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Energy development in the Caribbean — options and necessities
Communications on energy Energy development in the Caribbean - options and necessities The energy importing countries of the Caribbean have experienced substantial increases in the costs of the crude oil imports on which they largely depend. Their weak position is mainly the result of a meagre resource base. But, argue Trevor Byer, Joerg-Uwe Richter and Joseph Vardi~ Caribbean energy problems have been aggravated by inappropriate policies and institutional constraints. The most immediate way of improving the position is to concentrate on conservation and the substitution of indigenous fuels for imported energy, as far as is economically feasible. Appropriate pricing policies and rational planning are essential if any lasting improvement is to be made. External assistance is also needed to develop the energy resource base, including hydrocarbons, and is available from bilateral and multilateral institutions.
With the exception of Trinidad and Tobago, all Caribbean countries are net importers of energy, which is almost entirely in the form of petroleum. ~ Known indigenous energy resources are small and unevenly distributed. As in many other developing countries, income elasticities of energy demand are high which results in a faster growth of energy imports relative to GDP and which makes balance of payments management more difficult as the economy expands. Energy imports have therefore become a critical dement in the countries' balance of payments problems. Petroleum imports to the region increased during 1972-77 from about US$150 million to about US$620 million mainly because of the quantum jump in international petroleum prices in 1973-74. This raised petroleum's share in merchandise imports from less than 9% to more than 20%. The increases in the petroleum prices in 1979 will add at least US$180 million to the combined import bill and, by 1983, energy imports might pre-empt about 25% of projected foreign exchange earnings. The energy consumption and import pictures for selected Caribbean
countries are summarized in Tables 1 and 2. The energy importing countries of the Caribbean have some common characteristics which determine their energy position. Among these characteristics are: • almost total dependence on imported petroleum which meets 70-90% of requirements of commercial energy and nearly 100% of fuel requirements for thermal power generation; • the absence of organized markets for indigenous fuels; • the replacement of indigenous fuels by imported petroleum; • the subcritical size of most energy systems which constrains the choice of least cost solutions. The pattern of energy demand, in turn, is largely influenced by the structure and stages of economic development. The energy importing countries in the region can be classified into: • relatively highly energy intensive economies with significant mineral based activities (Dominican
ENERGY POLICY December 1980
Republic, Guyana, Jamaica, Surinam); • moderately energy intensive economies based on industries, tourism and sugar refining (Antigua, Belize, Barbados, St Lucia); • agricultural economies of low energy intensity (Haiti, most Eastern Caribbean countries). Structural shifts in the Caribbean economies, associated with increased industrialization and development of important mining activities have resulted in higher energy intensity of production and substitution of traditional fuels by commercial energy sources. With rising incomes and urbanization, energy demand per capita has increased. F o r residential consumption, conventional fuels such as charcoal and kerosene have been progressively replaced by electricity, liquefied petroleum gas and, in some cases, ~ natural gas. In rural areas and agriculturally based economies where living standards and energy consumption are still low, local noncommerical sources play a more significant part in meeting energy needs, especially in areas without electricity supply. Except for sugar refining, fuel and electricity needs of agricultural and agro-industrial production are small. Residential energy consumption plays a more important role in rural areas, and cheap energy for cooking and lighting is of relatively greater importance for rural populations. In light industries and commerce, energy requirements are largely met by electricity. In tourismoriented economies, the hotel sector accounts for over 40% of commercial electricity consumption, with air conditioning alone amounting to over 20% of overall electricity demand.
Inadequate energy policies The disadvantage of the weak energy resource base has been aggravated by government policies which have not yet fully adjusted to changes in the international situation. This is evidenced by prices of energy which for extended periods have been below economic cost and have only recently started to move more closely towards international levels, and by inadequate efforts to develop indigenous resources. Energy policies and administration are
331
Communications Table 1. Macroeconomic and energy indicators, selected Caribbean countries, 1977. GDPat Share in GDP (%) GNP/ Energy consumption (109 Btu) market capita prices (US $) (current Mining US $ and million) Agriculture refining Industry Other Total Commercial Other Antigua Barbados Belize Dominica Dominican Republic Grenada Guyana Haiti Jamaica Montserrat Netherlands Antilles St Kitts St Lucia St Vincent
55.2 4.5 438.5 11.3 89.9 23.1 33.5 36,6
0.5 0.2 0,4 1,2
21.8 19,1 22.3 9.4
72.2 69.4 54.2 52.8
890 1 760 810 410
20,9 33.1 20,8 37.7 8.7 6.0
3.0 16.2 10,7 -
18.8 2.5 12.2 17,2 19.0 3.6
67.3 64.1 60.8 45,1 61,6 90.4
840 . . . 480 819.2 758.0 560 38 595.0 25 443.0 230 27 630.0 9 690,0 1 160 99 179.5 89 409.3 745 232.9 211.7
718.4 2.0 25.2 21.8 58.1 13.4 -25.2
16.0 1.5 1.2 1.6
8.9 32.6 21.5 12.4
73.1 44.1 63.9 60.8
2 786 650 580 330
4 466.6 41.1 438.0 1 184.7 2 696,0 8,3
a Excluding the bauxite and c e m e n t industries, energy c o n s u m p t i o n per US $ o f GDP a m o u n t e d to 21 4 1 5 Btu. b In 1 9 7 4 , 4 7
149 B T u / U S $ .
c This relatively high energy intensity is due to the large expatriate population. d 4 1 5 kWh of the consumer is excluded,
largest
individual
conducted among a number of government departments often with less coordination than required by the complexity of the matters considered, which results in delays in decision making or even conflicting decisions. Typically, petroleum imports and distribution are monitored by trade
1 435.3 9 618.9 5 057.0 557.9
. . 1 270.1 .
