ENERGY ADVISOR a WEEKLY PUBLICATION of the DIALOGUE September 8, 2017

LATIN AMERICA ADVISOR ENERGY ADVISOR A WEEKLY PUBLICATION OF THE DIALOGUE www.thedialogue.org September 8, 2017

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Nigel Blackaby Global Head, OIL & GAS International Arbitration Group, Freshﬁ elds Bruckhaus Deringer Can Argentina Brazil’s Rousseff , Mary Rose Brusewitz Lula Charged in Partner, Strasburger & Price Keep Pace With Its Petrobras Scandal Jeffrey Davidow Chief prosecutor Rodrigo Janot Senior Counselor, alleged that eight members of the The Cohen Group Renewables Sector? Workers’ Party, including former Ramón Espinasa Presidents Luiz Inácio Lula da Consultant, Silva and Dilma Rousseff, had Inter-American Development Bank committed crimes involving state- Luis Giusti run oil company Petrobras. Senior Advisor, Page 2 Center for Strategic & International Studies

Jonathan C. Hamilton POWER SECTOR Partner, White & Case Banco do Brasil Raul Herrera Plans to Sell Stake Partner, Corporate & Securities Practice, in Neoenergia Arnold & Porter Argentine Energy Minister Juan José Aranguren said recently that the country does not have Banco do Brasil plans to sell James R. Jones suffi cient transmission infrastructure to transport renewable energy. // File Photo: Argentine its 9 percent stake in Brazilian Chairman, Government. power utility Neoenergia, which is Monarch Global Strategies working on an IPO soon. Argentina’s next renewable energy auction in November will Jorge Kamine Page 2 Counsel, be for half the capacity of last year’s auction, due to insuffi - Skadden Arps cient transmission infrastructure limiting the ability to reach Craig A. Kelly Q OIL & GAS areas most suited for wind and solar power generation, En- Director, Mexico’s AMLO Americas Int’l Gov’t Relations, ergy Minister Juan José Aranguren said recently. What should Argentina Exxon Mobil do to keep pace with its growing renewables sector? Is the government Vows to Review Jeremy Martin Vice President, Energy & Sustainability, paying adequate attention to its renewables sector, or is it too focused Oil Contracts Institute of the Americas on other energy-sector projects, such as developing the Vaca Muerta if Elected Larry Pascal Mexican presidential hopeful An- Chairman, shale play? Which projects should the government prioritize as it looks Americas Practice Group, to increase its transmission infrastructure? drés Manuel López Obrador said Haynes & Boone in a speech in Washington that he Charles Shapiro would review the oil contracts that President, Marcos Patrón Costas, partner at Allende & Brea Energy and were signed after the country’s World Affairs Council of Atlanta historic oil-sector reforms. co-head of the fi rm’s Energy & Natural Resources practice R. Kirk Sherr Page 2 President, in Argentina: “The development of Argentina’s renewables Clearview Strategy Group A sector is a policy that has spanned different administrations. Mark Thurber It was originally launched under the Fernández administration, and it has Partner, Andrews Kurth been completely revamped by President Macri’s administration. Argentina Alexandra Valderrama is on the right path and is doing almost everything at hand to keep the Manager, International Government Affairs, pace of its growing renewables sector, trying to provide as much certainty Chevron as possible and clear rules to all the players involved. The main challenge Lisa Viscidi the whole power sector faces, including the renewable industry, is the Program Director, Inter-American Dialogue availability of transmission capacity in the transmission grid, which needs Max Yzaguirre to be incremented in order for the all the different types of projects that President and CEO, are currently under construction or being planned to be able to deliver The Yzaguirre Group the power produced once they reach commercial operation date. The government is fully aware of this issue and it is putting in place the right López Obrador // Photo: Wilson Center. Continued on page 3

