<a href=www.energypulse.net>Energy Pulse 4.2.03   Jose Luis Gambande, President, Andrews SA

Not all things are worsening in Latin America economy and, particularly, in energy markets. Technology is opening new businesses niche, if you have an aggresive vision and a ground knowledge.

Scenario The old problems of the Latin-American economies have not disappeared. Even, some of them seem to have aggravated with the problems of American economy and some hard changes in Brazil and Argentina, including unstable politics in Venezuela and Bolivia.

But, in the last decade, some progress were made in public services. The liberal wave left better de-regulated markets in almost all countries, most of them in the electric wholesale market.

In the 90´s, continuing and copying the models of Chile and Argentina, almost all the countries adopted electrical markets of similar characteristics, among which the most importants were:

• Self-regulated Markets
• Authority independent rules
• Marginal Pricing
• Prohibition of vertical integration
• Prohibition of generators and distributors concentration(monopoly)
• Incentives for the private investment
• Free access to the transmission grid

Strictly speaking, many of these criteria were not applied in all countries in the same way, but each one adopted restrictions imposed by its internal economic most powerful actors. (perhaps Argentina could be the more close example to the ideal market in electric energy related business)

Old problems All these efforts to modernize the electrical energy market have been faced to the old and classical regional problems. And there were exactly these problems the ones that have braked the development of these markets.

The strong dependence on foreign capital is one of them. This kind of capital only moves on with gigantic transactions and projects, often executed by governments itself far beyond its management skills, and with an implicit trend to excite the structural corruption. This dependence was clear in all privatization processes in Latam.

Failure to create serious and independent control and regulation agencies, conducted by expert and honest professionals, and provided with sufficient resources. These agencies are the guarantee of market transparency and its poor performance elevates notably the risk of any investment, more in the energy business where the ROI requires constant settings during many years.

Today Now the governments are not able to face new great generation plants like in the past. They have to wait international capitals to enter the game, but private funds are looking at recession indexes, establishing an impasse before enter in new projects. But in the future, with new and great projects on the way, prices will not move downwards as it were in the past. Market works.

In spite of the fact that markets have been submitted to strong tensions, as the originated by the devaluations of the local currency (Brazil, Argentina), the political difficulties (Venezuela) and the macroeconomic changes (Ecuador), they are still operating within its rules. This is a good signal.

Renewal energies, in special hydro, are plentiful in Latam. And technology is breaking down the prices of turbines and governors, achieving costs /kW that in the past were proper of big machinery. A new and realistic option for the region. And another fact: Nevertheless the energy continues being a strategic commodity and of great profit in the majority of the countries of the region. Self-regulated markets, working at international price level with few exceptions, are a big chance.

New business South America is not the promised land. But it has opportunities for all people that have certain intelligence and know how to avoid the traps that the underdevelopment imposes.

The model of CSHP (Coordinated Small Hydro Projects), for instance, offers a new vision of the energy generation business in the region. Its fundamental premises are based on identification, evaluation and assembly design of small hydro generation plants with the paradigm of construction and operation costs reduction through design.

These hydroelectric plants (typ 2 to 10MW each, qty 3 to 6), designed as a whole system, will achieve a very much lower cost per Kw installed than any of them separately.

We all heard about hydro plants that they are always different each from another. But we ask: what is “different”? And the answer is not so easy. It requires a new approach from the point of view of what “different” means from the cost´s point of view.. The fact that many components are not ´on the shelves´ does not mean, necessarily, that it has different manufacturing costs.

The model requires a modelling of possible universe of plants in a specific region, to choose the better granularity and the possibilities of expansion in the time, that reduce investment and, therefore, increase IRR.

To date, we have the technology to do perform that. Specialized programming tools, better and wider insights in to the manufacturing process, and innovative thoughts, are the key. And we are moving forward.

Utilizing criteria of modularity and standarisation, the expected reduction of different elements (generators, governors, controls, etc.) conducts to very optimized costs. On the other hand, programming joint or scheduled manufacturing already causes reductions in the final price of various components.

The careful selection of the location of the plants contributes to diminish the climatic risk, permitting a diversified income that assures a balanced cash flow. So, investments are more stable in time inside a same country. Technology offers today systems to perform O&M of plants located far away.

Even in civil design works, different designs can be carried out with a minimum investment if you know and program the complete set of work to do. In addition, local costs are diminishing in all Latam countries compared with developed ones and measured in USD.