1 435.3 7 406.3 2 823.0 501.8
Energy Electricity Population consumption consumption (thousand) per US $ per capita of GDP(Btu) (kWh)
18.0 2 212.6 2 234.0 39.4
26 328 21 936 56 251 16 654
595 899 291 165
19 932 88 116 23 322 a 36 788 28060 c
265 185 239 50 989 b 591 d
. 61.2 13 152.0 17 940.0 9 770.2 21.2
.
. . 1 227.4 . .
.
.
.
. 42.7
21 860
.
ministries; pricing of petroleum products, by finance ministries (whose decisions are based primarily on fiscal considerations); and electricity pricing, by public utility commissions reporting to ministries of public utilities. The absence of coordination in energy matters has affected development planning where energy-related objectives are rarely taken into account. The petroleum sector has been hampered by inadequate resource management. Development of possible hydrocarbon resources has been retarded by lack of exploration because the relatively minor prospects of finding
349 329 140
72,5 250.0 132.3 76.9 5 128.9 105.8 812.0 4 700.0 2 096,6 12,7 245.2 49.7 114.6 103.9
petroleum in the region did not create sufficient interest among international oil companies. Furthermore, government policies have not been conducive to stimulating exploration, and the countries have not been in a position themselves to mobilize the required capital, technology and manpower. There has also been suboptimal resources use, as in the case of Barbados which produces small quantities of hydrocarbons but where nearly two-thirds of natural gas lifted is flared. The establishment of small-scale refineries induced by fiscal incentives has led to financially weak units which
Table 2. Petroleum imports, merchandise imports, and goods and non-factor service exports, selected Caribbean countries, 1977, 1978 and 1983 (current US $ million). 1977
1978
1983 (projection)
Petroleum Merchandise Goods and Petroleum Merchandise imports imports non-factor imports imports service exports Antigua Barbados Belize Domi n ica Dominican Republic Grenada Guyana Haiti Jamaica Montserrat St Kitts St Lucia St V i n c e n t
10.1 a 23.7
11.7 1.4 177.0 3.0 62,9 23.6 239.3 0.7 a 1.9 4.6 2.1
43.7 272.8 90.1 21.8 847.6 31.4 315.4 208.2 760.6 6.9 21.9 59.5 30.3
33.1 273.1 72,4 14.9 915.0 26.3 275,7 173.2 921.5 3.4 16.7 40.4 15.4
12.5 17.2 13.2 1.5 200.0 3.3 66.7 24.8 284.8 0.8 2.0 5.1 2.3
315.3 ---35.2 278.6 905.0 -33.2
Goods and Petroleum Merchandise non-factor imports imports service exports
Goods and non-factor service exports
37.8 335.4 89.8 19,4 824.9 32.3 313.7 192,2 1 014.0 4.0 17.7 45.8 17.4
120.2 699.9 164.9 31.5 1 572.0 53.4 522.0 294.2 1 649.8 7.3 37.3 70.7 42.6
25.0 43.9 28.0 3.0 436.6 7.3 156.0 49.0 553.2 1.6 3.9 11.3 5.0
126.2 599.2 192.5 40,2 1 543.0 66.4 556.0 575.2 1 323.0 13.2 39.4 103.2 54.0
a Estimated. Source:World Bank.
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ENERGY
POLICY
December
1 980
Communications require subsidies to continue operations. Government policies have also resulted in a seriously distorted structure of fuel prices. In some countries, high taxes on petrol on the one hand and subsidies on kerosene and diesel on the other produce excessive price differentials amounting to as much as a factor of four in Jamaica - which blunt incentives to conservation and provoke unwarranted substitution.
Electricity sector Technical, institutional and policy constraints have also impeded the development of the electricity sector. Low investment, inadequate maintenance and staff problems have adversely affected operational efficiency. The lack of hydrological studies in the past is limiting investment options in hydropower. Small local loads and difference in frequencies between the public grid and private systems have rendered interconnection uneconomic in some countries. Relatively small baseloads and sharp peaks, which are often the result of the tariff structure, impair system efficiency. Tariff inadequacies have weakened the financial position of most power utilities, preventing them from making a meaningful contribution to financing investment. Increases in tariffs have not kept pace with operating and financial costs. However, government stabilization policies in Guyana and Jamaica in 1978 and in the Dominican Republic in early 1979 have addressed themselves to this problem. There are also deficiencies in the structure of tariffs as industrial and commercial consumers are usually charged more than residential consumers, resulting in subsidization of residential electricity consumption. To provide more adequate service to the growing economies of the region, the electricity sectors need a solid institutional, financial and technical base. This includes more adequate pricing, substantial capital investment and institutional improvements. As regards the latter, strengthened management, appropriate technical services and planning are needed. Investment planning should take into account the use of indigenous energy resources for electricity generation, as
well as options for supplying energy to isolated areas by means other than the general grid.
