ENERGY ADVISOR a WEEKLY PUBLICATION of the DIALOGUE May 19, 2017

LATIN AMERICA ADVISOR ENERGY ADVISOR A WEEKLY PUBLICATION OF THE DIALOGUE www.thedialogue.org May 19, 2017

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Nigel Blackaby Global Head, OIL & GAS International Arbitration Group, Freshfi elds Bruckhaus Deringer Is Peña Nieto Ecopetrol Seeking Mary Rose Brusewitz to Invest in Light Partner, Strasburger & Price Reaching His Crude Projects Jeffrey Davidow Colombia’s Ecopetrol said it plans Senior Counselor, to take advantage of its nearly $6 The Cohen Group Renewables Goals? billion in cash on hand at the end Ramón Espinasa of the fi rst quarter by focusing on Consultant, purchasing light crude projects. Inter-American Development Bank Page 2 Luis Giusti Senior Advisor, Center for Strategic & POWER SECTOR International Studies Jonathan C. Hamilton Brazil Eyes Partner, Reforms for White & Case Power Sector Raul Herrera Partner, The measures will reverse a 2012 Corporate & Securities Practice, power-sector overhaul by expand- Arnold & Porter President Enrique Peña Nieto overhauled Mexico’s state-controlled energy sector in 2013. ing unregulated power markets James R. Jones One of the government’s goals is to derive 50 percent of the country’s energy from renewable and simplifying industry taxes. Chairman, sources by 2050. // File Photo: Mexican Government. The planned overhaul would allow ManattJones Global Strategies power companies to sell their The Mexican government early this month announced a Jorge Kamine output at higher rates, and with Counsel, timeline for its upcoming renewable energy auction, which fewer restrictions on the lengths Skadden Arps is set to take place in November. Which energy sources are of contracts. Craig A. Kelly Q Page 3 Director, dominating Mexico’s renewables sector? Which sources are Americas Int’l Gov’t Relations, struggling, and how can they adapt, looking ahead? How are renewables Exxon Mobil faring, nearly four years after President Enrique Peña Nieto opened the OIL & GAS Jeremy Martin Vice President, Energy & Sustainability, energy sector to private investment? Venezuela Institute of the Americas Experiencing Larry Pascal Chairman, Doris Rodriguez, partner at Andrews Kurth, and Edmond Fuel Shortages Americas Practice Group, The president of state-run oil Haynes & Boone F. Grieger Escudero, partner, at Von Wobeser y Sierra: “Signifi cant growth and fi nancial investments have been company PDVSA, Eulogio Del Charles Shapiro Pino, blamed the shortages on the President, made in the renewable power market in the approximately nearly two months of protests in World Affairs Council of Atlanta A four years since Mexico opened its energy market and established its the country. R. Kirk Sherr Page 2 President, goals for clean energy. This growth is expected to continue. The prior Clearview Strategy Group and current long-term auctions have been calls for electricity, capacity Mark Thurber and clean energy certifi cates, with renewables being the main focus. Partner, Andrews Kurth Solar and wind energy dominated the 2015 and 2016 auctions, with only Alexandra Valderrama a small piece being awarded to combined-cycle technology for capacity. Manager, International Government Affairs, Recent changes by SENER to the guidelines for interconnection of small- Chevron and medium-scale renewable projects to the national electricity grid will Lisa Viscidi facilitate more integration of renewable generation. These changes signal Program Director, Inter-American Dialogue the Mexican government’s progressive approach to increasing renewable Max Yzaguirre energy production. Moreover, SolarCity’s acquisition of ILIOSS in August President and CEO, 2015 is representative of the interest in renewable energy and the fi nan- The Yzaguirre Group cial investment being made for large-scale renewable energy generation. That numerous Mexican and international developers, including success- Del Pino // File Photo: Venezuelan Government. Continued on page 3

