Bolivia ESMAP country paper

The World Bank Joint UNDP/World Bcnk ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) ESMAP COUNTRY PAPER BOLIVIA December 1991 V\$pi JOINT UNDP/WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) ESMAP COUNTRY PAPER (ECP) What is an ECP? With the cooperation of the government of each participating country, the ESMAP Strategy and Programs Division prepares an ECP, whose overall purpose is to d'fine a multi-year work program for energy sector activities in the country. ECPs are generally divided into four principal parts: (1) main issues in the energy sector and current government policies and programs; (2) critical factors for implementing programs and ensuring the support of the international community (including the Bank and ESMAP) to overcome them; (3) rationale and justification for ESMAP's involvement; and (4) the proposec program, with a description of the basic features of each activity. These include its contrihtion to the overall energy strategy, operational objectives, priority, budget, and interfaces within the ESMAP program and with other initiatives. Annexes provide further details on the country's energy sector and on proposed activities. ECPs are updated as necessary in light of conditions in the country and progress in the implementation of the work program. The ECP Process An ECP is a process as well as a product. It usually builds on ESMAP's previous experience in the country's energy sector, on sustained dialogue with the government and relevant energy institutions, and on joint missions and discussions with the World Bank, UNDP, and other involved agencies. It involves a preliminary draft by ESMAP, in conjunction with World Bank staff, based on dialogues with local institutions; a mission by an ESMAP staff member to the country, consultation with the UNDP, donors, and government officials; a review and clearance of the draft ECP by World Bank/E)MAP management, reflecting also the views of the UNDP resident representative; the clearance of the final draft by the government; and presentation of the ECP to the donors. The 1ECP-for Bolivia The ECP for Bolivia was.prepared wit funding om Norway. The.preparation of the document involved dissions with the Goveninet f Bolivia, a mission by an ESMAP staff member to Bolivia, cnsultation and rview by the UNDP and final rmvisions by ESMAP, This document was cleared by the Government of Bolivia in September 1991 and by the World Bank in October 1991. Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) ESMAP COUNTRY PAPER BOLIVIA ECP no. 003/91 Decemb( '91 This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without UNDP or World Bank authorization. ABBREVIATIONS bbl/d barrels per day boe barrels of oil equivalent GDP Gross Domestic Product IPF indicative planning figures (UNDP) MMcf million (106) cubic feet MW Megawatt Ps private sector R/P ratio Reserve to production ratio TA technical assistance TCAL teracalories (10") Tcf trillion (1012) cubic feet UNDP United Nations Development Programme ACRONYMS DINE Direcci6n Nacional de Electricidad (national electricity directorate) DIFER Direcci6n del Fomento Energ6tico Rural (national rural energy directorate) ENDE Empresa Nacional de Electricidad (national electric power company) MEH Ministerio de Energfa e Hidrocarburos (Ministry of Energy and Hydrocarbons) COBEE Compafifa Boliviana de Energfa Eldctrica (Bolivian Power Company) USAID Agency for International Development (United States) YPFB Yacimientos Petrolfferos Fiscales Bolivianos (Bolivian National Oil Company) The exchange rate at the time this document was written w.As US$1 = 3.65 Bolivianos. ESMAP COUNTRY PAPER BOLIVIA TABLE OF CONTENTS EXECUTIVE SUMMARY ........................................ v I. ENERGY SECTOR ISSUES AND OBJECTIVES ..................... 2 Energy and the Economy ................................... 2 Institutional Organization of the Sector .......................... 3 Energy Supply ........................................... 5 Energy Dem and .......................................... 6 Main Issues in the Energy Sector .............................. 7 II. CRITICAL FACTORS IN THE ENERGY STRATEGY ................ 10 III. INTERNATIONAL AND ESMAP ASSISTANCE .................... 11I IV. ESMAP'S PROPOSED PROGRAM ............................. 12 1. Development of Natural Gas Strategy ....................... 13 2. Institutional Evaluation of the Energy Sector ................... 13 3. Institutional Evaluation of the Power Subsector and Its Structure ................................ 14 4. Energy Efficiency and Environmental Impact of Energy-Related Operations ...................... 15 5. Energy Supply Strategy for the Rural Sector ................... 16 ANNEX I: ENERGY SECTOR INVESTMENT PLANS ................. 18 ANNEX II: ISSUES AND ACTIONS IN THE ENERGY SECTOR .......... 20 ANNEX III: SUMMARIZED ENERGY BALANCE 1990 ................. 