Energy pricing For confronting the serious problem of growing energy imports by the region, more appropriate energy pricing is imperative. Changes in the absolute level of prices and in relative prices of individual forms of energy are needed. Prices should reflect, on the one hand, the long-term marginal cost to the economy of providing a particular type of energy to a particular group of consumers and, on the other, the opportunity cost of energy use. The latter should take due account of energy efficiency, convenience, and consumer preference. A comprehensive approach to energy pricing is needed which includes petroleum products and other fuels as well as electricity. If progress in energy conservation is to be achieved, the consumer has to be made aware of the high international price of energy and the resulting real cost to the economy. This implies, among other things, that petroleum products should not be supplied at lower than international prices and that residential consumption of electricity should be no longer subsidized by industrial and commercial consumers. Despite this, the social objective of meeting the basic needs of lower income groups might cause governments to provide energy at subsidized prices. In particular, the setting of electricity tariffs is a complex operation as the goals to be achieved may sometimes be in conflict. Goals may include: • pricing electricity according to its long-term marginal cost; • generation of surpluses for financing sector investment; • providing electricity to low-income groups at affordable prices. For meeting the social objective, costeffective systems of subsidization should be developed which limit provision of low priced energy strictly to low income groups. Below-cost pricing of energy inputs to economic activities is the least efficient form of subsidy and should therefore be avoided. By initially charging the full energy cost and subsequent direct
E N E R G Y POLICY December 1980
income transfers to low-income users, reimbursements to public transport companies on the basis of services rendered, etc, both appropriate price signals would be given and the social objective achieved. Nevertheless, the long-term aim should be to scale down and gradually eliminate subsidies. The establishment of a rational structure of relative energy prices should be followed by a study of how energy taxes could appropriately contribute to meeting the government revenue requirements. For the setting of appropriate tax levels, it is desirable to spread revenue-motivated (as distinct from regulation-motivated) levies evenly among various fuels.
Better coordination For adequate energy policies, a strengthened administration and improved quantitative framework for decision making is needed. It appears advisable that in each country, a single government institution be entrusted with overall responsibility in energy matters including resource development, production, fuel imports, pricing and demand management, suitably backed up by specialized technical units. To the extent that it is feasible, coordination among government entities should be undertaken on the technical level. For improving the data base, trends in energy demand and pricing should be analysed. A national energy accounting system should be established which, combined with surveys on energy resources and uses, could provide the basis for energy planning. The latter would indicate future import needs and appropriate investment consistent with least cost solutions to developing indigenous energy resources. Energy planning should be incorporated into macroeconomic planning and the implications of economic expansion on energy demand be more closely evaluated.
Conservation and substitution Increased economy of energy use is a basic requirement as well as one of the most immediate development options open to the countries of the region. There is significant scope for conservation in thermal power generation and
333
Communications
in industry. A study conducted by the UK Department of Energy in Jamaica identified opportunities for conservation investment in industry proposing benefits of nearly US$50 million which is equivalent to 20% of petroleum imports of that country in 1977. Over the medium-to-longer term, the energy intensity of industry could be reduced through changes in production processes and a shift towards less energy intensive subsectors. Of course, due consideration would have to be given to other factors which determine industrialization strategies. In the transport sector, expansion of the public sector and a shift towards more fuel efficient motor vehicles could be stimulated through differentiated taxes and road user charges. In the residential and tourism sectors, more efficient energy use in air conditioning and cooking could provide some savings over the short term whereas implementation of more energy efficient building designs could result in major savings over the longer term. The scope for energy substitution depends upon alternative supply options, adaptability of equipment to alternate fuels, and the pace of investment, none of which can be much influenced over the short term. As a start, the substitution of electricity for petroleum fuels and of petroleum fuels for charcoal could be slowed down through adjustments of relative prices. There are possibilities for efficient interfuel substitution, eg liquefied petroleum gas for kerosene in residential and commercial use and diesel for petrol as transport fuel. Particular attention should be given to substitution of indigenous energy for imported fuels in industrial use as well as electricity generation. The use of imported steam coal for new power generating units once thermal generating capacity reaches a certain size (eg 50-70 MW per unit), would provide considerable foreign exchange savings. This option is under consideration in Jamaica 3 and may become feasible in the Dominican Republic and eventually, in Barbados as well.
Supply options Limited as they are, indigenous energy resources could meet at least part of
334
incremental demand in the medium-tolonger term. In the interest of developing the domestic energy base, it is recommended that the governments of the region undertake a well coordinated programme consisting of" • identification and evaluation of resources; • stimulation of production through adequate pricing, fiscal incentives for domestic investors and clear legal arrangements for foreign investors; • improved organization of domestic markets for non-petroleum fuels; • assistance in market penetration, including programmes for the adaptation and demonstration of more efficient technologies. Among conventional energy, hydropower is already the most important indigenous source in Dominica and Surinam. There is scope for micro schemes in other countries, and Guyana and Surinam are considering the viability of undertaking large-scale investment projects in this field. Hydrocarbon potential may exist in or near Belize, Dominican Republic, Grenada, Guyana, Surinam, Jamaica, and the Netherlands Antilles, in addition to Barbados and Trinidad and Tobago which are already producers. Substantial additional exploration is required to gain firmer knowledge about this resource. Because of the importance of imported petroleum as the main source of commercial energy and in light of the relatively small quantities consumed in the Caribbean countries, even moderate domestic production would result in a significant improvement of the energy position. Barbados has scope for increasing output and utilization of petroleum and natural gas. This goal forms part of the government's investment programme. Besides hydrocarbons and hydropower, the relative importance of other energy forms for meeting future energy requirements is likely to remain limited. Among mineral fuels, lignite in Haiti and peat in Jamaica could become feasible for commercial use. The contribution of wood and charcoal to meeting energy requirements has been held back by backward production, unorganized markets and inefficiencies in final consumption. Through more efficient production and use, the
significance of these fuels could be increased. Since scavenging of timber reserves has resulted in serious ecological damage in some countries, wider use of these resources for energy purposes should be accompanied by reforestation programmes. There is scope for increased use of bagasse, agricultural and timber wastes for power generation,4 and possibly of biogas in rural areas. The use of alcohol produced from molasses as an admixture to gasoline does not appear to be feasible at present since savings of petroleum imports would be less than earnings forgone from exports of molasses and/or industrial alcohol. However, the economies of this option should be re-evaluated as international prices change and technologies advance. Other non-conventional resources such as geo-thermal, solar and wind energy could become significant for meeting local demand, thus reducing requirements for transmission of conventional energy.
