Proceedings

Presentation of Country Reports

Country: Guatemala

 

Success Story: Privatization of the Energy Sector in Guatemala,

a  Public-Private Partnership

by Ms Maria Mercedes Zaghi

Senior Project Advisor

Guatemalan Commerce Chamber, Guatemala

 

INTRODUCTION

The Guatemala Government initiated a series of efforts to privatize different industry sectors in 1998.  The main industries that were privatized include the airline sector, the energy sector and the telecommunications sector, according to the following table published by the World Bank in 2000:

 

1998 - 1999 Privatization Transaction Data

Source: World Bank, 2000 (amounts in US$ millions)

Year

Country

Company

Sector

Share sold (%)

Sale Amount

Foreign exchange earned on transaction

Financial Notes

Purchaser(s)

Name of purchaser(s)/Additional details

1989

Guatemala

Aviateca

Airlines

75.0

13.4

4.0

 

local/foreign investors

TACA Airlines (El Salvador, 30%)/local investors (45%)

1997

Guatemala

La Laguna, Stewart, Stevenson generating units

Thermoelectric plants

..

30.0

..

Private sale/Joint Venture

Foreign/Local investors

Guatemala Generating Group a subsidiary of the Constellation power Development (Baltimore, MD) and state-owned distributor EEGSA

1998

Guatemala

Guatemalan Electric Company

Electricity

80.0

520.0

520.0

Direct sale

Foreign investors

Spain's Iberdrola Energia (49%) and TPS de Ultramar (30%); and Portugal's Electricidade de Portugal (21%)

1998

Guatemala

Telgua

Telecommunications

95.0

700.0

 

Direct sale

Local investors

Luca consortium-largely composed of local investors

1999

Guatemala

Electrica de Occidente/Oriente

Electricity

80.0

101.2

101.2

Trade sale

Foreign

Union Fenosa (Spain)

 

The effort in the energy sector included several companies:  the electricity distributor in the capital city (Guatemalan Electric Co), the electricity in rural areas (Electrica de Occidente y Oriente) and a thermoelectric generating plant.

The financial options used in the privatization scheme included foreign and local investors for private sale as a joint venture in the first case, foreign investment as a direct sale in the second and foreign trade as a trade sale in the last.

The process of privatization in the electricity industry began earlier in 1996 by the Government of the Republic of Guatemala. The process of deregulation began with the publication of the General Electricity Law, Decree No. 93-96 and its Regulations, Government Agree No. 256-97.

Within the 44th article of the General Electricity Law,  the creation of the wholesale market Manager (Administrador del Mercado Mayorista - AMM, in Spanish), a non-lucrative and private entity, with the following  major functions:

  • To coordinate the power plants operations, the international interconnected system and transmission lines, to ensure a minimal cost for the whole operations in the market, and to develop a free electric energy contractual scheme among all market participants.

  • To establish energy and power transaction short-term market prices among the market participants.

  • To ensure and guarantee the electric energy security and supply for the whole country.

In addition to the previously mentioned functions, AMM must perform the following tasks:

Operation Programming:

The AMM is responsible for the annual planning for covering the needs of power and energy in the system, trying to optimize the use of available energetic resources. The annual program is reviewed and adjusted in a weekly and daily basis.

Supervision of Real Time Operation:

The AMM must monitor the behavior of the demand, the operation of the generation plants, and the transportation system. It also has to assure the security of supply by constantly verifying the electrical variables of the system and complying with the limitations of the equipment and associated facilities.

Transactions Management:

The AMM must quantify the Power and Energy exchanges between participants of the Market,  and assign a monetary value using the Spot Energy Price and the Power Reference Price. For this, the AMM must design and implement a measuring system that allows to know on an hourly basis the energy and power produces and/or consumed. Furthermore, it will manage the funds that are a product of the transactions between the agents that operate in the Market.

The creation of this organization, the AMM, as part of the privatization scheme was part of the liberalization of utility services for private operation, but since the electric industry has monopolistic characteristics a regulating  model was established by creating a National Electric Commission (NEC) that oversee the AMM operation in coordination with the  Ministry of Energy.

ORGANIZATION

According to the  21st  Regulation Article of the AMM, the principal authority of the organization  is the Board of Directors which is formed by two members of each wholesale market sector (one titular member and one supplementary member). The members are elected for a 2 years period, and could be re-elected for an additional period.

 

Their major functions, according to the 20th  Regulation Article, include:

  • To identify faults and non compliances of the Market Participants.

  • To solve the discrepancies that arise from the operations in the Market,  in whatever matter of its competence.

  • The executive branch for the decisions of the Board its the General Management, who will be responsible for the execution of the technical and managerial tasks for the coordination and functioning of the AMM.

  • To approve and send electrical documents, studies and reports done  by AMM, to National Electric Energy Commission (NEEC).

