1
Luis Enrique Berrizbeitia Executive Vice President
Conference on Energy in South America
The Center for Latin American Issues
George Washington University
March 2002
Economic development in Latin America:a brief comment why growth and development have not been sustainable
updating the development model the importance of integration for competitiveness.
Prospects for energy market integration in Latin America potential benefits relevant issues progress toward energy market integration
Contents
2
Reforms have been mainly focused on macroeconomics, not enough on microeconomics
Continued dependence on natural resources and external savings
excessive vulnerability to external shocks
Growth has not been sustained nor sufficient, and income distribution remains very inequitable
Not enough attention has been paid to social and environmental issues
Weak institutions
Why growth and development have not been sustainable in Latin America
3
The evolving development model
Necessary to preserve and improve on the progress achieved though macroeconomic and structural reforms, but also to focus increasingly on the microeconomic aspects of development
achieve a better balance between the economic basis of development, and its social, environmental and institutional dimensions
attain higher levels of sustained growth and development
improve income distribution reduce poverty
4
Focusing on the micro-dimensions of development
Greater productivity and competitiveness infrastructure ICTs SMEs
Increase investment in human capital education pension reform
Protection, promotion and development of environmental resources
mitigation of environmental risks development of sustainable “green markets”
Institutional development improve the quality and efficiency of response to social needs strengthen the mechanisms of democratic governance improve economic and social management
physical & economic integration domestic savings globalization
public health services unemployment coverage
5
The importance of integration for competitiveness
Economies of scale derived from large integrated markets reduce costs and promote competition
Generates new business and investment opportunities and strengthens regional economic players
Helps protect the region from the volatility of globalization
Facilitates competitive insertion into global markets
Increases trade and promotes intra-regional development of technology and service sectors
Integration improves the region’s competitiveness
6
Leadership role in promoting integration in South America
Infrastructure
Energy markets
Financial markets
Environmental markets
Logistics for competitiveness
Commercial integration
Benefits of energy market integration
Contributes to optimize the use of existing hydro/thermal capacity
compensates for variations in hydrological and climatic cyclestakes advantage of differing demand patterns across time zones
Contributes to compensate for large differences in energy resource endowment
promotes increased intra-regional trade in energy
Improves the region’s overall competitiveness lowers costs and promotes competition in energy generation improves the quality and reliability of electric power services
8
Creates new opportunities for intra-regional technological development and trade in energy services
Helps drive the integration of natural gas markets
Generates measurable environmental benefits
can improve r.o.i. through “Kyoto” mechanisms (cdm)
Benefits of energy market integration
9
Greater homogeneity of energy policies across countries
regional vs. national policy orientation market driven vs. planning orientation private vs. public sector roles adequate investment climate regulatory compatibility
Harmonization of regulatory criteria separation of generation/transmission/distribution transparent pricing mechanisms based on LTMC,
including transmission costs and pricing transparent and direct subsidies where needed joint or harmonized power and gas market regulation
Relevant issue for energy market integration in Latin America
10
Use existing fora to intensify exchanges among key players, including the private sector:
potential and benefits of market-based integration harmonization of policies and regulations fora include: OLADE/CIER/CAF/CAN/MERCOSUR/
IIRSA/FTAA
Build upon existing infrastructure to evolve from opportunity exchanges to market integration
more intensive use of existing interconnections binational hydroelectric dams (Itaipú, Yaciretá,
Salto Grande)
Aim toward firm policy commitments and specific but realistic objectives
11
Progress toward energy market integration in Latin America
Power integration projects with highest short-term economic potential
Colombia- Ecuador (220KV) Ecuador-Peru (220KV) Argentina-Brasil (several at 500KV) strengthening Venezuela-Colombia (two at 230KV)
Natural gas integration projects Colombia –Venezuela (under analysis) Greater potential for gas market integration in MERCOSUR
Andean agreement on regional interconnection of power systems and energy interchanges
Colombia-Ecuador-Perú-Venezuela (observer status) Bilateral agreement: MEM (Ven.) - Termotasajero (Col.)
13
Progress toward energy market integration in Latin America
CAF and the energy sector (at Dec. 31, 2001)
• Total portfolio: $ 6.5 billion• Infrastructure portfolio: $ 4.3 billion• Energy portfolio: $ 1.2 billion• Electricity portfolio: $ 1.0 billion• Approvals, electricity projects: $ 1,4 billion • Number of electricity projects: 27
CAF is currently well positioned to play a catalytic role in promoting energy market integration in South America, on account of its mandate, its strong regional position, its leadership role in IIRSA, its partnership with CIER and OLADE and its close relations with regional authorities.
14
15
A summary overview of CAF
PRODUCTS AND SERVICES: Loans and co-financing Investment banking services Non-Financial services
CLIENTS: Public and Private Sector
CAF´S INDICATORS
16 countries 5 Andean
SHAREHOLDER COUNTRIES: YEAR: 2002
Total Approvals 2001: US$ MM 5.637
SUSTAINABLE DEVELOPMENT REGIONAL INTEGRATION
CAF’s MISSION
MAIN SOURCE OF MULTILATERAL FINANCING FOR ANDEAN CONTRIES
2001 Var.% 01-00Approvals 3.127 34,6Disbursements 2.548 40,1Total Portfolio 6.527 27,5Assets 6.805 16,5Direct Loan Portfolio 5.573 14,7Liabilities 4.862 15,4 Bonds 2.563 9,5Net Worth 1.826 12,4Net Income 113 5,0ROE 6,6%ROA 1,9%BIS Ratio 30,8%Liq. Assets/Financial Liabilities 25,4%Non-accruals / Loan portfolio 0,6%Allowance / Loan portfolio 3,2%
WB -21%
IAFB -25% CAF 54%