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Imf dr elect_sec
 

Imf dr elect_sec

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IMF informe sector electrico RD

IMF informe sector electrico RD

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    Imf dr elect_sec Imf dr elect_sec Presentation Transcript

    • THE ELECTRICITY SECTOR IN THE DOMINICAN REPUBLIC Washington DC, C June 21st, 2010 1
    • Current Situation  The electricity sector in the DR has shown little structural improvements, if any, in the last 12 months despite the efforts of the current administration administration.  Clearly, the drivers for the historical “vicious cycle” remain unchanged. unchanged  Although the underlying causes for the “vicious cycle” are well known we have the perception that we continue known, shooting in the wrong direction. Myths continue to fog the right path.  After describing briefly these negative drivers our intention is to share with you our view on how to transform them, and c ea e o ce aga create once again a “virtuous cycle” for the sector. uous cyc e o e sec o 2
    • Virtuous Cycle (1999-2001) Causes Effects  Privatization process in p  Significant direct g 1999. investment in generation, distribution, and  Regulatory framework transmission.  Electricity Law  Specially over 1,500MW of  Specialized Regulatory new efficient generation Bodies (OC, SIE, CNE) capacity.  Long-term contracts  Additionally diversification of the energy supply gy pp y  Market oriented political matrix (fuel & tech). message  LNG, Coal, CC GT 3
    • New Investments Technology Fuel MW Player CCGT & LNG Terminal Natural gas 300 AES OC GT (DPP) Natural gas 236 AES Steam Turbine Coal (Conversion) 235 El Paso, AES Diesel E i Di l Engine HFO 150 Basic Energy, CDC B i E Steam Turbine Coal 45 Basic Energy, CDC Steam Turbine HFO (Repowering) 200 Basic Energy, CDC CCGT LFO 300 CDC, Cogentrix Diesel HFO 100 Caterpillar, Local Group Diesel HFO 60 Local Goup Total 1,626 Current peak demand ~1,800MW 4
    • Energy Matrix 100% FuelsOil Fuel 80% 40% 43% 39% 47% Carbón Coal 62% 64% 72% 60% 14% Gas Natural Natural Gas 24% 17% 7% 40% 3% 3% 10% Bagazo de Bagasse 60% 21% Caña C ñ 20% 37% 10% 33% 35% 28% Geonergía Geothermal 15% 16% 0% Hidroenergía Pue Rico minicana uatemala Hydro Panamá caragua onduras Salvador epública erto Dom P Ho Nic S Gu Re 5
    • Vicious Cycle (2002-Today) Causes Effects  No tariff adjustments. Non-  Significant service interruption technical tariff. t h i l t iff affecting population and country ff ti l ti d t  Non-focalized subsidies growth.  Geographical subsidies (PRA)  Exit of private sector from the  All users above 150kWh/mo DisCos and GenCos.  U i Untimely payments to Di C l DisCos  Stop of new investments in before their re-nationalization. efficient generation within the  Renegotiation of LT contracts. SENI.  Change of Political message g g  Withdrawal of existing generation  State intervention and State utility capacity from the SENI. mindset  Inefficient investment in self-  Constant threat to renegotiate contracts generation by small users.  Generation used as escape goat  Massive injection of state funds to  Lack of consistent LT plan and cover part of the “hole”. investments to reduce energy  Stalemate in government efforts to losses reduce fraud and energy losses.  Financing the “hole” with the  Higher financing costs f th Hi h fi i t for the generators country and all the players. 6
    • No Tariff Adjustments END USER TARIFF 35 30 25 20 cUS$/KWh 15 10 Indexed User Tariff Frozen User Tariff 5 0 Feb Feb Feb Feb Jun Nov Dec Jun Nov Dec Jun Nov Dec Aug Sep Aug Sep Aug Sep Jul Jul Jul Oct Oct Oct Apr Apr Apr Apr May May May May Mar Mar Mar Mar Jan Jan Jan Jan 2007 2008 2009 2010  The tariff is not used to curve consumption, give a price s g a , a d e ec a e e de c es signal, and reflect market tendencies.  Tariff is managed politically 7
    • DR Tariff is NOT the highest in the world nor the Region END USER TARIFF, US$/KWh 45 40 35 30 $/KWh 25 cUS$ 20 15 10 5 - Virgin… Dominica Belice Barbados Rep. Dom. St.Maarten Antigua Aruba Jamaica Cayman St. Lucia Bermuda ST.Vincent Nevis Montserrat Trinidad Curacao  Indexed tariff is still competitive when compared to the rest of the region region. Source: Caribbean Electric Utility Service Corporation (CARILEC), 2009 8
    • Madrid Contract Prices & Market Spot Price 25.0 20.0 15.0 USCtvs 10.0 5.0 0.0 Madrid Average Spot Average  Madrid energy prices are in line with the current system generation mix.  Renegotiation of contracts already occurred once in 2001 2001, however, structural situation remained unchanged.  Energy prices were reduced (up to 40% in some cases). 9