A CEO (Chief Operation Officer) is  responsible for the coordination and management of  the  AMM administrative and technical activities.

The ruling entity of the AMM is the Board of directors, which is formed (according to Article 21 of the AMM Regulations) by a holder and a substitute  representative of each of the five groups of market participants. The representatives have to be elected for a two year period and can be reelected.

MISSION

      The AMM is a private, non-profit entity that coordinates the transactions between the participants of the Electrical Market, that assures the competition in a free market, with clear rules that promote investments in the electrical system, and that ensures the quality of the electricity service in Guatemala.

MEMBERS

The wholesale market players or members, are defined in the  5th  regulation article with the following categories: Power Generators, Transporters, Distributors, Major Users and Commercial Members.

 

The basic requirements to be a member, for each category, are:

 

Member

Requirement

Generators:

Minimal 10 MW installed capacity

Distributors:

At least 20,000 subscribed users

Transporters:

Minimal 10 MW connected firm power

Commercial Members:

To buy or sell energy blocks related with a minimal 10 MW firm power.

Major Users:

Energy demand exceeding 100 KW


The wholesale market Players have the following rights and obligations, according to 6th  regulation article:

Obligations:

  • To not commit any acts against the free electric market

  • To follow the National Electric Energy Commission and AMM regulations

  • To follow AMM operation instructions

  • To install and keep in good conditions any measuring equipment requested by the AMM

  • The demand members must have a firm demand back-up contract

Rights:

  • A wholesale market free operation, according to the law

  • AMM scheduling and dispatch models and methodology access

 

INITIAL LIST OF MEMBERS

 

Generators

No.

Member

1

Siderúrgica de Guatemala (SIDEGUA)

2

Tampa Centroamericana de Electricidad Ltda. (TCAE)

3

Puerto Quetzal Power LLC (PQP LLC)

4

Grupo Generador de Guatemala y Cía. S. C. A. (GGG)

5

Empresa de Generación de Energía Eléctrica del INDE (EGEE)

6

Generadora Eléctrica del Norte S. A. (GENOR)

7

Hidroeléctrica Secacao S.A.

8

Lagotex S. A.

9

Fabrigas S.A.

10

Central Generadora Eléctrica San José Ltda

11

Orzunil 1 de Electricidad Ltda.

12

Central Agro Industrial Guatemalteca S. A. (Madre Tierra)

13

Inversiones Pasabien S. A.

14

Concepción S.A.

15

Cía. Agrícola Industrial Santa Ana S. A.

16

Pantaleón S.A.

17

Ingenio Magdalena S.A.

18

Ingenio La Unión S.A.

 

Transporters

No.

Member

1

Empresa de Transporte y Control de Energía Eléctrica del INDE (ETCEE)

 

 

Distributors

No.

Member

1

Empresa Eléctrica de Guatemala S. A. (EEGSA)

2

Distribuidora de Electricidad de Occidente S. A. (DEOCSA)

3

Distribuidora de Electricidad de Oriente S. A. (DEORSA)

 

Commercial Members

 

No.

Member

1

Comercializadora Eléctrica de Guatemala S. A. (COMEGSA)

2

Comercializadora de Electricidad Centroamericana S. A. (CECSA)

3

Empresa Eléctrica de Nororiente S. A. (ELECNO)

4

Inversiones JACSA, S. A.

5

Mayoristas de Electricidad (MEL)

6

Poliwatt Limitada

7

Conexión Energética Centroamericana, S. A.

8

Comercializadora de Electricidad Internacional, S. A. (CEI)

 

Major Users

 

No.

Member

1

Maderas El Alto S. A.

2

Industrias del Atlántico

3

Bandegua Fincas

4

Bandegua Cuartos Fríos

5

Cementos Progreso S. A.

6

Consultora Integral Atlanta

7

Compañía Agrícola Diversificada (COAGRO)

8

Corrugadora Guatemalteca S. A.

9

Embotelladora del Atlántico S.A.

10

J & R Ropa Deportiva de C.A. S. A. (JR Sports)

11

Empresa Portuaria Nacional Sto. Tomás de Castilla

12

Productos de la Tierra S. A. (PROTISA)

13

Amatique Bay Resort & Marina

14

Cía. Bananera Guatemalteca Independiente (COBIGUA)

15

Standard Fruit of Guatemala (DOLE)

16

Pichilingo Resort & Marina S. A.

17

Telefónica Sam de Guatemala S. A.

Municipal Companies (Distributors)

No.

Member

1

EEM de Huehuetenango

2

EEM de Zacapa

3

EEM de Gualán

4

EEM de Jalapa

5

EEM de Puerto Barrios

6

EEM de Guastatoya

7

EEM de Retalhuleu

8

EEM de Quetzaltenango

9

EEM de San Pedro Sac., San Marcos

10

EEM de San Marcos

11

EEM de Santa Eulalia

12

EEM de Joyabaj

13

EEM de San Pedro Pinula, Jalapa

 

CURRENT SITUATION

The privatization of the energy sector in Guatemala, 4 years later, has been one clear example of a success story.  During this for years, the private organization created to coordinate the Guatemalan energy market has accomplished a  number of its original objectives and more including:

 

AMM Power Dispatch Center: This unit, coordinates real time operation coordination of the Guatemala’s National Interconnected System and its international interconnections.