OIL & GAS SECTOR NEWS The station will be located in central Mexico, NEWS BRIEFS and the company plans to open additional sta- Ecopetrol Seeking tions later in the year. Exxon Mobil is planning Venezuela Experiencing to invest $300 million in Mexico over the next Gasoline Shortages Amid to Invest in Light 10 years in fuels logistics, product inventories and marketing. “Recent energy reforms present Protests, Low Output Crude Projects a unique opportunity to help meet the growing Parts of Venezuela were hit by gasoline short- demand for reliable fuel supplies and quality ages on Wednesday as the country’s refi neries Colombian state oil company Ecopetrol on service in Mexico,” the company said in a state- face operational problems and anti-govern- Friday said it plans to take advantage of its ment. Exxon Mobil is following in the footsteps ment protests blocked some delivery routes, nearly $6 billion in cash on hand at the end of British multinational oil company BP, which Reuters reported. The president of state-run of the fi rst quarter by focusing on purchasing opened its fi rst service station in Mexico in oil company PDVSA, Eulogio Del Pino, blamed light crude projects in other Latin American March and expects to have 1,500 in operation the shortages on the nearly two months of countries over the next 18 months, Reuters in fi ve years. Until last year, all of Mexico’s gas protests in the country. Three of Venezuela’s stations were franchises of state oil company four refi neries are producing record-low output Pemex. The rules changed as a result of a due to equipment malfunctioning and a lack sweeping energy reform enacted by President of crude and spare parts, according to internal Enrique Peña Nieto in 2013. The government documents from PDVSA seen by Reuters. began to loosen restrictions on gasoline and diesel prices beginning in March of this year. Currently, Mexico has only one service station for every 3,000 vehicles, compared to one for Argentina, China every 1,650 vehicles in the United States and Sign Nuclear and one for every 2,220 in Canada. Solar Agreements Echeverry // File Photo: Colombian Government. Argentine Minister of Energy and Mining Juan reported. The company more than doubled its Jose Aranguren on Wednesday said the country net income for the fi rst quarter year-over-year Venezuela to Support had reached an agreement that China will fi - to 886 billion pesos, or $300.4 million, due to Plan to Extend Oil nance two nuclear plants and three solar plants better crude prices and improved operating effi - in Jujuy province, Chinese state-run news agen- ciencies, Ecopetrol said. “Our idea is to look for Output Limitation cy Xinhua reported. The agreement was one of reserves of light crude outside Colombia,” said 19 that were signed in Beijing on Wednesday CEO Juan Carlos Echeverry. “We’re in no rush, Venezuelan on Tuesday confi rmed it would during a meeting between Argentine President but it could be something that happens over support a plan to extend a deal between the Mauricio Macri and Chinese President Xi Jin- the next 18 months.” The company has already Organization of the Petroleum Exporting Coun- ping, World Nuclear News reported. “With these met with banks regarding available projects in tries, or OPEC, and non-OPEC member states to agreements, we will produce our own electric the region. Ecopetrol hopes to create a “better energy,” Aranguren said, Xinhua reported. balance” in its crude portfolio, Echeverry said. Approximately 82 percent of Ecopetrol’s portfo- Venezuela believes lio is crude, the majority of which is heavy, and that the agreement only 18 percent is concentrated in gas. between OPEC and non- Brazilian Electricity OPEC countries ... Watchdog Expects Delays Exxon Mobil to has been successful to Abengoa’s Power Lines in helping crude oil Brazilian electricity watchdog Aneel said it Open its First Gas prices recover.” expects another delay in the construction Station in Mexico — Venezuelan Oil Ministry of approximately 3,700 miles of power lines licensed to Spanish solar fi rm Abengoa, U.S. multinational oil company Exxon Mobil on limit the production of oil in a bid to “stabilize” Reuters reported Wednesday. The news is Wednesday announced it would open its fi rst the market, Reuters reported. “Venezuela raising concerns over the reliability of Brazil’s Mobil-brand gasoline service station in Mexico believes that the agreement between OPEC and electricity grid as a new dam comes online. later this year, The Wall Street Journal reported. non-OPEC countries ... has been successful in Abengoa previously halted construction on the transmission lines in 2015.

COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ENERGY ADVISOR May 19, 2017 helping crude oil prices recover,” the country’s in a statement on May 11. The purchase was oil ministry said in a statement. The oil sector Milbank Represents YPF’s fi rst Argentine peso-denominated bond accounts for approximately 94 percent of Ven- offering as part of its $10 billion medium-term ezuela’s export revenue. OPEC and non-OPEC Initial Purchasers of notes program. The fi rm also represented the member states including Russia agreed to cut YPF and Celeo Notes initial purchasers in a $379 million secured output by 1.8 million barrels per day for the notes offering by Celeo Redes Operación Chile fi rst half of this year, in order to boost global due in 2047, Milbank said in a statement May International law fi rm Milbank, Tweed, Hadley oil prices. Saudi Arabia and Russia also agreed 11. Celeo is an operator of power transmission & McCloy advised the initial purchasers in on Monday to extend the agreement by another systems in Chile. The notes will be guaranteed the offering of Argentine peso-denominated nine months. by Celeo’s subsidiaries, Alto Jahuel Transmi- senior notes due in 2022 that are worth 4.6 sora de Energía and Charrúa Transmisora de billion pesos, or $300 million, by Argentine Energía. state oil and gas company YPF, the fi rm said POWER SECTOR NEWS FEATURED Q&A / Continued from page 1

Brazil Eyes Reforms ful renewable energy producers in Mexico’s energy auction, solar developers continue to for Power Sector prior auctions, have eagerly awaited the fl ock to Mexico to establish beachhead proj- current auction process, again with renew- ects and gain market share as the country’s able energy being the focus, also heralds renewable energy landscape continues to The Brazilian government is planning to launch evolve. Mid-size solar projects ranging from free-market reforms for the power sector, 50-150 megawatts have the best oppor- Energy Ministry Planning Secretary Eduardo tunity to gain a foothold in the developing Azevedo said May 11, Reuters reported. The While natural gas will renewable energy market because they will measures will reverse a 2012 power-sector continue to play a have the most predictable project costs overhaul by expanding unregulated power mar- major role in Mexico’s while benefi ting from economies of scale. kets and simplifying industry taxes, Azevedo power-supply calculus, Over time, these projects can be scaled up said. “Freeing up the market is a necessity, but expect to see a in subsequent phases to take advantage of it has to happen gradually,” he said at an indus- continued increase in additional auction opportunities or private try event in São Paulo. “The market is ready to renewable energy.” sector power-purchase agreements as they change, but not next week.” The planned over- — Doris Rodriguez & Edmond F. Grieger Escudero present themselves. The decisive factor in determining the success of many projects will be the commercial banking sector’s the expected growth in Mexico’s renewables comfort level with the applicable project’s sector. While natural gas will continue to contracted energy pricing. The ‘fi nance- play a major role in Mexico’s power-supply ability’ of projects will ultimately determine calculus, expect to see a continued increase where Mexico’s renewable energy market in renewable energy, including its most pricing fi nally settles and which technology common components—solar, wind, effi cient dominates the market going forward.” co-generation and biomass—as Mexico ag- Azevedo // File Photo: ciers.org.br. gressively aims to reach its goals of having José Alberro, co-head of 25 percent by 2018, 30 percent by 2021 international arbitration and haul would allow power companies to sell their and 35 percent by 2024 of its power supply litigation practice at Corner- output at higher rates, and with fewer restric- generated from clean-energy sources.” stone Research: “Four years tions on the lengths of contracts. The reforms A after President Enrique Peña Nieto opened would also cut the subsidies for renewable Dino Barajas, partner at Akin electricity generation to private investment, energy sources, Reuters reported, citing news- Gump Strauss Hauer & Feld his agenda for renewables has started meet- paper Valor Econômico. The overhaul would be LLP: “Renewable energy, partic- ing its ambitious goals. Mexico expects to the latest under President Michel Temer’s ad- ularly solar projects, is coming provide 35 percent of the nation’s electricity ministration as he works to boost investment in A into its own in Mexico this year. Despite from renewable sources by 2024, 40 percent Brazil’s energy sector as the country emerges lower-than-expected pricing in last year’s by 2035, and 50 percent by 2050. The invest- from its worst-ever recession in history. Continued on page 6

POLITICAL NEWS ADVISOR Q&A Temer Reportedly Taped Encouraging Is Colombia’s Peace Accord Bribes to Cunha Successfully Being Implemented?