23 iii EXECUTIVE SUMMARY The energy sector in Bolivia over the past 10 years has accounteu for 20 to 50 percent of the country's merchandise exports and has absorbed 40 percent of public investments. Its efficient operation therefore is critical for sustaining the economic stabilization program that was introduced in late 1985, after inflation had reached more than 20,000 percent. After bringing inflation down to 16 percent and stabilizing the economy at 2.6 percent growth (1990), the Government of Bolivia now wants to make the transition to more dynamic economic growth toward the year 2000 while shifting the role of the state toward the provision of basic physical infrastructure and human resource development. Bolivia's energy resources include a potential of about 18,000 MW of hydroelectric power, of which only 300 MW have been exploited; 110 million bbl proven oil reserves; and 4 Tcf of associated natural gas reserves. Biomass energy covers about 40 percent of total energy demand. Bolivia is self-sufficient in petroleum, although production has been declining for the past 18 yuar. In 1989, production averaged 24,000 bbl/d, down from 49,000 bbl/d in 1973. Current petroleum liquids demand is about 20,000 bbl/d; hence, oil exports, which were 32,0) bbl/d in 1973, have virtually ceased, and Bolivia is in danger of becoming an importer w-ess new fields are discovered, liquid demand is substituted by natural gas, and energy is u., -' more efficiently. Of about 510 MMcf/d of natural gas producti, n, 42 percent is exported, 10 percent 's consumed domestically, -And about 48 percent is reinjected, vented, or flared. The natural gas export contract to Argentina, which accounted for US$225 million in foreign exchange in 1990, will expire in April 1992. Argentina's hydrocarbon market has been deregulated, and thus the price of Bolivian natural gas may drop below the previously negotiated price. Investments estimated at US$1.8 billion, including the Pto. Suarez project, will be required by 1995 to reverse the decline in petroleum liquids production and increase the utilization of natural gas. In addition, the power subsector will demand about US$500 million in the next four years. These levels of investments are beyond the financial capability of the Government, and for the Government itself to seek to make them would be at cross-purposes with its objective of incorporating private capital into the productive sectors. Three factors will help ensure that Bolivia's energy sector contributes to stabilization by remaining financially independent and contributing revenues to the national budget: * The securing of capital needed to finance investments in the power and petroleum subsectors (overall requirements of about US$2.3 billion between 1991 and 1995) * The existence of well-run public institutions and the adoption, at the sectoral level, of policies that lead to technical, organizational, and economic efficiency and that are compatible with the economic stabilization program v vi ESMAP COUNTRY PAPER The existence of a legal framework that supports investment, encourages competitive private sector participation, and reduces the role of the state in the productive sectors. The work program of technical assistance for 1992-94 described in this paper seeks to help the Government address the last two factors-enhancing Bolivia's energy sector efficiency policies and the sector's institutional and legal framework. This assistance, in turn, should enable the Government-along with multilateral agencies, donor countries, and the private sector-to address the first factor: to mobilize the capital required for the needed sectoral investments. The proposed work program is designed within the context of the World Bank objectives in the energy sector in Bolivia: to promote competition; to encourage private sector participation; to strengthen the quality and efficiency of public sector management; to reduce the role of the state in the productive sectors; and to increase energy surpluses for exports. These objectives have been supported by the World Bank's structural adjustment operations and more recently by the proposed Public Enterprise Reform and Private Sector Development Project, and the proposed Hydrocarbon Sector Deregulation Project. In support of these efforts and objectives, ESMAP proposes assistance in five areas, listed in order of priority jointly with the Government: (a) natural gas development strategy; (b) energy sector institutional development; (c) power subsector regulatory reforms; (d) energy efficiency and environmental impact; and (e) rural energy supply. Of these, only the natural gas strategy is partly dependent on external fa,.tors; the other four have to do mainly with institutional factors within Bolivia. Unlike pure preinvestment studies, the proposed activities focus on implementation and are designed to ensure a high level of institution-building capacity in the Government and a fair amount of local participation. The key issues and specific activities as described below are scheduled in terms of addressing timely issues in a practical matter. 