ENERGY ADVISOR a WEEKLY PUBLICATION of the DIALOGUE November 1, 2019

LATIN AMERICA ADVISOR ENERGY ADVISOR A WEEKLY PUBLICATION OF THE DIALOGUE www.thedialogue.org November 1, 2019

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Nigel Blackaby Global Head, OIL & GAS International Arbitration Group, Freshfields Bruckhaus Deringer Will LAC Meet its Pemex Posts Net Mary Rose Brusewitz Loss in Q3, Makes Member, Clark Hill Strasburger Renewable Energy Progress on Debt Jeffrey Davidow The Mexican state oil company Senior Counselor, registered a $4.4 billion loss but The Cohen Group Goals By 2030? said it had reduced its hefty debt Jonathan C. Hamilton load by 6.1 percent. Partner, Page 3 White & Case Ana Heeren Managing Director, OIL & GAS FTI Consulting Fernández Defeats Raul Herrera Partner, Macri in Argentine Corporate & Securities Practice, Arnold & Porter Presidential Vote James R. Jones Peronist Alberto Fernández vowed Chairman, during his campaign to unpeg Ar- Monarch Global Strategies gentina’s wholesale energy prices Jorge Kamine Nine Latin American and Caribbean nations want to bring the amount of electricity they collec- from the U.S. dollar. His govern- Counsel, tively get from renewable sources to 70 percent by 2030. A wind farm in Colombia is pictured ment may also face challenges to Skadden Arps above. // File Photo: Colombian Government. the development of Vaca Muerta Craig A. Kelly from labor unions, one of his key Countries in Latin America and the Caribbean have set Director, constituencies. Americas Int’l Gov’t Relations, a collective goal of 70 percent renewable energy use by Page 2 Exxon Mobil 2030, the most ambitious plan in terms of a global region, Tyler Kruzich Director, Int’l Gov’t Affairs for Q Colombian Energy Minister María Fernanda Suárez said this OIL & GAS the Western Hemisphere, month. Chile, Peru, Ecuador, Costa Rica, Honduras, Guatemala, Haiti, Chevron Guaidó Gov’t Files the Dominican Republic and Colombia are part of the pact, and Panama Jorge León Suit to Retain Energy Economist, and Brazil are considering joining, she added. Is 70 percent renewable BP Control of Citgo energy by 2030 a realistic goal for Latin America and the Caribbean? Jeremy Martin Venezuela’s opposition govern- What are signatory countries doing to achieve the target, and how much Vice President, Energy & Sustainability, ment, led by Juan Guaidó, filed Institute of the Americas will market dynamics dictate outcomes? How do other global regions suit in a U.S. court seeking to Larry Pascal compare with Latin America and the Caribbean? eliminate bondholders’ rights to Chairman, seize Citgo equity as collateral Americas Practice Group, for a bond of state oil company Haynes & Boone Ursula Cassinerio, analyst at Moody’s: “Most countries in PDVSA that matures next year. Charles Shapiro Page 2 President, Latin America have committed to clean energy targets that World Affairs Council of Atlanta support a transformation of the energy matrix toward non- R. Kirk Sherr conventional renewables. Some countries, such as Brazil, are President, A Clearview Strategy Group already close to meeting their targets. We estimate that within the next Mark Thurber 20 years the penetration of renewables in Latin America will be more than Partner, Hunton Andrews Kurth 70 percent. Various factors underpin the conversion of the energy mix. In Jose L. Valera addition to growing social sensitivity pressuring governments to gradually Partner, retire coal-fired plants, the development of renewable energy projects is Mayer Brown LLP increasingly supported by fundamental economic drivers. As technol- Lisa Viscidi Program Director, ogy advances and competition intensifies, renewable projects are less Inter-American Dialogue onerous to develop and operate, as compared to traditional carbon-based plants, even without subsidies. Moreover, as market perception toward climate change shifts and demand for sustainable investments increas- Guaidó // File Photo: Venezuelan Government.. Continued on page 3