    • Myth of Excessive Generation Profit Corporate Sovereign (EBITDA/Sal Company Country Rating Rating es) AES Panama Panamá BBB- BBB- 66% Termocandelaria Colombia BB- BB+ 64% Enel Fortuna Panamá BBB- BBB- 61% Empresa Nacional de Electricidad E N i l d El t i id d Chile Chil BBB A 46% AES Andres Dom Rep B- B 31% Itabo Dom Rep B- B 29% AES Gener Chile BBB- A 23% Haina H i Dom R D Rep B- B B 16% Electroandina Chile BB A 5%  The profits of the Dominican GenCos listed are amongst the lowest lowest.  This situation is worsened when returns are risk-adjusted. Source: Fitch Ratings 10
    • Why the Withdrawals from the SENI? Power Plant Technology Fuel MW Sultana del Este Diesel Engine HFO 50 Monte Rio Diesel Engine HFO 100 Seaboard Diesel Engine HFO 97 Total 247  Is the business that good?  Several international strategic players have exited the sector at a significant discount to initial investment.  Union Fenosa and AES as distributors.  El Paso, CDC Globeleq, Cogentrix, Caterpillar. 11
    • Actual Capacity With & Without Investments 3,500 3,000 2,500 MW 2,000 1,500 1 500 1,000 500 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Capacidad instalada Installed Capacity Demanda Maxima Max. Demand Capacidad disponible Available Capacity 12
    • Marginal Costs With & Without Investments SPOT MARGINAL COST, cUS$/KWh 45 40 No new 35 Investments 30 cUS$/kWh 25 Additional 150 MW 20 of Coal per Year 15 (US$300mln/yr) $ 10 5 0 2010 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2011 13
    • Are AR an attractive financial business? 1,000  800  S$ mln 600  400  400 US AR 200  Sales ‐ Sep‐07 Sep‐08 Sep‐09 Jul‐07 Jul‐08 Jul‐09 Mar‐07 Mar‐08 Mar‐09 Mar‐10 Jan‐07 Nov‐07 Jan‐08 Nov‐08 Jan‐09 Nov‐09 Jan‐10 May‐07 May‐08 May‐09  Distribution companies’ late payments force generators to finance the deficit of the Electrical Sector with a negative carrying.  Generators pay 9 5% to 12% on their indebtedness (144A/Reg S Notes) 9.5% Notes).  Generators charge 7% to 9.5% to the DisCos (Historical USD Local Active Interest Rate under PPAs).  Additionally, merchant generators (mostly the DR Govt. throught CDEEE & EGEHID) charge 11%-18% interest rate in DOP plus an 18% penalty, which combined with exchange rate stability makes a 25%-35% USD effective interest rate on energy purchases of Contracted Generators.  Conclusion, except for merchant generators financing the DisCos is a very bad business. business  If the GenCos would monetize the AR, USD 400mln could be used to fuel a new wave of investments at higher rates of return. 14
    • ¿Where is the hole? US$MM Potential Gross Sales Potential Gross Sales     2 473 1 2,473.1 31% Tariff Deficit        (404.7) Commercial Losses **        (889.4) 69% Real Gross Sales (A) Real Gross Sales (A)     1 179 0 1,179.0 Real System Costs Generation * G ti *     1 593 8 1,593.8 Tariff Deficit Commercial Losses ** Fixed Costs (D&T)          288.0 CAPEX (D&T)            96.0 Sector Debt Interests           32.0 * This includes ~150mln annual profit of the GenCos Total System Costs (B)      2,009.8 ** Losses from Theft and lack of Annual Deficit (A‐B)       (830.7) collections 15
    • What Reducing the Contract Prices Means  Private GenCos combined Net Income was US$154mln in 2009. Annual Deficit 900  800  154  700  600  US$ mln 500  400  831  300  676  200  100  ‐ Current GenCos Conceed Net Income  If GenCos were to reduce their prices in 0.02 US$/kWh their profit would disappear and still the hole would be unmanageable. Noted that without appropriate returns there are no investments.  Th problem i not i th G C The bl is t in the GenCos, it i i energy th ft non-focalized is in theft, f li d subsidies and tariffs. 16
    • Conclusions  We are at a critical point for decision making.  With the wrong incentives we will continue with the “vicious cycle” and run out of generating capacity in 3 years. u o ge e at g capac ty yea s  The electricity sector deficit representing ~1.8% of the GDP is unsustainable.  Implementing market oriented measures are the way to go:  A t h i l t iff which will provide th right price signal technical tariff, hi h ill id the i ht i i l  Focalized subsidies, below 150kWh/mo  Fully transfer the DisCos to private ownership  Eliminate arrears with generators g  Political will to enforce the law against electricity theft  Moreover, key elements for positive change are present:  Willingness of existing players to invest in new efficient capacity.  The country remains attractive for the investment community (telecom community. (telecom, tourism, recent placement of sovereign bond, etc.)  The right incentives and fulfillment of contractual obligations, are the only way to reduce long-term energy marginal costs. 17