1. Implementation of the Natural Gas Development Strategy. This activity will implement the recommendations of an ESMAP study, Natural Gas Development Strategy, currently under way and expected to be completed by the second quarter of 1992. The current study aims to provide the Government with a comprehensive framework for natural gas planning and policies, including priorities for investments. The analyses include supply costs and reserves, domestic and export demand, pricing and tariffs, and the institutional and regulatory framework for the natural gas subsector. The proposed activity, would assist the Government in implementing the regulatory framework for natural gas development; designing and implementing the revised pricing and tariff system; building an export marketing capacity and providing advice for gas sales to Argentina, Brazil, and Chile; and providing advice in the institutional area, particularly in relation to the proper organization of the gas activities of YPFB. Bolivia has requested ESMAP's assistance because of ESMAP's experience in deregulating the gas market in Argentina and in analyzing Bolivia's local gas listribution market. 2. Restructuring of the Institutional Framework in the Energy Sector. Among the most critical issues facing Bolivia's energy sector are the lack of a legal- regulatory framework that would allow more competition and separate the state's normative and operational roles and the lack of well-trained staff, particularly at the MEH, to operate this regulatory framework. In the hydrocarbon subsector, in particular, the national oil company, YPFB, which in practice defines hydrocarbor policy, holds a monopolistic position in the sector while lacking the autonomy, and accountability, to make effective managerial decisions within a competitive environment. Thus, as demand increases and production declines in the hydrocarbon sector, YPFB has been unable to address the critical issues-how to rev-ne the decline in production and how to encourage the economic substitution of petroleum by natural gas. The Government recognizes that the efficient operation of an energy regulatory .ntity is critical to mobilizing resources and addressing issues in both the pe.oleum and power subsectors. Consequently, the institutional restructuring project will support the Government in four areas: First, at the sectoral level, it will play a role in evaluating and making recommendations regarding the advisory and regulatory relationship of MEH to YPFB and the private sector and in recommending and assisting in the implementation of a more efficient institutional and regulatory framework for the energy sector. Second, in the hydrocarbon subsector, it will assist the government in the detailed evaluation of the institutional option more appropriate to foster competition both in upstream and downstream petroleum operations, which, in turn, will require a redefinition of the role of YPFB to make it more efficient in a competitive environment, including the possible breakup of YPFB into functional units for production, transport, refining, and distribution. This reorganization should proceed in the fi.st quarter of 1992 as a key first step in the restructuring of the energy sector. Third, the activity will assist in directly building up institutional capacity and human resources at MEH through an in the field training programme. Finally, ESMAP will assess the economic impact of energy pricing, tax policies, and regulation on fiscal revenues, energy enterprises, demand, and the market, under current and competitive market conditions. As a first step, the Public Enterprise Reform and Private Sector Development Project will identify the main institutional issues to be addressed in the hydrocarbon subsector and will discuss the pros and cons of alternative institutional structures. Subsequently, in the context of potential implementation, the institutional option that is chosen will be analyzed in more detail. To assist in implementation, the World Bank is considering a credit on Hydrocarbon Deregulation and Privatization. iii ESMAP COUNTRY PAPER 3. Reform of Institutional and Legal Frimework in the Power Subsector. The main issue to be addressed is the reform of the legal and institutionai framework to improve resource mobilization through greater private sector participation. Such participation would entail, first, a reform in current electricity code; this reform, in turn, would raise issues such as the regulation of electricity enterprises and the formulation and enforcement of policy; the compliance with regulation to ensure that tariff levels and structures are in line with marginal costs; and the definition of responsibilities for the execution of specific projects within the expansion plan (i.e., transmission and generation projects and service to rural areas). The Government has recognized the need for an effective regulatory agency to control and enforce tariffs, create incentives for competition, and oversee sector performance. Further, given the growing demand for power, and investment requirements of about US$500 million over the next five yearr, the Government wants to close the gap between tariffs and marginal costs to prevent a future deficit that will drain public funds. This study will follow up a 1991 ESMAP- funded study on private generation and transmission. 