The chairman of Brazilian meatpacking giant In early May, an employee of the of peace. Additionally, it is necessary to JBS recorded a conversation with President United Nations was kidnapped remember that the agreement of the Colón Michel Temer in which Temer was allegedly Q in Colombia by the FARC rebel Theater with the FARC was signed despite heard endorsing the businessman’s bribing group during a visit by the U.N. being defeated in a popular vote, by a of Eduardo Cunha, the jailed former speaker Security Council to support the country’s discredited government that does not enjoy of the lower house of Congress, in order to recent peace accord. The captors are part popular confi dence. All this led to a deep buy his silence, Brazilian daily newspaper O of a unit of the FARC that has refused to division of Colombian society with respect Globo reported late Wednesday. The business- disarm as part of last year’s peace deal. to the agreement, and under these condi- man, Joesley Batista, reportedly recorded the The following week, eight people were tions, the enormous collective effort that is kidnapped by the ELN rebel group, but were necessary to execute the accord cannot be later released. How is the implementation materialized. Proof of the above is that the of the peace accords between the gov- timelines are not being met, which is gener- ernment and the FARC rebel group going? ating complaints, ranging from logistical and Does there appear to be any progress in security problems in the concentration areas the peace talks between the government to dark negotiations in Congress to deal with and the ELN? Will the United States make the rules that the government requires to good on former President Barack Obama’s implement the agreement. With this back- pledge to give $450 million to Colombia to ground, the other groups outside the law feel aid in the implementation of its peace deal? empowered to obtain greater concessions Temer // File Photo: Brazilian Government. How can the Colombian government ensure from the Colombian state and society. That conversation with Temer in March in which he citizen security as the two sides implement is why I am skeptical about the process with told the president that he was regularly paying the peace accord? the ELN, which has not renounced abduction Cunha to remain silent. Temer, O Globo report- as a tactic and continues with terrorist ac- ed, was heard in the recording, saying, “You Marta Lucía Ramírez, former tions. For Colombia, it would be very helpful have to maintain that, alright?” The recording Colombian defense minister if the United States government reminded was submitted to Brazil’s Supreme Court as and foreign trade minister: President Santos that his main job is to pre- part of a cooperation deal between Batista A “The agreement with the FARC serve the integrity of the nation of Colombia, and federal prosecutors. Batista made the can’t reach its objectives if it does not not only in its territory, but as a single people recording the evening of March 7 at Temer’s have legitimacy, and this agreement lacks struggling to escape poverty, social injustice residence in Brasília, the newspaper reported. precisely of legitimacy. Instead of bringing and violence.” Batista told prosecutors that he had paid a citizens together around peace, the govern- total of $1.6 million to Cunha since Cunha’s ment of Juan Manuel Santos divided them. arrest last October, according O Globo. The The campaign led by Santos was sold an EDITOR’S NOTE: More commentary on this plea bargain is connected to the massive graft impossible peace by the concessions that topic appeared in Thursday’s issue of the scheme involving state oil company Petrobras, he granted to the terrorists, and stigmatized daily Latin America Advisor. The New York Times reported. The Supreme the Colombians by making them choose Court did not confi rm nor deny the existence between identifying as enemies or friends of the recording, and Temer’s offi ce said in a statement that the president met with Batista gaining or collaborating with [prosecutors], the JBS also declined to comment. The report but “never requested payments to obtain the si- president’s offi ce added in the statement. Ba- led to calls for Temer’s resignation from the lence” of Cunha, The Wall Street Journal report- tista declined to comment, as did a lawyer for opposition. “This government has to fall now,” ed. “He didn’t participate in or even authorize Cunha, who in March was sentenced to more Senator Lindbergh Farias of the Workers’ Party any movement [of funds] with the objective of than 15 years in prison on corruption charges. said in a video posted to his Facebook page, preventing the ex-congressman from plea-bar-

