business

Panama, which has has few fuel resources, has long had some of the world’s most expensive electricity. Who’s at fault for the situation seems to be a favorite topic for the various people and institutions most at fault, but for any honest and astute observer several forces would be noticed in play. Regardless of the blame game, Panamanians pay between 12 and 17 cents per kilowatt hour, between 20 and 60 percent more than what people pay in neighboring countries, and, according to El Panama America, since privatization in 1997 our rates have risen between 9.29 and 21.44 percent.

Then we have this spike in world petroleum prices --- or should we call it a plateau now? The prices do fluctuate, but they don’t appear ready to go down to what they were before the Iraq War anytime soon and Panama imports all its oil. That has distorted the cost structure of public transportation and depleted the government’s tax revenues, and moreover was being used as a basis to urge even higher electric rates.

The Torrijos administration has taken three major steps and a bunch of smaller ones to head off the most politically devastating effects of our energy crisis, but there are limits to how far he can go:

• In order to avoid large across the board bus and taxi fare increases --- the former which were approved by the Land Transportation and Transit Authority last year --- yet avoid crippling bus strikes, the government is subsidizing the fuel that bus drivers and cabbies use. This was first done by cutting taxes imposed at the pump, and might be extended to direct subsidies to the gas station chains. Last year, according to El Panama America, the government lost some $40 million in tax revenue due to such measures. The continuation or expansion of such tax breaks or subsidies would naturally put a hole in the government’s budget, but the ripple effect of higher transportation costs could cause an economic slowdown that would also affect the government’s tax revenues.

• When the Pérez Balladares administration broke up and sold off the old state-owned IRHE electric utility, it created the Public Services Regulating Board (Ente Regulador) to oversee the newly privatized monopolies. Fingers have been pointed in various directions but whether it happened from the outset or during the Moscoso administration, the bottom line is that the utilities that the Ente Regulador regulates effectively grabbed control over that entity. However, just before leaving for their break between legislative sessions, the National Assembly gave President Torrijos the power to reform the Ente Regulador by decree. We have yet to see what he will actually do, but there is an expectation that the relationship between the regulators and regulated will become less cozy.

• At the start of this year the Ente Regulador announced electricity rate hikes of up to 32 percent, with the poorest two-thirds of residential customers not directly affected insofar as their home electric bills were concerned, but nevertheless immediately seeing the impact when buying groceries because the supermarkets passed on the steep increase in their refrigeration costs. The situation had conservative business owners marching in the streets with radical trade unionists to protest, and the left objecting to a rate increase that fell heaviest on big business. On January 23 the Torrijos administration suspended the Ente Regulador’s rate hike for 90 days and ordered the electric companies to pay their customers back for the increases already charged in the form of discounts on future bills.

Those things done, there were left many things to be more permanently settled, and moreover there was pending litigation. Chief among the latter was a lawsuit brought by the nation’s Ombudsman (Defensor del Pueblo) Juan Antonio Tejada, seeking to force the electric utilities to open their books.

The president persuaded the utilities to reveal some of their financial data, including their profit margins. When that happened Panamanians still didn’t know what cushy executive perks are part of the electric companies’ cost structures, but we did find out that the plea of poverty that we had been hearing from the utilities was bogus. While world fuel prices were rising, so were the profits of the electricity business in Panama.

When the electric rates were rolled back a presidential commission was established to take 90 days to consider and report upon the energy problem, and presumably to recommend changes in policies that were adopted by previous administrations. However, that commission has quickly bogged down in controversy. It seems that Minister of the Presidency Ubaldino Real owns a stake in a small hydroelectric project but sees nothing wrong with writing the policies that will determine his private business’s profit margins. By Real’s criteria, because he won’t be selling power to the government and he won’t actually be writing the laws, there’s no conflict. But El Panama America has called for him to step down.

Meanwhile, it turns out that when some of the utility companies had their rate increase and saw that it was likely to be overturned, they sent out monthly bills based on 34-day “months.” Moreover, some of the power companies came back to the Ente Regulador with new petitions for interim rate hikes. The latter moves were summarily rejected by the board.

While the large-scale political chess game has been underway, various smaller moves that may turn into major factors are in the making:

• We now see more taxis running on the streets of Panama City with stickers advising that they are fueled by natural gas. This alternative to high gasoline prices was undertaken by the Torrijos administration in the middle of last year.

• The Panama Canal Authority (ACP) announced that it has reconsidered its prior decision to get out of the business of selling electricity generated by the turbines at the Gatun and Madden dams on the private market. Especially because the water that might otherwise be used for hydroelectric generation is needed for canal operations, this move will have a significant but relatively small impact on the nation’s power supply and a much more substantial positive impact on the revenue side of the ACP’s ledgers. But we still have yet to see the authority’s plans for a canal expansion project and whether and to what extent new electric generating capacity will be a part of them. Suggestions are being floated about a new public sector power generating consortium with the ACP as its main participant.

• Panama Technological University (UTP, or the Tecnologico) is undertaking a study about the possibilities of developing a bio-diesel industry in Panama, which would recycle used cooking oil into fuel for motor vehicles. Last year the Brazilian government announced that it would make funds available to assist Panama in the creation of plants to produce bio-fuels.

• One of the nation’s private based electricity distribution companies, Union Fenosa (a subsidiary of a Spanish-based multinational), has adjusted its sails to the political winds and announced a campaign to promote energy saving techniques in Panamanian households.

• New hydroelectric plants are on the way, the latest to be announced an AES project to dam the Changuinola River in Bocas del Toro and start generating 150 megawatts of power sometime in 2010. At the ceremony announcing the project President Torrijos took the occasion to say that his administration won’t be handing out, much less selling, special privileges for investors. He added that the benefit that investors will get is that “in Panama the law reigns and is applied equally to all.” But many of the projected hydroelectric dams are opposed by neighbors or environmentalists, and some appear to be mere scams that will not generate significant electricity but will provide artificial lakes or water supplies for development projects while using the hydroelectric label to avoid the jurisdiction of the National Environmental Authority (ANAM).