OIL AND GAS NEWS around and sell that oil or refine it.” [Editor’s NEWS BRIEFS note: See related Q&A in Oct. 11 issue of the Guaidó Government Energy Advisor.] Renewables Cover 7.9% of Argentina’s Electricity Files Suit to Protect Peronist Fernández Demand in September Citgo From Seizure Defeats Macri in Electricity generation from renewable sources in Argentina increased 18 percent in Septem- Venezuela’s opposition government on Tuesday Argentina Election ber, as compared to the previous month, to escalated efforts to protect Citgo, state oil supply 7.9 percent of the country’s electricity company PDVSA’s U.S.-based refiner, from Argentines on Sunday elected Peronist candi- demand, PV Magazine reported Monday. Most seizure, filing suit in a U.S. court seeking to date Alberto Fernández as the country’s next of the increase can be attributed to an 18 eliminate bondholders’ collateral rights and president without the need for a runoff, and percent rise in wind power. Renewable energy invalidate a debt of $1.7 billion, The Wall Street investors are awaiting signals about which reached 810 gigawatt-hours (GWh) in Sep- Journal reported. U.S.-backed opposition direction Fernández’s policies will take, Argus tember, higher than the 683 GWh of electricity leaders filed a lawsuit in U.S. District Court Media reported Monday. Fernández won 48 it generated in August. The country has set in New York, claiming that a PDVSA bond set percent of the vote, three percentage points a goal of supplying 12 percent of electricity to mature in 2020 was issued illegally under above the margin needed to avoid a second demand with renewable energy by year-end. Venezuelan President Nicolás Maduro, whom round, while current President Mauricio Macri they argue was elected fraudulently last year, received 40.4 percent. Fernández’s victory was and can’t be enforced. The bond is backed smaller than expected, suggesting unease Solid Performance in São by 50.1 percent of Citgo’s equity. It is the among some voters at a return to power opposition’s most direct confrontation with the Paulo Concession Drives country’s bondholders over the refiner, which is Enel Americas’ Q3 Results considered Venezuela’s most valuable foreign Fernández has vowed to Enel Americas posted earnings before interest, asset, according to the report. Last week, the unpeg wholesale energy tax, depreciation and amortization, or EBITDA, administration of U.S. President Donald Trump prices from the U.S. dollar. of $902 million in the third quarter, up 8 per- gave the Venezuelan opposition a lifeline cent year-on-year, the company said in an email to retain control of Citgo. According to the Tuesday. The firm’s Brazil power distribution U.S. Treasury Department’s new sanctions by his running mate, Cristina Fernández de units combined registered an EBITDA of 1.5 bil- guidelines on transactions related to the Kirchner, who was president from 2007 to lion reais ($375 million), up 27 percent year-on- South American country, published on Oct. 24, 2015, the Financial Times reported. During year, driven by better results at Enel America’s U.S. bondholders are barred for 90 days from her and husband and former President Néstor São Paulo concession, the company said. collecting collateral on the 2020 PDVSA bond. Kirchner’s time in office, the government set The announcement came just days before a export taxes on natural gas and other goods $913 billion payment on the bond was due in a bid to prioritize the domestic market. She this week. Venezuelan opposition leader Juan also oversaw the 2012 state takeover of oil Petrobras Registers Net Guaidó and his allies, who gained effective company YPF, which Spain’s Repsol previously Income of 10 Bn Reais control of Citgo in February, have been fighting controlled, Argus Media reported. Alberto in the Third Quarter to avoid the refiner’s seizure. Earlier this year, Fernández has not yet outlined his plans to the opposition made a $71 million payment on lift Argentina’s economy out of a recession, Brazilian state oil company Petrobras posted a the bond, but it was reportedly set to miss this but during his campaign, he said one of his recurring net income of 10 billion reais ($2.25 one. Failing to complete the payment would first measures as president would be to unpeg billion) for the third quarter, the firm said in have paved the way for PDVSA bondholders wholesale energy prices from the U.S. dollar a securities filing last week. The figure is to seize Citgo. If Maduro were to step down, in order to shield consumers from external significantly lower than the previous quarter, Citgo would be a significant source of income price shocks. During his four-year term, Macri in part because of already announced one-off to rebuild Venezuela, Russ Dallen, a broker at eliminated consumer subsidies implemented charges. However, third-quarter margins were Miami-based Caracas Capital Markets, told the by Cristina Fernández, a move that pushed largely in line with analysts’ expectations, Associated Press. “Citgo is [the opposition’s] power and gas prices up, which contributed Reuters reported. Adjusted earnings before sure thing,” he said. Adding, “it is guaranteed to the country’s climbing inflation. Apart from income, tax, depreciation and amortization, or fast cash whenever you need it. Citgo can turn energy subsidies, the incoming government is EBITDA, were $32 billion for the third quarter.