And there are more advantages: An adequate design of the facilities of O&M will do also improve the operational conditions. And the ROI, of course.

The majority of the markets of the region permits the sale of energy blocks, some with the figure of the trader, or by means of contracts to term that enable the sale of a block of energy and/or power. The greater availability of these blocks do them more attractive for the industries that are so called electro-intensive. Though this increase the transmission toll, only the reduction of operational cost will over compensate this greater cost. Looking at the future, even the simultaneous and joint undertaking in various countries will improve the necessary forecasts of political risk, for instance.

CSHP is applicable in greater or smaller measure in almost all the countries of the area. In some of them it is still necessary to remove some regulatory obstacles and in other the practical incentives to renewal uses is still negligible.

Figures The total volume of hydro energy composed by SHP (< 10MW) that can be mobilized in Latam is of 2400 TWh/yr, based on expert estimations of 1999.

Not all of these sources can be implemented, not even studied inside CSHP framework. Considerations must be made regarding site conditions, grid conditions, isolated systems, and restrictions that could be operative in each one. The modelling process often begins with a complete projects database feeding an expert system that moves forward and backward looking for the proper project´s suit

As one of various simulation processes showed, following a conservative calculation, a case modelled on the base of 5 x 10MW in a small market like Ecuador, presents rates of ROI of 25%+ in optimistic conditions of evolution of prices, and 18% in the pessimistic (worst) case.

Conclusions All the facts showed above are of common sense, you can say, but difficult to implement. Think it twice. We did. CSHP coud be a good option for small and medium size investors who are now looking for diversified risks with a creative mind. All you need is knowledge of what and where.

And CSHP is an example, too, of the opportunities that the Latin-American market, in spite of its distortions and ambiguity, has to offer to smart investors. The only condition is to challenge those things that are called “impossible”.

<a href=www.sfgate.com>SFGate.com Tuesday, April 1, 2003
(04-01) 15:55 PST MEXICO CITY (AP) --

Mexican stocks closed lower Tuesday despite U.S. market gains, as local interest rates rose following the central bank's latest monetary tightening.

The market's key IPC index closed down 0.3 percent or 18.27 points at 5,895.76. At the end of 2002, the IPC stood at 6,127.09.

Volume was a modest 56 million shares worth 723.5 million pesos, compared with Monday's 59.4 million shares worth 774.7 million.

A Mexico City trader said the monetary tightening pursued by the Bank of Mexico to keep inflation in check was negative for local stocks.

Among the most active issues Tuesday, phone company Telmex L shares fell 1.4 percent to 15.76 pesos, retailer Walmex V shares fell 0.8 percent to 26 pesos, and banking group BBVA-Bancomer B shares fell 0.6 percent to 8.23.

Wireless phone service provider America Movil L shares rose 0.3 percent to 7.29, and brewer Modelo C shares rose 1.8 percent to 22.26.

SAO PAULO, Brazil (AP) -- Brazil's stock prices ended higher Tuesday as the country's C-bond and real rallied and global equity markets recovered slightly from war-induced gloom.

The main Sao Paulo index finished 2.8 percent ahead at 11,592 points, compared with 11,273 points at Monday's close.

Stocks rose as Brazil's real strengthened about 1 percent Tuesday to its best level since Jan. 14. The country's foreign bonds hit their best levels since May 2002 on signs Congress is getting ready to pass some key reforms the government has promised the market.

On the stocks front, key fixed-line telecoms saw heavy interest. Bellwether Telemar rose 5.3 percent to 29 reals. Jet-maker Embraer rose 4.7 percent on news American Airlines, a key client, has struck a deal with unions to stave off bankruptcy.

Oil giant Petrobras gained 2.6 percent to 47.60 and retail companies like supermarkets chain CBD rose 3 percent to 44.

SANTIAGO, Chile (AP) -- Share prices on the Santiago Stock Exchange closed lower Tuesday, with uncertainty about the Iraq war weighing along with lower utilities share prices and a plunge in copper cable maker Madeco, traders said.

Chile's blue-chip Ipsa index dropped 0.2 percent to 1,006.93 points from 1,008.64. The narrower Inter-10 index of more liquid, internationally traded Chilean shares lost 0.3 percent to 98.83, compared to 99.04.

Volume plummeted to a low 4.54 billion pesos from 10.13 billion as uncertainty drove investors out of the market, traders said.

Liquidity will also be reduced by the capital increase approved by shareholders in utilities heavyweight Enersis, which in a first phase will see its Spanish parent, Endesa, raise its stake in the company above 65 percent.