External assistance Substantial investment will be required for meeting the future energy needs of the Caribbean economies. As in the past, the bulk of investment will be absorbed by the power sector. Resource surveys and exploration, particularly for hydrocarbons, will become more important and could easily amount to US$150 million over the next five years or so. Expenditures will also be needed for developing non-commerical and non-conventional energy, conversion of energy consuming equipment and installations, adoption and promotion of new forms of energy and improvement of energy administration and planning systems. All told, energy related investment requirements in the countries of the region between 1979 and the mid1980s might total at least US$1.2 billion (109). F o r implementing investment programmes of considerable magnitude and complexity, external capital and technical assistance is crucial. Loans for power projects are likely to be forthcoming from international and regional development banks, commercial banks and suppliers. Hydrocarbon-related investment might be largely undertaken by foreign private
ENERGY POLICY December 1980
Communications companies although the governments of the region would have to make some contribution as well. Funds for hydrocarbon investment, "including resource surveys, are now also provided through multilateral and bilateral institutions. For surveys of other energy resources, grants from specialized UN agencies and some governments are available. External technical assistance should aim at: • improving sector planning and designing coherent development programmes; • identifying and preparing high priority projects; • devising and implementing appropriate policies, especially pricing policies. While state entities for promotion and supervision of hydrocarbon exploration have been created in some countries,5 technical assistance is crucial to the success of any hydrocarbon development that might take place. Assistance will be required particularly for preparing or amending legislation, conducting negotiations with foreign companies, and organization and supervision of exploration. Multilateral financial institutions may have a catalytic role to play in fostering agreements between host government and foreign investors.
Least cost solutions It is unlikely that most countries of the Caribbean countries are individually capable of mobilizing the human and technical potential for developing their energy systems. Regional cooperation could make these resources more easily available. Common services in the energy field could channel external assistance on a more cost-effective basis to the countries of the region. A regional approach could also assist in studying and implementing least cost solutions to energy development at regional or subregional levels. This might include joint procurement schemes and, in the long term, the convenience of establishing international power grids between Surinam, Guyana, and Venezuela, and possibly between the Dominican Republic and Haiti. A regional energy development programme would also broaden the
scope for financing relatively small-scale energy investments in the region especially in the small countries of the eastern Caribbean.
Trevor Byer and Joerg-Uwe Richter The World Bank, Washington, DC and Joseph Vardi TelA viv, Israel While the authors are associated with the World Bank Group, the views expressed in this article are their own and should not be attributed to the Bank Group. 1 This article concentrates on the English and Dutch speaking countries of the Caribbean which are net importers of energy, including Belize, Guyana and Surinam but excluding Trinidad and Tobago. While the impact of international
petroleum price increases after June 1979 has not been analysed, this would tend to reinforce the conclusions drawn here. 2 Trinidad and Tobago, and Barbados. 3 As one of the options, steam coal could be imported from the South-eastern USA for which bauxite ships could be used which otherwise return empty to Jamaica, thus reducing transport costs. 4 The use of bagasse for power generation - both for captive generation and supplying the general grid - is already substantial in Barbados and Guyana and is of potential importance in other sugar producing countries in the Caribbean. SThis has been the case in Jamaica and Guyana. A national petroleum corporation is being formed in Barbados with the aim of administering hydrocarbon exploration and to monitor more effectively the operations of the private foreign crude oil producer/refiner in the country.
INFCE and US non-proliferation policy The I n t e r n a t i o n a l Fuel Cycle E v a l u a t i o n (INFCE), w h i c h published its final reports in February 1 9 8 0 p r o d u c e d a m a s s i v e i n t e r n a t i o n a l effort of a kind n e v e r before seen. Over a period of t w o years its e i g h t w o r k i n g groups held 61 m e e t i n g s i n v o l v i n g 5 1 9 experts f r o m 4 6 countries and five i n t e r n a t i o n a l organizations. Here W a r r e n H. D o n n e l l y o u t l i n e s the b a c k g r o u n d and structure of INFCE and discusses h o w its r e c o m m e n d a t i o n s d i v e r g e f r o m US n o n p r o l i f e r a t i o n policy.