expected to continue development in Argenti- FEATURED Q&A / Continued from page 1 na’s Vaca Muerta shale formation, and Alberto Fernández has proposed legislative initiatives es, clean energy generators will have more power parks. A high penetration objective to advance it, Argus Media reported. However, funding options than conventional power (70 percent) will demand the development potential opposition by labor unions, which are generators. In addition, there is a growing of a new energy management scheme a key part of the Peronists’ constituency, may share of consumers demanding for services that adapts to emerging technologies that, prove to be a challenge on Vaca Muerta’s devel- with a lower carbon footprint. Nevertheless, based on their variability (usually errone- opment. Fernández is set to take office on Dec. the speed of the transition will depend on ously called intermittency), allow a system 10. [Editor’s note: See related Q&A in the Aug. the countries’ institutional strength, operat- that reduces the reserve power. Regional 23 issue of the Energy Advisor.] ing environment and market access. In Ar- gentina, for instance, despite the successful auction of power purchase agreements for The goal ... is possi- Mexico’s Pemex Posts new renewable capacity, the development ble only in scenarios Loss in Q3, Shows of the projects is now halted because of advanced through tight financing conditions, foreign exchange active stimulus Progress on Debt controls and policy continuity uncertainties. policies and adequate Likewise, the shift will depend on improved financing...” Mexican state oil company Pemex posted a battery storage, increased regional trans- — Marcelo Álvarez net loss of 87.4 billion pesos ($4.43 billion) mission connectivity, evolution of distrib- in the third quarter, hit by falling revenues, the uted energy regulation and a larger, more firm said Monday, Reuters reported. However, diversified and more flexible power system electricity integration and the drop in prices Pemex said it had reduced its hefty debt load, that can more rapidly respond to fluctuations to accumulate energy will be milestones that which at the end of last year amounted to $106 of demand and supply in real time.” will catalyze the adoption process in the billion. The company has been under intense 2025-2030 period. The region’s relatively late pressure from international credit agencies Marcelo Álvarez, president of adoption , compared to others, facilitates over its financial troubles, the wire service Cámara Argentina de Energía speed of penetration, based largely on the reported. Earlier this year, Fitch downgraded Renovables (CADER): “The lessons learned and the greater maturity of Pemex’s bond to so-called junk status. If A goal of 70 percent of electricity learning curves in each technology.” Moody’s or S&P were to give Pemex a junk coming from renewable energy sources in designation, it would trigger forced-selling of Latin America and the Caribbean is possible Cecilia Aguillón, director of the Pemex bonds worth billions of dollars, Reuters only in scenarios advanced through active energy transition initiative at reported. However, the company said that stimulus policies and adequate financing the Institute of the Americas: since the start of the year, it had cut back on both in terms of rates, time periods and A “Achieving 70 percent renew- its financial debt by 6.1 percent to $99.6 billion, requirements. The current auction model able energy by 2030 in Latin America and according to a filing to the stock exchange is the fastest form of growth in terms of the Caribbean is realistic. This is partic- with its latest operating results. “For the first installed capacity, although it concentrates ularly true given the huge gains in terms time in over a decade, the company’s net debt capital and income. The medium-term diver- of technology and cost. However, certain was reduced,” Pemex’s chief financial officer, sification of electricity and primary energy countries still must grapple with significant Alberto Velázquez, said in a conference call, matrices in the region opens the opportunity infrastructure and regulatory challenges. Reuters reported. “That operation has lowered not only to lower emissions of thermo-active Issues such as land availability can be over- Pemex’s refinancing risks in international gases but also allows decentralization of come through distributed generation and markets and strengthened the company’s short generation by bringing it closer to the cen- roof-top solar solutions. Local utilities can and medium-term finances,” he added. He also ters of consumption, as well as generating become investors and work with technology said that market operations in September to local employment, both in the manufacturing providers. But to attain the ambitious target, refinance more than $20 billion in liabilities of components as in construction, operation the role of governments is vital to provide had been key to achieving this. Still, Pemex’s and maintenance, thus increasing its impact an investment environment that provides revenues dropped 20.2 percent to 350.5 billion on regional economies. Most countries in certainty and allows for rapid market growth. pesos in the third quarter, as compared to the the region have recently modified their regu- Most of Latin America has relied for years same period a year ago. It was the company’s latory frameworks to boost distributed gen- on the abundance of hydro, which has also fourth consecutive quarterly loss, and its eration and the establishment of renewable provided a low carbon footprint for the biggest since the final quarter of 2018. Continued on page 6

Brazil’s Oil Disaster Is ‘Unprecedented in the World’: Official Save the Date

The environmental disaster along Brazil’s s northeastern coast as a result of an oil spill is “unprecedented in the world,” said an official at the country’s environmental agency, Ibama, Nov. 14 Folha de S.Paulo reported Tuesday. Oil slicks have been washing up on beaches along more 5G and the Evolution of Smart Cities in than 2,000 kilometers of the Brazilian coastline Latin America and the Caribbean for more than a month, and it is impossible to predict when they will stop, said Ibama’s environmental emergencies coordinator, Fernanda Pirillo. “Such an accident is unprecedented in FEATURED SPEAKER the world,” she added. Pirillo said three factors make the disaster a unique case, including the The Hon. Ernesto Muyshondt lack of knowledge of who is responsible for the Mayor of San Salvador, spill, the extent of its effects and the recur- El Salvador rence of oil arrival, which seems to indicate that it is an intermittent leak, Folha de S.Paulo reported. Ibama confirmed the first appearance PANEL DISCUSSION of oil on Brazil’s beaches on Aug. 30. Brazilian Eric Crabtree Margaret Myers President Jair Bolsonaro and other government Chief Investment Officer, Director, Asia and Latin officials have suggested the oil spill resulted International Finance Corp. America Program, from criminal activity, possibly from a foreign Inter-American Dialogue ship, with Environment Minister Ricardo Salles Luis Fiallo saying the oil was “very likely from Venezuela.” Vice President, Ed Roach The Venezuelan government has denied in- China Telecom Americas Vice President of Regulatory Compliance and Associate volvement. On Tuesday, Petrobras CEO Roberto Antonio García Zaballos General Counsel, Castello Branco said the oil spill may be the Lead Specialist in SBA Communications worst environmental “attack” in the country’s Telecommunications, history, Reuters reported. Inter-American Development Rachel Samrén Bank EVP and Chief External Affairs Officer, Millicom

POWER SECTOR NEWS

Puerto Rico Unveils Details of $20 Bn Plan November 14, 2019 Inter-American Dialogue to Boost Power Grid 1155 15th Street NW, Suite 800 Washington, DC Puerto Rico on Oct. 24 announced the details of a $20 billion plan to strengthen and mod- To register, click here. ernize the U.S. territory’s power grid, which was hard hit by Hurricane Maria more than two We are grateful to members of the Inter-American Dialogue’s years ago, CBS News reported. The 10-year Corporate Program for their engagement and support. plan plans to bury power lines, increase the use

NEWS BRIEFS of natural gas and create a transmission and interior minister, and condemned the attack. distribution system to withstand winds of at “Clearly, here we have a longstanding threat of OAS to Conduct ‘Binding’ least 160 miles an hour, instead of 145 miles drug trafficking groups, and of dissidents, who an hour currently. Puerto Ricans are bracing want to intimidate the population,” Duque told Audit of Bolivia Election: themselves for an imminent rate hike, while reporters in the town of Santander de Quili- Foreign Minister the island’s economy remains in a recession, chao. Duque added that he ordered the military The Organization of American States will send according to the report. “I know there’s great to “find the criminal group responsible for the a 30-person team to Bolivia to conduct an concern,” Puerto Rico Governor Wanda Vázquez attack,” BBC News reported. Some indigenous audit of the country’s disputed Oct. 20 presi- said, CBS News reported. “Given the condition leaders criticized Duque, however, saying he dential election, said Foreign Minister Diego [the power grid is] in, we cannot renovate it in has not done enough to address attacks since Pary, the Associated Press reported. The audit two or three years,” she added. Vázquez has the FARC signed a peace accord with the will be “binding,” with all parties being obliged also said she “strongly” opposes a hike in elec- previous