OIL & GAS SECTOR NEWS comes after Mexico’s top NAFTA negotiator, NEWS BRIEFS Kenneth Smith, said Saturday that U.S., Mexico’s AMLO Canadian and Mexican negotiators are looking Banco do Brasil Plans for ways to make sure Mexico’s reforms to its to Sell Stake in Neoenergia Vows to Review Oil energy sector, which were enacted in 2014, are preserved in the updated North America Free State-controlled Banco do Brasil plans to sell Contracts if Elected Trade Agreement, Reuters reported. Negotia- its 9 percent stake in Brazilian power utility tors are hoping to preserve the changes made Neoenergia, which is working on an initial Mexican presidential hopeful Andrés Manuel through the reforms by incorporating them public offering in the coming months, Reuters López Obrador said Tuesday in a speech into the agreement, protecting the reforms reported Sept. 1. In a securities fi ling on Sept. in Washington that he would review the oil from any reversals by future administrations. 1, Banco do Brasil said both management and contracts that were signed after the country’s “We’re working in this sense, analyzing all of board members have authorized Neoenergia to historic oil-sector reforms, Reuters reported. the elements that need to be included in the begin the procedures for the IPO. The IPO could López Obrador, widely known as AMLO, did not energy discussion to refl ect the reform Mexico value the company at approximately 35 billion specify how he might intervene in the contracts established,” Smith said, following a bargaining reais, Reuters reported in July. if elected, but he said he did not trust those session during the second round of renegoti- who had agreed to the deals on the country’s ation talks. When NAFTA was fi rst enacted in 1994, Mexico’s energy sector was closed to Sale of Peru Hydro outside investors. Both Mexican and U.S. trade Everything related to experts have said that an increase in energy Plant Hinges on Pemex must be public trade and investment through NAFTA would Debt Deal: Minister business—their profi ts help to reduce the $64 billion U.S. trade defi cit Chinese state-owned power company China are for the Mexican with Mexico, in part through an increase in U.S. Three Gorges said it will only buy a Peruvian people, and we must gas and oilfi eld equipment sales to Mexico. hydroelectric plant from scandal-plagued look after them.” Brazilian construction conglomerate Odebrecht — Andrés Manuel López Obrador Brazil’s Rousseff , if Odebrecht uses the revenue from the sale to pay the project’s debts, Peru’s justice minister Lula Charged in said Tuesday, Reuters reported. behalf. “We are not going to act in an arbitrary way, we are going to be respectful of the Petrobras Scandal law, but we will review the contracts,” López Obrador said at an event co-sponsored by the Former Brazilian Presidents Luiz Inácio Lula Enel Green Power Begins Inter-American Dialogue and the Wilson Center. da Silva and Dilma Rousseff, as well as other Construction at Its First “Everything related to Pemex must be public members of their Workers’ Party, were charged Wind Park in Peru business—their profi ts are for the Mexican Tuesday with forming a criminal organization, Italy-based energy company Enel has an- people, and we must look after them. It is corruption and money laundering in connection not an ideological matter, it is not a political nounced the start of construction at the Wayra matter.” Mexico’s crude oil production amounts I wind farm in Peru, the company’s fi rst in to about two million barrels per day, down from the South American country, CNBC reported a high of 3.4 million in 2004. The oil sector re- Tuesday. The wind farm will be built by Enel forms of 2013 and 2014 gave private investors subsidiary Enel Green Power Peru. The fi rst the opportunity to participate in oil exploration wind turbines are being installed at the project, and extraction, and offi cials said oil output which will have 132 megawatts of capacity would gradually increase following the reforms. through a total of 42 wind turbines upon com- The overhaul has not lived up to its promise, pletion. It is expected to produce 600 gigawatt said López Obrador. The presidential candidate hours annually, equivalent to the energy de- Rousseff // File Photo: Brazilian Government. said his plan for Mexico’s oil industry included mands of more than 480,000 Peruvian homes, and to offset 288,000 metric tons of carbon a stimulus for refi ning through modernizing six to the “Operation Carwash” corruption probe, emissions annually. The project will require Pemex refi neries. He added that Mexico should Reuters reported. Chief prosecutor Rodrigo an estimated $165 million in investment from build two more refi neries to reduce depen- Janot alleged that eight members of the Work- Enel Group. The wind farm is expected to begin dence on imported gasoline. AMLO’s comment ers’ Party, or PT, including Lula and Rousseff, operation in the fi rst half of next year.

COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ENERGY ADVISOR September 8, 2017 had committed crimes involving state-run oil have already ensnared other employees. The RENEWABLES NEWS company Petrobras. They are also charged with arrest comes less than a week after Venezue- embezzling some $500 million between 2002 la’s new chief prosecutor, Tarek Saab, said he and 2016 and with using state-run companies would be investigating “spectacular” overpric- Spain’s Soltec to to pocket taxpayer money, The Wall Street Jour- ing in a dozen contracts at the company. Last Provide Trackers to nal reported. The charges are the fi rst criminal year, the opposition-led national assembly charges made against Rousseff, who was said some $11 billion was lost at PDVSA Brazil Solar Project impeached in 2016 on accusations of breaking between 2004 and 2014, when Rafael Ramírez budgetary laws, Reuters reported. Lula stands headed the company, though he has denied Spain-based Soltec on Wednesday said it accused of leading the scheme. Lula’s attorney the allegations. The company’s reputation has would be supplying 38 megawatts of solar said the law was being misused to persecute been tarnished in recent years by corruption trackers to Brazil’s Assuruá solar power plant the former president, and Lula wrote on his scandals that have involved high-level staff. in Bahia State, PV-Tech reported. The trackers Facebook page that the charges are a ground- The company blames the corruption on a small are set to be delivered in two months, and less political action, The Wall Street Journal group of employees and executives. approximately 60 percent of the equipment reported. The PT said in a statement that the will be supplied by Brazilian sources. The charges were unfounded and were being used FEATURED Q&A / Continued from page 1 to distract from other investigations, including one targeting a former federal prosecutor, incentives to make the expansion of the well think that. I couldn’t possibly comment.’ Reuters reported. A representative of Rousseff transmission grid a reality. With respect to Now, regarding renewables policy dos and said Janot’s offi ce had provided no evidence. the Argentine energy matrix and the debate don’ts, transparency and professionalism Lula is currently appealing a corruption regarding the focus of the government are always top-rated qualities for Europe- conviction that would bar him from running for on the Vaca Muerta shale play versus the an funding partners, who are not keen on president in 2018. He is also facing four other renewable industry, I think the government high-risk investments. In this sense, Vaca corruption trials. is developing a good balance between the two, and it cannot be said that it is favoring one sector over the other. However, I think Transparency and Venezuela Arrests that we will be able to see the results in professionalism Nine PDVSA the renewables sector sooner than in Vaca are always top- Muerta, due to the natural differences in rated qualities for Executives how investment in the two sectors develops, European funding matures and shows results.” partners, who are Venezuelan offi cials arrested the head of state not keen on high- Pablo Ferrara, of counsel at oil company PDVSA’s western region, as well risk investments.” as eight other executives at the fi rm, according Estudio O’Farrell in Argentina — Pablo Ferrara to an internal company memo and sources in and Wöss & Partners Mexico, A and consultant to the Frente Renovador Party in Argentina: “Contrary to Muerta remains a noncomparable option to the minister’s statement, some European renewables in Argentina, being that shale/ engineers have asserted that Argentina’s tight costs-benefi ts are still awkward in transmission infrastructure is fi ne. What relation to power (high investment due to could have led authorities to cut by half lack of local technology, high labor cost, low the government’s power capacity auction? international barrel price, decreasing price Could it be that they are clueless of the of ‘barril criollo,’ rearrangement of power number of wind and solar farms that are set tariffs). Last, specialists say there is no need to be operative in due time? Could it be that to obsessively turn into a renewables energy Saab // File Photo: Venezuelan Government. bidders were not truly fi nancially capable, matrix. Of course, it is a policy choice and Venezuela’s oil industry, Reuters reported Tues- and the state does not want to provide an international obligation in order to meet day. The motive for arresting Gustavo Malavé warranties? For, in the end, who received COP21 goals. Nevertheless, conventional and the eight other employees is not imme- the famous ‘sovereign warranty’? Well, as sources—not necessarily so polluting (e.g., diately clear, though a number of corruption Francis Urquhart would say: ‘You might very hydro or gas) should always be part of an probes are currently underway at PDVSA and Continued on page 6

COPYRIGHT © 2017, INTER-AMERICAN DIALOGUE PAGE 3 LATIN AMERICA ENERGY ADVISOR September 8, 2017 project is being developed by Soltec’s partner, Quebec Energy. Once completed, the project is ADVISOR Q&A expected to produce 78 gigawatt-hours of energy per year, which is equivalent to the energy consumption needs of approximately 38,200 Has Guatemalan President Jimmy Morales Brazilian households. Undermined His Own Agenda ?