NEWS BRIEFS calling for Temer’s resignation. “We’re meeting sent to Congress by the U.S. executive at some here with our legal advisors to prepare articles time early next week,” he said the Tuesday after Peña Nieto to Meet of impeachment.” meeting with U.S. Commerce Secretary Wilbur Next Month With Ross the day before. During his campaign, Trump had vowed to withdraw the United Guatemala’s Morales U.S. Brings Venezuela States from NAFTA if he could not renegotiate Mexican President Enrique Peña Nieto will trav- Concerns to U.N. a better deal for the country. In Washington, el to Guatemala to meet with President Jimmy Ross and Lighthizer said they would prefer to Morales on June 5 and 6, Peña Nieto’s offi ce Security Council said in a statement Wednesday, Reuters reported. The meeting comes as Mexico is looking The United States on Wednesday called consul- to take a larger role in the region’s migration tations at the U.N. Security Council to discuss issue. The majority of migrants headed from the worsening crisis in Venezuela, saying the Central America to the United States cross Trump administration wants to prevent another the border between Guatemala and Mexico. A confl ict like the one in Syria, the Associated diplomatic source also said the visit is in part Press reported. “We’ve seen 150 political to offer support to Morales, whose family has prisoners, over 1,500 arrests and clearly we’re been ensnared in a corruption scandal, and to starting to see serious instability in Venezuela,” Guajardo // File Photo: Mexican Government. discuss the extradition of Mexican politician said U.S. Ambassador to the United Nations Javier Duarte, who was arrested in Guatemala Nikki Haley, following a more than 90-minute keep the current trilateral format in the NAFTA after fl eeing Mexico over graft and organized closed-door briefi ng and discussions. “We’ve renegotiation talks. Guajardo also said on crime charges. been down this road with Syria, North Korea, Tuesday that a dispute between the U.S. and South Sudan, Burundi, with Burma.” Haley said Mexican sugar industries could be resolved the meeting was aimed at confl ict prevention, within the next two weeks, before a June 5 Honduras Transfers Gang not Security Council action. Venezuela’s U.N. deadline. Late last year, the U.S. sugar industry ambassador, Rafael Ramírez, objected to the lobbied for the U.S. Commerce Department Members to Maximum- discussion, saying Washington was trying “to to renegotiate or withdraw from a 2014 Security Prison interfere in our domestic issues.” agreement that set prices and quotas for U.S. imports of Mexican sugar. The U.S. sugar lobby The Honduran government said Tuesday wants Mexico to export less sugar. A spokes- it had transferred 773 gang members to a ECONOMIC NEWS man from the U.S. Commerce Department said maximum-security prison as part of a plan to Ross and Guajardo had discussed possible relocate approximately 2,000 inmates in order solutions to the dispute and are continuing to to prevent penitentiaries from becoming head- Mexico Expecting work toward a settlement. quarters for criminal activities, Reuters reported. Hundreds Mara Salvatrucha, or MS-13, and NAFTA Talks Barrio 18 gang members were transferred from by Late August Chile, China the overcrowded Marco Aurelio Soto prison to a high-security prison known as El Pozo II. Agree to New Mexican Economy Minister Ildefonso Guajardo on Tuesday said he expects U.S. President Don- Cooperation on Tech ald Trump’s administration to inform Congress Authorities Intercept Ship early next week of its intent to renegotiate Chile and China have agreed to strengthen Carrying 5.5 Metric Tons the North American Free Trade Agreement, or coordination and cooperation efforts in order of Cocaine Off Ecuador NAFTA, which