government in 2016. “The government to adhere to the results, Pary said. Incumbent tricity rates and has asked power regulators to says the right things, but doesn’t do anything,” President Evo Morales was announced as the look for other sources of income, Bloomberg said Eduin Marcelo Capaz, a local indigenous winner, edging out challenger Carlos Mesa News reported. Federal funds are expected to council’s human rights coordinator. by just enough of a margin to win in the first cover at least $13 billion of the overall cost. At round, sparking protests. Mesa has said the least 60 percent of the estimated $20 billion tally was altered, adding that the opposition will be earmarked to transmission and distribu- ECONOMIC NEWS does not support the audit, whose terms he tion repairs, officials said. Blackouts have been said were “agreed on unilaterally.” common since Hurricane Maria hit the island in September 2017, Bloomberg News reported. Chile Cancels APEC Summit, U.N. Climate Brazil Central Bank POLITICAL NEWS Change Meeting Cuts Key Rate by Half Percentage Point Chilean President Sebastián Piñera announced Colombia Indigenous on Wednesday that the country will no longer Brazil’s central bank on Wednesday cut its host a major Asia-Pacific trade summit and a benchmark interest rate for the third consec- Leader Killed, Hunt United Nations climate change meeting, which utive meeting following the congressional for Killers Launched had been scheduled for later this year, as pro- approval of a landmark pension reform that tests continue in the South American nation, has sparked hopes for an economic recovery, Colombian President Iván Duque on Wednes- The New York Times reported. In a speech at the Financial Times reported. The Selic rate day launched a military offensive to hunt down La Moneda presidential palace, Piñera said was taken down to a new low of 5 percent on the killers of an indigenous leader and her four the “difficult circumstances” in the country Wednesday after the monetary policy commit- unarmed guards in the province of Cauca, The are the reason why Chile decided to withdraw tee cut the rate by 50 basis points. Guardian reported. The government blamed from hosting the U.N. COP-25 climate change dissident factions of the demobilized Revolu- conference and the Asia-Pacific Economic tionary Armed Forces of Colombia, or FARC, Cooperation, or APEC, summit. The abrupt de- Cuba’s Díaz-Canel Meets for the murder of Cristina Bautista, the leader cision underscores how disrupting the protests With Putin in Moscow of the semi-autonomous Tacueyó reservation, have been for a country that has long been re- and the four guards. In the attack, assailants garded as an example of stability in the region, Russian President Vladimir Putin on Tuesday shot at a convoy of armored sport-utility according to the report. Canceling the climate commended Cuba’s resilience in the face of vehicles carrying the group and also hurled meeting leaves organizers scrambling to find U.S. pressure as he hosted Cuban President hand grenades at it, the newspaper reported. a new venue capable of hosting nearly 20,000 Miguel Díaz-Canel, the Associated Press Six other people were wounded in the attack as delegates expected to attend. The cancellation reported. Putin told Díaz-Canel that Russia the gunmen opened fire on an ambulance that of the APEC summit poses a challenge to has always supported the Communist island arrived at the scene to render assistance to the the United States and China, which had been nation. “It’s not easy to solve economic and victims. The attack followed the indigenous expected to sign an interim trade deal at the social issues in the condition Cuba finds itself guardsmen’s capture of three FARC dissidents, gathering. The White House said it still expects in, but you have done it successfully,” Putin according to an initial investigation. Duque to sign an initial trade agreement with China said. The two leaders discussed expanding traveled to the area on Wednesday, accom- in November, but no alternate location had yet cooperation and economic ties. panied by the country’s defense minister and been set for the countries’ presidents to meet.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ENERGY ADVISOR is published weekly by the Inter-American Dialogue Copyright © 2019 region’s matrix. The largely hydro system Dino Barajas, partner at Akin is now seeing solar and wind resources Gump: “A goal of 70 percent Erik Brand starting to join the mix. Costa Rica boasts renewable energy in any single Publisher [email protected] almost 100 percent renewable energy due to national grid, which does not A Gene Kuleta hydro. Most countries have fostered laws to rely heavily on hydroelectric power, is very Editor promote renewables through auctions, ener- difficult to achieve from a grid stability [email protected] gy efficiency and distributed generation, but perspective. The ability to provide predict- Anastasia Chacón González successful implementation and cooperation able baseload power supply to a national Reporter from local utilities and financial institutions electricity grid is required for system stabil- [email protected] is required to increase renewables. Colom- ity. Renewable energy portfolios comprised bia’s recent successful auction underscores primarily of wind and solar generation