POLITICAL NEWS Guatemala’s constitutional court President Pence, which was subsequently ruled last week that President declared without merit, and at the exact At Least 10 Dead as Q Jimmy Morales cannot expel moment that he is presenting his observa- Iván Velásquez, the head of the tions on CICIG’s work to Secretary General Hurricane Irma Tears U.N.-backed anticorruption commission Guterres, cannot be ignored. If CICIG is to be in the Central American country. Morales replicated in other Latin American countries, Through Caribbean had ordered Velásquez’s expulsion after all stakeholders would do well to listen to he backed an investigation into alleged recommendations on how to improve upon At least 10 people have been killed as Hurri- funding irregularities in Morales’ presiden- the initial experiment. At this point, it is not cane Irma, a powerful Category 5 storm with tial campaign. What does the episode reveal about who is right, but rather about how sustained wind speeds of 180 miles an hour, about Morales’ government and the work of we fi nd a solution to alleviate the current tore through the Caribbean, leaving widespread the anticorruption commission, CICIG? What confl ict. The Constitutional Court resolution destruction in its wake, BBC News reported do the resignations of top cabinet offi cials, itself points to Article 12 of the United Na- Thursday morning. The prime minister of including the foreign minister, mean for tions accord as the established mechanism Morales’ administration and the president’s to resolve controversies that might arise ability to make progress on his agenda? Will among the parties. Systemically entrenched It’s absolute the episode affect the extent to which CICIG corruption also requires a systemic ap- devastation.” can carry out future investigations without proach to its removal. Fundesa’s criminal — Gaston Browne government interference? justice process fl ow analysis represents a valuable tool for informed decision-making. Antigua and Barbuda, Gaston Browne, said Salvador Paiz, president of Among other strategies, our focus must shift 95 percent of the buildings on Barbuda had Funsepa and vice president from the accusatorial to the judicial, which sustained damage. “It’s absolute devastation,” of Fundesa in Guatemala City: is where the procedural bottlenecks lie. The Browne said after surveying damage by air. A “CICIG is a unique experiment fi ght against corruption and impunity must “The island is literally under water. In fact, I’m that has proven to be a valuable tool in our continue stronger than ever as it represents of the view that, as it stands now, Barbuda is fi ght against corruption and impunity. How- a necessary, albeit insuffi cient, condition to barely habitable.” The hurricane rendered half ever, as the African saying goes, ‘when the our development as a country.” of the island’s population homeless, and it will elephants fi ght, it’s the grass that gets tram- cost some $100 million to rebuild, said Browne. pled.’ The current confl ict between President At least one person, a child, was killed during Morales and the commissioner, broadcast EDITOR’S NOTE: More commentary on this the storm in Barbuda, which is home to approx- on the international media stage, is not posi- topic appeared in the Q&A in Wednesday’s imately 1,600 people. The country’s larger is- tive for our country. The undeniable theatrics issue of the daily Latin America Advisor. land, Antigua, has a population of about 80,000 of presenting impeachments the day before and escaped major damage with no reported President Morales’ March visit with U.S. Vice deaths, Browne added. Offi cials on the islands of St. Martin and Saint Barthélemy, commonly and pleasure boats on land,” the Dutch defense Dutch Prime Minister Mark Rutte. One death known as St. Barts, reported eight deaths. “It’s ministry said of the damage on the island. The was also reported on the island of Anguilla, an enormous catastrophe,” said Daniel Gibbs, Netherlands’ navy dispatched two ships from according to a local offi cial. Heavy rains and a top local offi cial in St. Martin. “Ninety-fi ve Aruba and Curaçao in order to help locals on winds also lashed Puerto Rico, cutting off pow- percent of the island is destroyed.” The airport the island, but they were unable to dock, ac- er to more than half of the island’s residents. in the island’s Dutch section, Sint-Maarten, sus- cording to Dutch media reports. “The island is Offi cials on the U.S. territory said they could tained heavy damage, offi cials said. The airport not reachable at this point because of the huge be without electricity for several days. As of 8 is the Caribbean’s third-largest. “The picture is damage to the airport and the harbor,” said a.m. Eastern Time on Thursday, Hurricane Ir- of many uprooted trees, houses without roofs