The International Nuclear Fuel Cycle Evaluation (INFCE) was initiated during a wrenching change in US nonproliferation policy. The policy moved away from the presumption that plutonium would be used as a nuclear fuel, that reprocessing would supply it and that breeders would expand its supply and use. India's test of a 'peaceful nuclear explosive' in May 1974 marked the start of this change. In early 1977, the landmark report of the Ford Foundation's Nuclear Energy Policy Study Group had strongly challenged this presumption. According to the study group: ... The nonproliferation system will inevitably be flawed and unstable if plutonium and highly enriched uranium, materials suitable for nuclear weapons, and the facilities to produce them become increasingly widespread. The time required for achieving a nuclear weapons capability
E N E R G Y POLICY December 1980
would be greatly reduced and the temptation to make an irreversibledecision to fabricate, even use, nuclear weapons might be difficult to resist in a crisis ... President Carter echoed this theme in his nuclear power policy statement of 7 April 1977, which outlined the theme of no-plutonium-now. Of proliferation risks from nuclear power he said: ... We believe that these risks would be vastly increased by the further spread of sensitive technologies which entail direct access to plutonium, highly enriched uranium, or other weapons usable material. The question I have had under review from my first day in office is how that can be accomplished without forgoing the tangible benefits of nuclear power.2 Against this backdrop, President Carter announced that the USA would establish an international nuclear fuel cycle evaluation to develop alternative fuel cycles and a variety of international
335
With the exception of Trinidad and Tobago, all Caribbean countries are net importers of energy, which is almost entirely in the form of petroleum. ~ Known indigenous energy resources are small and unevenly distributed. As in many other developing countries, income elasticities of energy demand are high which results in a faster growth of energy imports relative to GDP and which makes balance of payments management more difficult as the economy expands. Energy imports have therefore become a critical dement in the countries' balance of payments problems. Petroleum imports to the region increased during 1972-77 from about US$150 million to about US$620 million mainly because of the quantum jump in international petroleum prices in 1973-74. This raised petroleum's share in merchandise imports from less than 9% to more than 20%. The increases in the petroleum prices in 1979 will add at least US$180 million to the combined import bill and, by 1983, energy imports might pre-empt about 25% of projected foreign exchange earnings. The energy consumption and import pictures for selected Caribbean
countries are summarized in Tables 1 and 2. The energy importing countries of the Caribbean have some common characteristics which determine their energy position. Among these characteristics are: • almost total dependence on imported petroleum which meets 70-90% of requirements of commercial energy and nearly 100% of fuel requirements for thermal power generation; • the absence of organized markets for indigenous fuels; • the replacement of indigenous fuels by imported petroleum; • the subcritical size of most energy systems which constrains the choice of least cost solutions. The pattern of energy demand, in turn, is largely influenced by the structure and stages of economic development. The energy importing countries in the region can be classified into: • relatively highly energy intensive economies with significant mineral based activities (Dominican
ENERGY POLICY December 1980
Republic, Guyana, Jamaica, Surinam); • moderately energy intensive economies based on industries, tourism and sugar refining (Antigua, Belize, Barbados, St Lucia); • agricultural economies of low energy intensity (Haiti, most Eastern Caribbean countries). Structural shifts in the Caribbean economies, associated with increased industrialization and development of important mining activities have resulted in higher energy intensity of production and substitution of traditional fuels by commercial energy sources. With rising incomes and urbanization, energy demand per capita has increased. F o r residential consumption, conventional fuels such as charcoal and kerosene have been progressively replaced by electricity, liquefied petroleum gas and, in some cases, ~ natural gas. In rural areas and agriculturally based economies where living standards and energy consumption are still low, local noncommerical sources play a more significant part in meeting energy needs, especially in areas without electricity supply. Except for sugar refining, fuel and electricity needs of agricultural and agro-industrial production are small. Residential energy consumption plays a more important role in rural areas, and cheap energy for cooking and lighting is of relatively greater importance for rural populations. In light industries and commerce, energy requirements are largely met by electricity. In tourismoriented economies, the hotel sector accounts for over 40% of commercial electricity consumption, with air conditioning alone amounting to over 20% of overall electricity demand.
Inadequate energy policies The disadvantage of the weak energy resource base has been aggravated by government policies which have not yet fully adjusted to changes in the international situation. This is evidenced by prices of energy which for extended periods have been below economic cost and have only recently started to move more closely towards international levels, and by inadequate efforts to develop indigenous resources. Energy policies and administration are
331
Communications Table 1. Macroeconomic and energy indicators, selected Caribbean countries, 1977. GDPat Share in GDP (%) GNP/ Energy consumption (109 Btu) market capita prices (US $) (current Mining US $ and million) Agriculture refining Industry Other Total Commercial Other Antigua Barbados Belize Dominica Dominican Republic Grenada Guyana Haiti Jamaica Montserrat Netherlands Antilles St Kitts St Lucia St Vincent
55.2 4.5 438.5 11.3 89.9 23.1 33.5 36,6
0.5 0.2 0,4 1,2
21.8 19,1 22.3 9.4
72.2 69.4 54.2 52.8
890 1 760 810 410
20,9 33.1 20,8 37.7 8.7 6.0
3.0 16.2 10,7 -
18.8 2.5 12.2 17,2 19.0 3.6
67.3 64.1 60.8 45,1 61,6 90.4
840 . . . 480 819.2 758.0 560 38 595.0 25 443.0 230 27 630.0 9 690,0 1 160 99 179.5 89 409.3 745 232.9 211.7
718.4 2.0 25.2 21.8 58.1 13.4 -25.2
16.0 1.5 1.2 1.6
8.9 32.6 21.5 12.4
73.1 44.1 63.9 60.8
2 786 650 580 330
4 466.6 41.1 438.0 1 184.7 2 696,0 8,3
a Excluding the bauxite and c e m e n t industries, energy c o n s u m p t i o n per US $ o f GDP a m o u n t e d to 21 4 1 5 Btu. b In 1 9 7 4 , 4 7
149 B T u / U S $ .
c This relatively high energy intensity is due to the large expatriate population. d 4 1 5 kWh of the consumer is excluded,
largest
individual
conducted among a number of government departments often with less coordination than required by the complexity of the matters considered, which results in delays in decision making or even conflicting decisions. Typically, petroleum imports and distribution are monitored by trade
1 435.3 9 618.9 5 057.0 557.9
. . 1 270.1 .