would lead to talks being held to bolster their strategic partnership in sectors among the United States, Canada and Mexico including connectivity, information communi- Spanish and Ecuadorean authorities in a coor- by late August, Reuters reported. Guajardo cation, high-tech sectors and astronomy, the dinated drug seizure intercepted a ship off the added that he would have more information two countries said in a joint statement Monday, coast of Ecuador that had more than 5.5 metric about the time line for renegotiation after Chinese state news agency Xinhua reported. tons of cocaine bound for Spain, offi cials said meeting with U.S. Trade Representative Robert Chilean President Michelle Bachelet has been Monday, the Associated Press reported. The Lighthizer in Vietnam on Thursday during the on a state visit to China and attended the Belt shipment is believed to have been organized by Asia-Pacifi c Economic Cooperation, or APEC, and Road Forum for International Cooperation a drug-traffi cking ring in Galicia. meetings. “Probably the notifi cation will be in Beijing.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ENERGY ADVISOR is published weekly by the Inter-American Dialogue Copyright © 2017 ments in eolic and photovoltaic generation generation with load factors that can top 40 necessary to reach these objectives require percent; and the National Renewable Energy Erik Brand allocating land to that purpose and adapting Laboratory ranks Mexico’s solar resources Publisher [email protected] the grid confi guration. Approximately 15,000 among the world’s best and most abundant: miles of new transmission lines need to be 1.5 percent of the territory would be suffi - Gene Kuleta Editor built by 2030 to exploit eolic and photovol- cient to generate all electricity consumed. [email protected] In 2013, 22.7 percent of generating capacity Nicole Wasson used renewables, prominently 12,500 MW of Reporter, Assistant Editor hydro; 2,050 MW of eolic; 310MW from ba- [email protected] [Peña Nieto’s] agenda gasse and 60 MW of photovoltaic. By 2016, for renewables has renewables represented 25.2 percent of the started meeting its total, and most of the increase had come from the expansion of eolic (56 percent), Michael Shifter, President ambitious goals.” bagasse (140 percent) and photovoltaic (380 Genaro Arriagada, Nonresident Senior Fellow — José Alberro percent). By 2019, eolic capacity is expected Sergio Bitar, Nonresident Senior Fellow to triple and photovoltaic capacity is expect- Joan Caivano, Director, Special Projects ed to grow 20-fold. Those estimates include Michael Camilleri, Director, Peter D. Bell Rule of Law Program the winners of the fi rst and second renew- Kevin Casas-Zamora, Nonresident Senior Fellow taic resources located in the northern and able energy auction carried out over the last Ariel Fiszbein, Director, Education Program western parts of Mexico, far from population couple of years. It is interesting to note that Alejandro Ganimian, Nonresident Fellow centers and industrial activity. Juggling the fi rst renewable energy auction resulted Peter Hakim, President Emeritus all components without dropping one is a in average purchases prices of $45.15 per Claudio Loser, Senior Fellow signifi cant challenge. It is projected that megawatt hour from photovoltaic sources Nora Lustig, Nonresident Senior Fellow total investment in the sector will have to and $55.39 per MWh from wind sources— Margaret Myers, Director, China and top $120 billion over the next 15 years, $90 some of the lowest in the world. The second Latin America Program billion of which will have to be in generation auction resulted in prices 15 percent lower.” Manuel Orozco, Director, Migration assets (increasing capacity by 80 percent). Remittances & Development Mexico’s potential for electricity generation The Advisor welcomes comments on its Q&A Jeffrey Puryear, Senior Fellow from renewable sources is important: it is section. Readers can contact editor Gene Tamar Solnik, Director, Finance & Administration Lisa Viscidi, Director, Energy Program estimated to be 50,000 megawatts for eolic Kuleta at [email protected]. Denisse Yanovich, Director, Development and External Relations

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