NEWS BRIEFS ma’s eye was located 110 miles north of Punta been deeply affected by violence committed by Cana in the Dominican Republic and moving members of drug cartels. Many in the cities the Venezuelan Opposition west-northwest at 17 miles an hour. The storm pontiff plans to visit oppose Santos’ handling Leaders Meet With could hit the U.S. mainland on Sunday, making of the peace agreement, believing it was too landfall in Florida. Another strong storm, lenient on the guerrillas. The most prominent Germany’s Merkel Hurricane José, gained strength on Wednesday opponent of the peace agreement, former Pres- German Chancellor Angela Merkel expressed in the Atlantic. As of 8 a.m. Eastern Time on ident and current Senator Álvaro Uribe, wrote her support for Venezuela’s National Assem- Thursday, José was located 815 miles east of a letter to the pope saying the rebels enjoyed bly and for the Venezuelan people, said Julio the Lesser Antilles and was moving west-north- “total impunity,” which he said would lead to Borges, the leader of the opposition-led Nation- west, with maximum sustained winds of 90 more crimes. There was no immediate public al Assembly, in a post on Twitter following a miles an hour. response from the Vatican. meeting with Merkel on Wednesday, Deutsche Welle reported. During the meeting, Merkel Pope Francis Arrives spoke with Borges and National Assembly Vice ECONOMIC NEWS President Freddy Guevara about the future of in Colombia Venezuela’s democracy as the country strug- Chilean Finance, gles through its political and economic crises. for Five-Day Visit The Venezuelan opposition leaders have been Economy Ministers traveling to several European countries in Pope Francis arrived Wednesday in Colombia recent days. to begin a fi ve-day visit to show his support Step Down for the country’s peace process following the government’s signing of its peace accord Chile’s fi nance minister and economy minister, Trump Orders End of with the FARC rebels last November, The Wall as well as the undersecretary of fi nance, re- Street Journal reported. The pope was greeted signed Aug. 31, delivering a blow to President Protections for Some by President Juan Manuel Santos, First Lady Michelle Bachelet’s center-left coalition less Undocumented Migrants Maria Rodríguez and the apostolic nuncio to than three months ahead of the country’s Colombia, Ettore Balestrero, at the air base presidential election, Agence France-Presse U.S. President Donald Trump on Tuesday reported. Finance Minister Rodrigo Valdés ordered the termination of the Deferred broke with Bachelet over a falling out with Action for Childhood Arrivals, or DACA, her over pension reforms and a controversial program, which shields young undocumented mining project. Economy Minister Luis Felipe immigrants from deportation, and he urged Céspedes and the undersecretary of fi nance, Congress to pass a replacement for the Alejandro Micco, also announced their resig- program before the government starts phasing nations on Thursday. The departures came 10 out DACA’s protections in six months, The New days after a committee of cabinet members York Times reported. The policy allows undoc- rejected a proposal for the controversial $2.5 umented immigrants who arrived in the United billion Dominga copper mining project, which States as children to apply to work legally Colombian President Juan Manuel Santos and First Lady María Rodríguez greeted the pope on his arrival in Bogotá. was led by private Chilean conglomerate Andes without fear of deportation. // Photo: Colombian Government. Iron. The project had split Bachelet’s coalition. next to Bogotá’s international airport. Francis Valdés said some members of Bachelet’s ad- was handed a porcelain white dove, a symbol ministration did not share his sense of urgency Brazil’s Central Bank of the country’s peace process, after descend- in spurring growth and attracting investment Cuts Key Interest Rate ing from the plane. The pope said during his to the country, Reuters reported. “Sustained Full Percentage Point fl ight that he considered the visit to the South movement toward higher growth levels requires American country “a little special because discipline and government commitment, and Brazil’s central bank cut its benchmark interest it’s a trip to also help Colombia to get ahead room so the private sector can launch initia- rate by one full percentage point from 9.25 in its path of peace.” Francis is scheduled