1 435.3 7 406.3 2 823.0 501.8
Energy Electricity Population consumption consumption (thousand) per US $ per capita of GDP(Btu) (kWh)
18.0 2 212.6 2 234.0 39.4
26 328 21 936 56 251 16 654
595 899 291 165
19 932 88 116 23 322 a 36 788 28060 c
265 185 239 50 989 b 591 d
. 61.2 13 152.0 17 940.0 9 770.2 21.2
.
. . 1 227.4 . .
.
.
.
. 42.7
21 860
.
ministries; pricing of petroleum products, by finance ministries (whose decisions are based primarily on fiscal considerations); and electricity pricing, by public utility commissions reporting to ministries of public utilities. The absence of coordination in energy matters has affected development planning where energy-related objectives are rarely taken into account. The petroleum sector has been hampered by inadequate resource management. Development of possible hydrocarbon resources has been retarded by lack of exploration because the relatively minor prospects of finding
349 329 140
72,5 250.0 132.3 76.9 5 128.9 105.8 812.0 4 700.0 2 096,6 12,7 245.2 49.7 114.6 103.9
petroleum in the region did not create sufficient interest among international oil companies. Furthermore, government policies have not been conducive to stimulating exploration, and the countries have not been in a position themselves to mobilize the required capital, technology and manpower. There has also been suboptimal resources use, as in the case of Barbados which produces small quantities of hydrocarbons but where nearly two-thirds of natural gas lifted is flared. The establishment of small-scale refineries induced by fiscal incentives has led to financially weak units which
Table 2. Petroleum imports, merchandise imports, and goods and non-factor service exports, selected Caribbean countries, 1977, 1978 and 1983 (current US $ million). 1977
1978
1983 (projection)
Petroleum Merchandise Goods and Petroleum Merchandise imports imports non-factor imports imports service exports Antigua Barbados Belize Domi n ica Dominican Republic Grenada Guyana Haiti Jamaica Montserrat St Kitts St Lucia St V i n c e n t
10.1 a 23.7
11.7 1.4 177.0 3.0 62,9 23.6 239.3 0.7 a 1.9 4.6 2.1
43.7 272.8 90.1 21.8 847.6 31.4 315.4 208.2 760.6 6.9 21.9 59.5 30.3
33.1 273.1 72,4 14.9 915.0 26.3 275,7 173.2 921.5 3.4 16.7 40.4 15.4
12.5 17.2 13.2 1.5 200.0 3.3 66.7 24.8 284.8 0.8 2.0 5.1 2.3
315.3 ---35.2 278.6 905.0 -33.2
Goods and Petroleum Merchandise non-factor imports imports service exports
Goods and non-factor service exports
37.8 335.4 89.8 19,4 824.9 32.3 313.7 192,2 1 014.0 4.0 17.7 45.8 17.4
120.2 699.9 164.9 31.5 1 572.0 53.4 522.0 294.2 1 649.8 7.3 37.3 70.7 42.6
25.0 43.9 28.0 3.0 436.6 7.3 156.0 49.0 553.2 1.6 3.9 11.3 5.0
126.2 599.2 192.5 40,2 1 543.0 66.4 556.0 575.2 1 323.0 13.2 39.4 103.2 54.0
a Estimated. Source:World Bank.
332
ENERGY
POLICY
December
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Communications require subsidies to continue operations. Government policies have also resulted in a seriously distorted structure of fuel prices. In some countries, high taxes on petrol on the one hand and subsidies on kerosene and diesel on the other produce excessive price differentials amounting to as much as a factor of four in Jamaica - which blunt incentives to conservation and provoke unwarranted substitution.
Electricity sector Technical, institutional and policy constraints have also impeded the development of the electricity sector. Low investment, inadequate maintenance and staff problems have adversely affected operational efficiency. The lack of hydrological studies in the past is limiting investment options in hydropower. Small local loads and difference in frequencies between the public grid and private systems have rendered interconnection uneconomic in some countries. Relatively small baseloads and sharp peaks, which are often the result of the tariff structure, impair system efficiency. Tariff inadequacies have weakened the financial position of most power utilities, preventing them from making a meaningful contribution to financing investment. Increases in tariffs have not kept pace with operating and financial costs. However, government stabilization policies in Guyana and Jamaica in 1978 and in the Dominican Republic in early 1979 have addressed themselves to this problem. There are also deficiencies in the structure of tariffs as industrial and commercial consumers are usually charged more than residential consumers, resulting in subsidization of residential electricity consumption. To provide more adequate service to the growing economies of the region, the electricity sectors need a solid institutional, financial and technical base. This includes more adequate pricing, substantial capital investment and institutional improvements. As regards the latter, strengthened management, appropriate technical services and planning are needed. Investment planning should take into account the use of indigenous energy resources for electricity generation, as
well as options for supplying energy to isolated areas by means other than the general grid.
