection System (SIEPAC) that is expected to 
be completed in 2010.  Cutuco Energy will also build a second 
transmission line that will connect to the Salvadoran national grid 
(ETESAL). 
¶6. (SBU) Miguel Bolinaga, the Vice President of the Electric Market 
for AES El Salvador said AES still plans to build a 250 MW "clean 
coal"-fired plant next to the Port of La Union and the proposed site 
of Cutuco Energy's LNG plant.  Similar to Cutuco Energy, AES 
envisions their plant to be a regional provider of energy using the 
SIEPAC transmission line.  However, Bolinaga told Econoff the 
company is now waiting to secure financing because of global 
downturn.  AES is also waiting to see if a 325 MW long-term energy 
contract from the GOES will be set aside for new generation.  If so, 
Bolinaga believes the company will be able to secure financing and 
begin construction of the plant. 
¶7. (SBU) Cutuco Energy and AES separately noted similar concerns 
that could imperil their projects.  According to Lopez, the most 
serious concern relates to sediment build-up in the access channel 
in the Gulf of Fonseca that could block refueling vessels from 
reaching the plants.  The Salvadoran Port Authority (CEPA) has 
advised them that sediment build-up is occurring at a rate faster 
than expected and after less than one year the channel depth has 
gone from 15 meters to 11 meters.  Lopez said that refueling vessels 
require a minimum depth of 14 meters.  Additionally, the FMLN Mayor 
of La Union opposes both projects, citing environmental concerns, 
and could attempt to block construction.  Cutuco Energy and AES also 
shared the same concerns about whether SIEPAC regulation between the 
Central American governments can be agreed upon in a timely manner. 
 
¶8. (SBU) COMMENT: Short-term expansion by CEL should provide 330 MW 
of installed capacity into the grid in time to meet the increased 
demand projected to follow an economic recovery.  The long-term 
solution to El Salvador's energy needs depends on the success of 
 
 
regional integration and the promulgation of regulations that will 
allow large-scale producers to build new plants with a guaranteed 
market outside El Salvador.  Unless these large plants have access 
to a robust SIEPAC grid, Cutuco Energy, AES, and other potential 
energy investors will likely be forced to abandon their ambitious 
plans. 
BLAU