 

 Commercial Coordination Norms: The dispositions and procedures have been approved by National Electric Energy Commission and are being successfully used for commercial transaction coordination.

 

Coordination Norms:This dispositions are being used by the AMM, according to Electricity Regulation law, for continuity and quality electrical service.

 

Long-Term Programming: The programming has been done on a yearly basis and the results are sent to both members and the National Electric Energy Commission, in order to receive constant  observations and feedback within the period established by Coordination Norms.

 

Operative Coordination Norms: This dispositions have been used and approved by National Electric Energy Commission, for  the National Interconnected System operation and coordination.  Their main objective is to satisfy the demand at minimal cost, to guarantee system reliability and to provide a quality service.

 

Real Time Operation: The coordination of the National Interconnected System and international interconnections operations, including the complementary services (primary reserve, secondary reserve, black start, and so on). The objective is to keep the balance between generation and demand to guarantee the system reliability. The AMM Control Center (Dispatch Center) has the responsibility of the real time operation, either on normal or emergency conditions. That AMM unit has the authority over the bulk power generation system.

 

Technical Norms: These dispositions by the National Electric Energy Commission, according to the Electric Law and Regulations and to international norms have been used as a  Commercial and Operative complement.

 

Weekly Programming: A set of  values consisting of one value for each hour for a single day for each day of the week are constantly being published in the AMM´s Web site to insure transparency and as information to members and the general public.

 

GENERAL RESULTS AND CONCLUSIONS :

According to the AMM 2001/2002 Financial Statements,  during the fiscal year:

 

  • US$394,670,862.57 were liquidated through the AMM.

  • 5,959.27GWh were generated

  • New mechanisms and Procedures have been implemented helping to the modernization of the sector

  • 19 new major users joined the network

  • 2 new generators and 3 new distributors joined the network

  • New hydroelectric generation is being provided to the system adding the offer of potency to 36MW with 3 new projects.

  • The construction of the first thermal generation plant in the country is started and will contribute to an increase in the potency offer in 164 MW

  • the AMM is now part of the regional electrical system and will start participating in the Central American market in order to buy and sell energy.

Among the general improvements in the market that can be accountable to the privatization scheme and that can be identified the following are the more significant:

 

  • The profitability of the participating firms has increased significantly after the privatization scheme

  • New investment in the generation of energy has increased the overall capacity of the electric system

  • Operation costs (including employees) have been reduced after the privatization

  • An increase in the transaction number and amounts is notorious after the privatization

  • The energy market has started to become more competitive

  • After the restructuring process, the prices of energy in Guatemala have increased moderately due to the fact that the service is no longer subsidiated.

  • Private participation in energy has grown rapidly

  • There have been significant efforts done by the previous government organizations to  catch up with their more efficient peers in the private sector.

  • Some losses have also been identified in price increases and labor and wage cuts but that is stabilizing.

  • According to the World Bank, these  main trends have emerged in private energy projects in developing countries during the past decade and have been the case in Guatemala:

    • As in other infrastructure businesses, private participation in energy grew rapidly during the 1990s.

    • Latin America and East Asia have led in private activity in energy, each following a different approach.

    • Private activity in energy—whether measured by countries, projects, or investment—has been concentrated more in electricity than in natural gas.

  • In general, after the privatization scheme the service of energy in Guatemala has considerably improved.  Failures in power supply and rare.

  • The general electric system has grow considerable in rural areas.  New investments for electric systems for rural communities is a fact.

  • Although the price of electricity has increased for the general public (it was initially was covered by government subsidies), the prices have stabilized.  A special rate for low consumers has been established.

  • Prices for commercial electricity for major users such as manufacturers, factories, buildings, etc. have considerably been reduced (at least 15%) which has impacted very positively in cheaper products and services, more job offers and others.

  • The technical quality of the sector employees has been significantly improved, since  more training, possibility of executive exchanges with other countries, more competition among the sector companies are among the factors that have contributed to the improvement.

  • The new regional market (Central America) which recently started operating has make the system more efficient in prices, contracts and service since transactions for the 5 countries are liquidated in El Salvador giving the central American electrical system the opportunity to run more efficiently.

Note:  The author has been a senior project advisor for the AMM administration since the start of the  project in 1999.  The actual study is being conducted as a project for the Guatemalan Chamber of Commerce as part of the Guatemalan Country Gateway, a project sponsored by the World Bank through the Gateway Development Foundation. The actual conclusions and recommendations for the project are currently being revised.