Energy pricing For confronting the serious problem of growing energy imports by the region, more appropriate energy pricing is imperative. Changes in the absolute level of prices and in relative prices of individual forms of energy are needed. Prices should reflect, on the one hand, the long-term marginal cost to the economy of providing a particular type of energy to a particular group of consumers and, on the other, the opportunity cost of energy use. The latter should take due account of energy efficiency, convenience, and consumer preference. A comprehensive approach to energy pricing is needed which includes petroleum products and other fuels as well as electricity. If progress in energy conservation is to be achieved, the consumer has to be made aware of the high international price of energy and the resulting real cost to the economy. This implies, among other things, that petroleum products should not be supplied at lower than international prices and that residential consumption of electricity should be no longer subsidized by industrial and commercial consumers. Despite this, the social objective of meeting the basic needs of lower income groups might cause governments to provide energy at subsidized prices. In particular, the setting of electricity tariffs is a complex operation as the goals to be achieved may sometimes be in conflict. Goals may include: • pricing electricity according to its long-term marginal cost; • generation of surpluses for financing sector investment; • providing electricity to low-income groups at affordable prices. For meeting the social objective, costeffective systems of subsidization should be developed which limit provision of low priced energy strictly to low income groups. Below-cost pricing of energy inputs to economic activities is the least efficient form of subsidy and should therefore be avoided. By initially charging the full energy cost and subsequent direct
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income transfers to low-income users, reimbursements to public transport companies on the basis of services rendered, etc, both appropriate price signals would be given and the social objective achieved. Nevertheless, the long-term aim should be to scale down and gradually eliminate subsidies. The establishment of a rational structure of relative energy prices should be followed by a study of how energy taxes could appropriately contribute to meeting the government revenue requirements. For the setting of appropriate tax levels, it is desirable to spread revenue-motivated (as distinct from regulation-motivated) levies evenly among various fuels.
Better coordination For adequate energy policies, a strengthened administration and improved quantitative framework for decision making is needed. It appears advisable that in each country, a single government institution be entrusted with overall responsibility in energy matters including resource development, production, fuel imports, pricing and demand management, suitably backed up by specialized technical units. To the extent that it is feasible, coordination among government entities should be undertaken on the technical level. For improving the data base, trends in energy demand and pricing should be analysed. A national energy accounting system should be established which, combined with surveys on energy resources and uses, could provide the basis for energy planning. The latter would indicate future import needs and appropriate investment consistent with least cost solutions to developing indigenous energy resources. Energy planning should be incorporated into macroeconomic planning and the implications of economic expansion on energy demand be more closely evaluated.
Conservation and substitution Increased economy of energy use is a basic requirement as well as one of the most immediate development options open to the countries of the region. There is significant scope for conservation in thermal power generation and
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in industry. A study conducted by the UK Department of Energy in Jamaica identified opportunities for conservation investment in industry proposing benefits of nearly US$50 million which is equivalent to 20% of petroleum imports of that country in 1977. Over the medium-to-longer term, the energy intensity of industry could be reduced through changes in production processes and a shift towards less energy intensive subsectors. Of course, due consideration would have to be given to other factors which determine industrialization strategies. In the transport sector, expansion of the public sector and a shift towards more fuel efficient motor vehicles could be stimulated through differentiated taxes and road user charges. In the residential and tourism sectors, more efficient energy use in air conditioning and cooking could provide some savings over the short term whereas implementation of more energy efficient building designs could result in major savings over the longer term. The scope for energy substitution depends upon alternative supply options, adaptability of equipment to alternate fuels, and the pace of investment, none of which can be much influenced over the short term. As a start, the substitution of electricity for petroleum fuels and of petroleum fuels for charcoal could be slowed down through adjustments of relative prices. There are possibilities for efficient interfuel substitution, eg liquefied petroleum gas for kerosene in residential and commercial use and diesel for petrol as transport fuel. Particular attention should be given to substitution of indigenous energy for imported fuels in industrial use as well as electricity generation. The use of imported steam coal for new power generating units once thermal generating capacity reaches a certain size (eg 50-70 MW per unit), would provide considerable foreign exchange savings. This option is under consideration in Jamaica 3 and may become feasible in the Dominican Republic and eventually, in Barbados as well.
Supply options Limited as they are, indigenous energy resources could meet at least part of
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incremental demand in the medium-tolonger term. In the interest of developing the domestic energy base, it is recommended that the governments of the region undertake a well coordinated programme consisting of" • identification and evaluation of resources; • stimulation of production through adequate pricing, fiscal incentives for domestic investors and clear legal arrangements for foreign investors; • improved organization of domestic markets for non-petroleum fuels; • assistance in market penetration, including programmes for the adaptation and demonstration of more efficient technologies. Among conventional energy, hydropower is already the most important indigenous source in Dominica and Surinam. There is scope for micro schemes in other countries, and Guyana and Surinam are considering the viability of undertaking large-scale investment projects in this field. Hydrocarbon potential may exist in or near Belize, Dominican Republic, Grenada, Guyana, Surinam, Jamaica, and the Netherlands Antilles, in addition to Barbados and Trinidad and Tobago which are already producers. Substantial additional exploration is required to gain firmer knowledge about this resource. Because of the importance of imported petroleum as the main source of commercial energy and in light of the relatively small quantities consumed in the Caribbean countries, even moderate domestic production would result in a significant improvement of the energy position. Barbados has scope for increasing output and utilization of petroleum and natural gas. This goal forms part of the government's investment programme. Besides hydrocarbons and hydropower, the relative importance of other energy forms for meeting future energy requirements is likely to remain limited. Among mineral fuels, lignite in Haiti and peat in Jamaica could become feasible for commercial use. The contribution of wood and charcoal to meeting energy requirements has been held back by backward production, unorganized markets and inefficiencies in final consumption. Through more efficient production and use, the
significance of these fuels could be increased. Since scavenging of timber reserves has resulted in serious ecological damage in some countries, wider use of these resources for energy purposes should be accompanied by reforestation programmes. There is scope for increased use of bagasse, agricultural and timber wastes for power generation,4 and possibly of biogas in rural areas. The use of alcohol produced from molasses as an admixture to gasoline does not appear to be feasible at present since savings of petroleum imports would be less than earnings forgone from exports of molasses and/or industrial alcohol. However, the economies of this option should be re-evaluated as international prices change and technologies advance. Other non-conventional resources such as geo-thermal, solar and wind energy could become significant for meeting local demand, thus reducing requirements for transmission of conventional energy.