forward progress on these elements but also assets will require a large battery storage Michael Shifter, President highlights the need to scale those invest- component to utilize during low electricity Rebecca Bill Chavez, Nonresident Senior Fellow generation periods in order to meet system Sergio Bitar, Nonresident Senior Fellow load demands. Although the costs of solar Joan Caivano, Director, Special Projects The largely hydro and wind generation facilities have become Michael Camilleri, Director, Rule of Law Program system is now see- increasingly cost competitive, the costs of Kevin Casas-Zamora, Nonresident Senior Fellow ing solar and wind installing large battery storage facilities, Héctor Castro Vizcarra, Nonresident Senior Fellow resources starting to despite providing tremendous system bene- Julia Dias Leite, Nonresident Senior Fellow join the mix.” fits, may offset the cost savings of installing Ariel Fiszbein, Director, Education Program renewable energy systems. Jurisdictions — Cecilia Aguillón Peter Hakim, President Emeritus such as Costa Rica, which enjoy a plethora Nora Lustig, Nonresident Senior Fellow of diverse renewable energy resources, have Margaret Myers, Director, Asia and ments in order to reach the 70 percent mark. achieved the enviable position of becoming Latin America Program The Caribbean has increasingly demonstrat- energy independent and rely primarily (if not Manuel Orozco, Director, Migration, Remittances & Development ed that through wind, solar, batteries and solely) on in-country energy sources. Aside Xiaoyu Pu, Nonresident Senior Fellow micro-grids it can make important decar- from the critical environmental benefits pro- Jeffrey Puryear, Senior Fellow bonization gains in its electric sector and vided by renewable energy generation facil- Mateo Samper, Nonresident Senior Fellow reduce costs of importing fuels. Puerto Rico ities, the cost savings and the direct benefit Tamar Solnik, Director, Finance & Administration already has a goal of 100 percent renew- of minimizing the dependence on fossil fuel Lisa Viscidi, Director, Energy Program ables by 2050, but interconnection issues imports would justify any country’s efforts Denisse Yanovich, Director of Development and prevent fast deployment. Some islands are to increase renewable energy generation External Relations very small and need costly infrastructure resources within its overall power generation Latin America Energy Advisor is published upgrades. Barbados could become the portfolio. Achieving greater energy indepen- weekly, with the exception of some major island to learn from, with an aggressive dence, even if one is not able to reach a 70 U.S. holidays, by the Inter-American Dialogue 1155 15th Street NW, Suite 800 plan and implementation to reduce energy percent renewable energy threshold, gives Washington, DC 20005 Phone: 202-822-9002 consumption through efficiency measures, Latin American government policymakers www.thedialogue.org use of solar energy, other technologies greater visibility relating to cost inputs into ISSN 2163-7962 and promoting electric vehicles. There are their country’s industrial and commercial important lessons from mature renewables sectors. I would applaud any country’s Subscription Inquiries are welcomed at [email protected] markets that can greatly move countries up efforts to increase the prominence of renew- The opinions expressed by the members of the Board of the learning curve and on the path toward a able energy sources within its overall energy Advisors and by guest commentators do not necessarily larger portion of renewables. The lessons generation portfolio.” represent those of the publisher. The analysis is the sole derived from overcoming resource limita- view of each commentator and does not necessarily represent the views of their respective employers or tions, political challenges and other pratfalls The Advisor welcomes comments on its Q&A firms. The information in this report has been obtained in markets such as California, Germany and section. Readers can write editor Gene Kuleta from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are Denmark will surely aid the region in moving at [email protected]. guaranteed. If you have any questions relating to the toward its goal.” contents of this publication, contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.