By Jorge Piñón
For the first time since July 2008, this month the average price of
Venezuela's crude oil export basket surpassed the $100 per-barrel mark.
This represents a possible negative (replacement cost) cash flow to the
Cuban economy of more than $4 billion on an annualized basis.
The full impact of the recent price increases for Cuba may be cushioned
by the Convenio Integral de Cooperación with Venezuela. Indeed, the
October 2000 services-for-oil barter agreement, under which the island
receives subsidized payment terms, has become more important than ever.
Even so, energy is a vital ingredient to economic growth, and rising oil
bills could derail efforts of putting the Cuban economy back on track.
According to the EIA's 2010 International Energy Outlook Report, the
world GDP is expected to rise by an average of 3.2 percent per year to
2035, while world energy consumption increases by 49 percent, or 1.4
percent per year. Cuba, as other emerging and transitional economies,
will have to cope with the challenge of balancing economic growth and
increased energy demand, particularly in an environment of rising oil
Underscoring Cuba's concerns over its precarious economic dependency on
imported oil from one single source, the government has already
increased consumer prices for transportation fuels by between 4 and 8
percent this year. Meanwhile, prices for electricity rose by up to 285
percent for large consumers. These two sectors account for more than 50
percent of Cuba's petroleum demand.
Renewable energy, energy efficiency, and conservation initiatives, as
outlined in the 2005 Revolución Energética plan, should continue to be
promoted, but are not the final solution to fulfill Cuba's thirst for
energy into the 21st century. Also, the recapitalization of the
sugarcane industry, in partnership with private investors, has the
potential of contributing about 70,000 barrels per day of bio-fuels and
60,000 GWh of bio-mass generated electric power, which would provide
considerable relief to Cuba's energy challenges.
Renewable energy sources such as solar, hydro, and wind should be
considered. But the time, resources, and capital required to capture
their energy, as well as their lack of scale and materiality limits
their short-term potential.
Following the precedent of independent power producer Energas, a
private-public joint venture between Canada's Sherritt and Cuba's
Cupet-UNE that already produces 13 percent of the national electric
production, Cuba should consider more public-private joint ventures in
electric power generation. This could be done by allowing for private
financing, design, building, operation and possibly temporary ownership
of an asset; thereby freeing public funds for much-needed core economic
and social programs while maintaining regulatory control as a public
Public-private energy projects partnerships, along with the creation of
a national energy policy which would embrace economic growth, energy
conservation, modernization of the energy infrastructure, a balanced
sourcing of oil, natural gas (LNG), bio-fuels, and alternative energy
sources, while protecting the island's environment, would contribute
toward Cuba's energy independence.
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