4. Energy Efficiency and the Environmental impact of Energy-Related Operations. Once the institutional reforms under the previous studies in the energy sector have taken place, and given the increasing demand for energy and the prospects for increased production, the Government is concerned about efficient and environmentally benign energy production, transformation, and use. The Government has requested ESMAP's help in evaluating both price and nonprice efficiency incentives to achieve these objectives. The evaluation of price incentives will be linked to the institutional evaluation of the en-ly sector, which will analyze the regulatory framework for energy pricing polick- and its impact on demand and other variables. In addition, the potential for end-use energy efficiency and energy demand management will be evaluated. The newly created National Environmental Commission has also requested that MEH evaluate the legal framework within the energy sector for protecting the environment and the environmental impact of energy-related operations. ESMAP will assist in this assessment, the results of which will serve as the basis for defining new regulations applicable to the energy sector at the central government that will affect energy enterprises. 5. Implementation Energy Supply Strategy for the Rural Sector. The ESMAP- funded study, Household Energy Strategy, to be available in March 1992, will be used as a basis for implementing a rural energy supply strategy. Apart from identifying priority investments in the rural sector, the study recommends assisting the MEH in improving prioritization of rural energy projects; resource mobilization; and the efficiency of project implementation. BOLIVIA ix Consequently, this activity will focus on establishing and training the staff of the Energy Rural Directorate (DIFER), on streamlining the rural distribution system for commercial fuelf and in prioritizing the pipeline of rural energy projects and its funding structure. The output of all of these energy studies is expected to support economic growth, improved public sector management, mobilization of resources, and attraction of private investment that will free up state resources for basic infrastructure services to help the poor. The failure to address the critical issues of the sector, on the other hand, may inhibit -rnergy investment programs and efforts toward overall economic stabilization and growth. TABLE 1. Proposed ESMAP Work Program, Bolivia (US$'000) ACTIVITY 1992 1993 1994 TOTAL 1. Implementation of Nat. Gas Dev. Strategy 400 - - 400 2. Restructuring Inst. Framework, Energy 340 260 - 600 3. Reforming Inst., Legal Frameworks, Power - - 450 450 4. Energy Efficiency and Environment - - 350 350 5. Energy Supply Strategy, Rural Sector a TOTAL 740 610 450 1,800 Note: All projects are unfunded as of January 1992. a Funding parameters still to be defined. x ~ESMAP COUNTRY PAPER ESMAP COUNTRY PAPER BOLIVIA BOLIVIA (1990) * Area: 1.1 million km' * GNP: US$4.5 billion * Population: 7.1 million Per Capita GNP: US$630 2.8% growth rate Inflation: 16% in 1987-90 * Total External Debt * Government Finance (1990) (December 1989): US$3.6 billion Current Surplus: 25% of GDP Current Expenditures: 7.6% of GDP * Current Petroleum Production (1990): 7.6 million barrels * Current Liquid Products Demand: 6.6 million barrels * Proven Reserve/Production (RIP) Ratio: 12 years * Installed Power Capacity: 635 MW * Electricity Peak Demand: 400 MW * Natural Gas Production: 510 MMcfid * Natural Gas Demand: Domestic: 10% * Proven RIP Ratio: 40 years Exports: 42% Reinjected, Flared, & Other: 48% a 1990 data unless otherwise indicated. This paper presents ESMAP's proposed work program for Bolivia for 1992-94. The proposal is for technical assisi-,ce to support the Government's efforts to design and implement efficiency policies in the energy sector that are compatible with the economic stabilization program. The overall goals are to establish a legal framework that fosters a supportive investment climate, particularly for the private sector, and reduces the role of the state in the productive sectors. These objectives depend, in turn, on effective institutional and regulatory reforms at the sectoral and subsectoral levels. 