Enersis' shares will trade close to the 60.42 issue price for new shares and also limit liquidity at its Endesa Chile unit. Enersis ended down 1.7 percent at 57, while Endesa Chile lost 0.2 percent to 172.

CARACAS, Venezuela (AP) -- Venezuelan shares ended a bit higher Tuesday, with the IBC General Stock Index closing at 8,570 points, up about 0.7 percent.

The market's biggest stock, telephone giant CA Nacional Telefonos de Venezuela, or CANTV, closed 45 bolivars, or about 2 percent, higher at 2,350.

CANTV's American Depositary Receipts, worth seven common shares each, were down 7 cents at US$8.91 each in late afternoon trade on the New York Stock Exchange.

BUENOS AIRES, Argentina (AP) -- Argentine stocks closed mixed Tuesday, with exporters falling back as the peso strengthened against the dollar and a late rally took the market back to near its opening levels.

The large-cap Merval Index closed down 0.62 point, or 0.1 percent, at 565.84 points, while the broader General Index finished 87.25 points or 0.3 percent higher at 27,008.56 points.

Despite last Friday's announcement that President Eduardo Duhalde had signed a decree ordering a year-old banking freeze to be lifted over the next four months, the peso gained ground Tuesday, closing at 2.965 per dollar, compared with 2.985 Friday.

Among the hardest hit of the export stocks were petrochemical company Indupa, which closed down 3.3 percent at 1.77, aluminum firm Aluar, which was 2.3 percent lower at 4.30, and carmaker Renault, which weakened 1.5 percent to 1.32.

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, April 01, 2003 By: Patrick J. O'Donoghue

The weekend homicide rate nationwide rocketed to 108 with a record 72 cases reported in the provinces and 36 in the Caracas Metropolitan area. 

• In Caracas, Libertador municipality reached a record 34 homicides and Sucre municipality 2. 

In the provinces, Zulia State beat Carabobo as No.1 provincial red stop with 11 homicides ... Carabobo reported 10, Miranda 8, Portuguesa 5, Aragua, Tachira and Apure 4 each, Lara, Falcon, Nueva Esparta, Anzoategui 3 each. 

25 persons died settling of scores, 15 in shoot-outs with the police, 13 resisting mugging, 9 in street brawls, 5 crimes of passion, 2 revenge and 2 shot while robbing. 

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Tuesday, April 01, 2003 By: Patrick J. O'Donoghue

A Venezuelan citizen has been arrested at Mexico City airport allegedly carrying 16.7 kilos of heroin. 

Edwin Manuel Cervitec traveled on a Mexicana de Aviacion flight from Caracas with the heroin hidden in double lining in his suitcase and clothes. 

• Cervitec (27)  has told the Mexican Police that an unknown person nicknamed Carlos gave him the clothes to hide the drugs.

The suspect informed the police that his final destination was Monterrey on the Mexican border with the USA.

Wednesday, 2 April 2003, 11:10 am Press Release: United Nations

Hundreds in Venezuela displaced by armed groups from Colombia, UN says

1 April – Hundreds of people have been displaced by incursions into Venezuela by irregular armed groups from Colombia and reported armed clashes along the border between the two countries, the United Nations refugee agency said today as it appealed to all combatants to respect the rights of the civilian population.

"These events signal a worrying escalation of the Colombian conflict and underscore the growing humanitarian impact on the countries neighbouring Colombia," UN High Commissioner for Refugees (UNHCR) spokesperson Kris Janowski said of the incursions.

Mr. Janowski said an estimated 200 persons, including more than 90 children, fled the remote Rio de Oro area of northwestern Venezuela when Colombian paramilitaries entered the zone two weeks ago. UNHCR has also received unconfirmed reports that some 600 others had fled into the surrounding mountainous area.

"UNHCR appeals to all combatants to respect the rights of the civilian population, and to all governments in the region to continue to abide by their international obligations and ensure the right to asylum," Mr. Janowski said, adding that the agency also, "requests the Venezuelan authorities to provide all the necessary security guarantees for humanitarian staff to undertake an assessment mission to the area as soon as possible."

In the last two weeks there have been reports of armed clashes between Colombian guerrilla and paramilitaries in the border zone, according to UNHCR. These irregular armed groups also reportedly clashed with the Venezuelan army. Last weekend, Venezuelan President Hugo Chavez declared that he had ordered a bombing raid against suspected Colombian irregular forces inside Venezuelan territory.