SANTIAGO, Chile, Aug. 28 (UPI) -- Chile's electricity supply is facing serious shortage threats in the next few years due to a lack of investment from local generator companies. The situation is derived from the government's repeated delays in passing a new regulatory bill for the country's power system.
The controversial bill, known as the "Ley Corta," has been the subject of debate for more than two years as the uncertainty over a definite legal framework for the industry discourages new investment projects. Although the Chilean authorities submitted the bill to Congress in May 2002, it was nonetheless greeted with harsh criticism from some of the country's main operators, including Endesa Spain's subsidiary Endesa Chile and AES Corp.'s subsidiary AES Gener.
Power firms were particularly unhappy about the government's proposal that the bill should be effective for an eight-year transitional period before giving way to a final regulatory framework. Companies such as AES Gener complained that a transitional regulatory framework did not give generators sufficient guarantees over the longer-term shape of the industry nor allow them to invest in major infrastructure projects.
The country's leading generator Endesa Chile, on the other hand, complained about current arrangements which force it to pay more than half the $150 million which the industry spends each year on power transmission to carry power from its hydro plants in southern Chile to northern consumption centers. According to the government National Energy Commission, Chile's central grid (SIC) will need to add 480MW of generating capacity each year to its installed capacity of 6,700MW in order to stave off future power shortages. The SIC serves more than 90 percent of Chile's population of 15 million.
After repeated delays, Chile's economy ministry finally forwarded in early August the bill's definite draft to the Chamber of Deputies. The text is presently being reviewed by the chamber's Mining and Energy Committee in order to be eventually voted on by all legislators.
The definite draft was the result of a series of talks held in recent months between Economy Minister Jorge Rodriguez and the three generator companies operating in the SIC: Endesa Chile, AES Gener, and the Chilean-Belgian Colbun. The companies issued several proposals that were to be introduced by Rodriguez in the draft, such as a new system to divide the costs of transmission tolls between the operators and the system's end-users.
This arrangement prompted the CNE -- the government agency in charge of planning the development of the country's electricity system -- and its former executive secretary Viviane Blanlot to issue a number of criticisms against the bill. Among Blanlot's main points of contention figured the fact that only a handful of generators weighed in to define some of the bill's crucial points.
Blanlot's position was supported by a number of system operators, including the country's leading transmission company Transelec, which is controlled by Canada's Norsk Hydro, as well several power distribution companies within the SIC.
Rodriguez' bill seeks to divide the SIC into three areas. End-users would pay 20 percent of the transmission tolls along the section comprised between the northern city of Quillota and the southern city of Charrua, which concentrates nearly 80 percent of the electricity flow within the SIC.
This way, the CNE holds that the Ley Corta is directly encouraging generators to exclusively build new stations in the Quillota - Charrua section, given how their proximity to large consumption centers would make it cheaper for them to operate. In this scenario, the new regulations would not only be neglecting other areas that are in need of generation investments, but also jeopardize the country's future energy supply.
Rodriguez has in turn commended the initiative on repeated occasions, previously stating that generator companies represent Chilean consumers, "so that it is legitimate that they may have an important say" in defining transmission tolls.
The CNE has also stated that given how Endesa Chile, AES Gener, and Colbun are the main generators in the SIC, the regulations that they are jointly sponsoring with Rodriguez favor their continued role as dominant operators in the grid.
The controversy eventually led Blanlot to resign in July, as the former CNE executive secretary claimed her views on how best to steer Chile's energy industry are incompatible with those of the government.
The regulatory bill is now generating a heated debate in Congress as numerous parliamentary representatives are voicing their concerns over its alleged shortcomings in promoting new generation investments. Government authorities are accordingly negotiating to secure support for the bill and manage to approve it promptly.
The first shots were fired in mid-August as Viviane Blanlot stated that the initiative was seriously flawed in that it discouraged generation investments in certain areas of southern Chile. The former CNE executive secretary is now acting as advisor for the pro-government Party for Democracy (PPD), which has nonetheless spearheaded parliamentary opposition to the bill.
Blanlot stated that the Ley Corta's "toll system has no justification from the economic standpoint" pointing out how the only reason it would be implemented was because Chile's largest generator companies were backing the initiative.
Adding to the criticism against the bill, the government Christian Democrat party (PDC) is also promoting a number of changes to the Ley Corta.
PDC Deputy Pablo Lorenzini said that the "bill does not solve the industry's basic problems."
Lorenzini and the PDC have repeatedly stated how the bill does not make specific provisions to promote the connection of Chile's central and northern grids. Whereas the former is experiencing a dynamic growth in demand, the northern grid has a surplus of energy that it could potentially sell to end-users in central Chile.
Lorenzini also criticized Rodriguez' recent statement that the Ley Corta and its new transmission toll system would demand an average 1pc rise in the bills of end-users. The PDC is proposing that the government subsidize the additional costs derived from the new transmission toll system.
Although Rodriguez is holding periodic meetings with congresspersons in order to secure support for the bill, he has so far been unsuccessful in persuading them about the benefits of the much-delayed bill.
So far, the only generation project that is presently underway in the country is Endesa's controversial Ralco dam in the southern Chilean region of Bio Bio. The $540 million initiative is officially scheduled for completion by mid-2004.
Nonetheless, works in the 570MW plant have endured repeated delays thanks to an ongoing legal conflict with local Pehuenche indigenous groups who would see their lands flooded by the Ralco reservoir in the upper Bio Bio valley.
Ralco's situation only aggravates Chile's looming energy shortage problem, given how nearly 60 percent of Chile's electricity is hydro generated and there are no major power plants planned in the short term.
In the meantime, Chile's electricity demand grows undeterred at an annual 6 percent pace as no initiative seems to satisfy the industry's different players.