to tives with clear and stable rules,” he said after percent to 8.25 percent as prices rose by their pray for victims of violence in Bogotá today, resigning, AFP reported. “I didn’t manage to get slowest rate in 20 years, The Wall Street Jour- and on Friday he will have a prayer meeting in everyone to share that belief.” Céspedes did nal reported Wednesday. The bank signaled Villavicencio, a town that was once overrun not respond to questions as to why he stepped a smaller cut to the Selic rate would be likely with guerrilla groups. He also plans to visit down, and Micco’s offi ce declined to comment during its next monetary policy meeting. Medellín and Cartagena, two cities that have on the reasons for his departure.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ENERGY ADVISOR is published weekly by the Inter-American Dialogue Copyright © 2017 energy matrix in order to ensure energy three very important public auctions with a security. If environmental concern is among quite bankable PPA, it fi nally established the Erik Brand the terms of discussion, then I think effi cient rules for developing a corporate PPA market, Publisher [email protected] use of energy should become a stronger it created tax benefi ts and, as I said before, it variable to consider.” isolated the renewable energy business from Gene Kuleta Editor the pitfalls and crisis of the general WEM. [email protected] Tomás Lanardonne, partner In the case of Vaca Muerta, the government Nicole Wasson at Buenos Aires-based law Reporter, Assistant Editor fi rm PAGBAM: “Rather than [email protected] A incentivizing public auctions in which the state is the off-taker, the Argen- Today, the renewable tine government should instead focus on energy market is in a normalizing the power sector as a whole, regulatory vacuum...” Michael Shifter, President which would indirectly foster investments Genaro Arriagada, Nonresident Senior Fellow — Tomás Lanardonne in renewable energy projects for corporate Sergio Bitar, Nonresident Senior Fellow power-purchase agreements (PPAs). By Joan Caivano, Director, Special Projects ‘normalizing’ I mean setting out a ‘route’ and Michael Camilleri, Director, Peter D. Bell Rule of Law Program a ‘destination’ of the wholesale electricity Kevin Casas-Zamora, Nonresident Senior Fellow market (WEM). Today, the renewable energy introduced a ‘contract-for-differences’ Ariel Fiszbein, Director, Education Program market is in a regulatory vacuum, isolated scheme that guarantees a minimum price for Alejandro Ganimian, Nonresident Fellow from the general WEM. But now we should shale or tight gas; it pushed for an amend- Peter Hakim, President Emeritus start focusing in the mid or long term. For ment to the collective bargaining agreement Claudio Loser, Senior Fellow instance, the spot price does not refl ect the between oil companies and oil workers that Nora Lustig, Nonresident Senior Fellow marginal cost of electricity. Will Argentina re- slashes labor costs; it eliminated export Margaret Myers, Director, China and turn to a marginal cost system? The govern- taxes on hydrocarbons; it is overhauling the Latin America Program ment through Undersecretary Sebastián Kind import regime for equipment and consum- Manuel Orozco, Director, Migration is doing a fi ne job. In particular, it has been ables required to develop oil fi elds; and it is Remittances & Development able to balance the requests of the renew- investing heavily to improve the roads and Jeffrey Puryear, Senior Fellow able energy players and the oil and gas play- railways connecting Vaca Muerta’s fi elds Tamar Solnik, Director, Finance & Administration Lisa Viscidi, Director, Energy Program ers. In fact, I think this is one of the greatest with the supply chain and domestic market. Denisse Yanovich, Director, Development and successes of the Ministry of Energy. They The government should prioritize the more External Relations see shale gas from Vaca Muerta as a ‘bridge’ effi cient projects from an ‘energy return on to an era in which renewable energy leads investment’ perspective.” Latin America Energy Advisor is published the energy mix, particularly in a country weekly, with the exception of some major U.S. holidays, by the Inter-American Dialogue such as Argentina, in which more than a 50 The Advisor welcomes comments on its Q&A 1155 15th Street NW, Suite 800 percent of our mix is fueled by natural gas. section. Readers can contact editor Gene Washington, DC 20005 Phone: 202-822-9002 As for the renewable energy sector, it called Kuleta at [email protected]. www.thedialogue.org ISSN 2163-7962

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