External assistance Substantial investment will be required for meeting the future energy needs of the Caribbean economies. As in the past, the bulk of investment will be absorbed by the power sector. Resource surveys and exploration, particularly for hydrocarbons, will become more important and could easily amount to US$150 million over the next five years or so. Expenditures will also be needed for developing non-commerical and non-conventional energy, conversion of energy consuming equipment and installations, adoption and promotion of new forms of energy and improvement of energy administration and planning systems. All told, energy related investment requirements in the countries of the region between 1979 and the mid1980s might total at least US$1.2 billion (109). F o r implementing investment programmes of considerable magnitude and complexity, external capital and technical assistance is crucial. Loans for power projects are likely to be forthcoming from international and regional development banks, commercial banks and suppliers. Hydrocarbon-related investment might be largely undertaken by foreign private
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Communications companies although the governments of the region would have to make some contribution as well. Funds for hydrocarbon investment, "including resource surveys, are now also provided through multilateral and bilateral institutions. For surveys of other energy resources, grants from specialized UN agencies and some governments are available. External technical assistance should aim at: • improving sector planning and designing coherent development programmes; • identifying and preparing high priority projects; • devising and implementing appropriate policies, especially pricing policies. While state entities for promotion and supervision of hydrocarbon exploration have been created in some countries,5 technical assistance is crucial to the success of any hydrocarbon development that might take place. Assistance will be required particularly for preparing or amending legislation, conducting negotiations with foreign companies, and organization and supervision of exploration. Multilateral financial institutions may have a catalytic role to play in fostering agreements between host government and foreign investors.
Least cost solutions It is unlikely that most countries of the Caribbean countries are individually capable of mobilizing the human and technical potential for developing their energy systems. Regional cooperation could make these resources more easily available. Common services in the energy field could channel external assistance on a more cost-effective basis to the countries of the region. A regional approach could also assist in studying and implementing least cost solutions to energy development at regional or subregional levels. This might include joint procurement schemes and, in the long term, the convenience of establishing international power grids between Surinam, Guyana, and Venezuela, and possibly between the Dominican Republic and Haiti. A regional energy development programme would also broaden the
scope for financing relatively small-scale energy investments in the region especially in the small countries of the eastern Caribbean.
Trevor Byer and Joerg-Uwe Richter The World Bank, Washington, DC and Joseph Vardi TelA viv, Israel While the authors are associated with the World Bank Group, the views expressed in this article are their own and should not be attributed to the Bank Group. 1 This article concentrates on the English and Dutch speaking countries of the Caribbean which are net importers of energy, including Belize, Guyana and Surinam but excluding Trinidad and Tobago. While the impact of international
petroleum price increases after June 1979 has not been analysed, this would tend to reinforce the conclusions drawn here. 2 Trinidad and Tobago, and Barbados. 3 As one of the options, steam coal could be imported from the South-eastern USA for which bauxite ships could be used which otherwise return empty to Jamaica, thus reducing transport costs. 4 The use of bagasse for power generation - both for captive generation and supplying the general grid - is already substantial in Barbados and Guyana and is of potential importance in other sugar producing countries in the Caribbean. SThis has been the case in Jamaica and Guyana. A national petroleum corporation is being formed in Barbados with the aim of administering hydrocarbon exploration and to monitor more effectively the operations of the private foreign crude oil producer/refiner in the country.
INFCE and US non-proliferation policy The I n t e r n a t i o n a l Fuel Cycle E v a l u a t i o n (INFCE), w h i c h published its final reports in February 1 9 8 0 p r o d u c e d a m a s s i v e i n t e r n a t i o n a l effort of a kind n e v e r before seen. Over a period of t w o years its e i g h t w o r k i n g groups held 61 m e e t i n g s i n v o l v i n g 5 1 9 experts f r o m 4 6 countries and five i n t e r n a t i o n a l organizations. Here W a r r e n H. D o n n e l l y o u t l i n e s the b a c k g r o u n d and structure of INFCE and discusses h o w its r e c o m m e n d a t i o n s d i v e r g e f r o m US n o n p r o l i f e r a t i o n policy.
The International Nuclear Fuel Cycle Evaluation (INFCE) was initiated during a wrenching change in US nonproliferation policy. The policy moved away from the presumption that plutonium would be used as a nuclear fuel, that reprocessing would supply it and that breeders would expand its supply and use. India's test of a 'peaceful nuclear explosive' in May 1974 marked the start of this change. In early 1977, the landmark report of the Ford Foundation's Nuclear Energy Policy Study Group had strongly challenged this presumption. According to the study group: ... The nonproliferation system will inevitably be flawed and unstable if plutonium and highly enriched uranium, materials suitable for nuclear weapons, and the facilities to produce them become increasingly widespread. The time required for achieving a nuclear weapons capability
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would be greatly reduced and the temptation to make an irreversibledecision to fabricate, even use, nuclear weapons might be difficult to resist in a crisis ... President Carter echoed this theme in his nuclear power policy statement of 7 April 1977, which outlined the theme of no-plutonium-now. Of proliferation risks from nuclear power he said: ... We believe that these risks would be vastly increased by the further spread of sensitive technologies which entail direct access to plutonium, highly enriched uranium, or other weapons usable material. The question I have had under review from my first day in office is how that can be accomplished without forgoing the tangible benefits of nuclear power.2 Against this backdrop, President Carter announced that the USA would establish an international nuclear fuel cycle evaluation to develop alternative fuel cycles and a variety of international
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