1 2 ESMAP COUNTRY PAPER 1. ENERGY SECTOR ISSUES AND OBJECTIVES A thorough understanding of the Bolivia's principal energy sector issues and objectives requires an overview of the crucial links between the energy sector and the economy as a whole, a description of the institutional configuration of the energy sector, a review of the supply and demand considerations, and an exposition of the specific issues and context of each of the energy subsectors. Energy and the Economy Bolivia's stabilization program, implemented after the economy had reached hyperinflationary levels of 20,000 percent during the first nine months of 1985, was highly successful in reducing internal and external imbalances. Interest rates were freed; foreign exchange controls, restrictions on imports, and price controls in almost all markets were eliminated; and prices of public sector goods, including energy, were adjusted to market levels. In the energy sector, the Government strengthened the power company, ENDE, by capitalizing it in the amount of US$107 million after the financial weakening of the hyperinflation years. Bolivia has a large public enterprise sector that dominates many sectors of the economy, including the production of many goods that would be provided more efficiently by the private sector. At present, Bolivia has about 159 nonfinancial publicly owned companies. Of these, about half are directly responsible to the central government and the other half are under the nine regional development corporations. YPFB, the national petroleum company, is the largest of these enterprises, accounting for 53 percent of the total revenues, 68 percent of the investments, and 93 percent of the total net transfers to the Government generated by public enterprises. Per capita income and consumption have been declining, as GDP growth has stagnated since 1987 at an average of 2.7 percent a year while population growth has been 2.8 percent. The challenge for the 1990s therefore will be to make the transition from low-growth stabilization to more vigorous growth and greater social equity. The 1990 economic figures indicate that GDP growth reached at least 4 percent while exports grew at 18 percent per annum over the last three years. To achieve that transition to sustained economic growth, the Government is committed to maintain its program of economic stability while gearing its efforts toward the following goals: Reducing constraints to private sector growth, particularly by streamlining regulatory policies and improving infrastructure * Reducing financial sector constraints to growth as a means of increasing resource mobilization, particularly from the private sector * Improving public sector management to encourage needed investment, increase public savings, and reallocate public investments from the productive sectors and to strengthen basic infrastructure, especially for health and education * Reorienting public expenditures toward the poor, including for basic health and education services. The energy sector plays a critical role in Bolivia's economy. In 1990, the sector contributed about 55 percent of the exchequer's revenues, absorbed about 40 percent of public investment, and accounted for 25 percent (US$227 million) of merchandise exports. The sector has great potential for growth-electricity coverage is only about 30 percent, overall energy consumption per capita is one of the lowest in the continent, and bioenergy still accounts for about 34 percent (80 percent in the rural sector) of energy consumption. The Government seeks to ensure that the energy sector contributes to the overall economic equilibrium. Its specific objectives are to extend and diversify natural gas distribution within Bolivia and into regional markets, in neighboring countries; ensure a reliable, economic, and diversified supply system for the internal market; increase energy surpluses, particularly in liquid fuels for export; promote economic and efficient use of all forms of energy in all sector enterprises; preserve the environment; and ensure the efficient use of public and private resources. The World Bank supports these objectives. Achieving these objectives means reforming and strengthening the institutional and legal framework of Bolivia's energy sector to mobilize and promote efficient use of resources, encourage development of human resources, and further private investment in petroleum exploration and development. It will also involve defining a natural gas development strategy and encouraging substitution of natural gas for liquid hydrocarbons. Institutional Organization of the Sector The energy sector is the responsibility of the Ministry of Energy and Hydrocarbons (MEH), which executes Government energy policy. The MEH is nominally responsible for formulating national energy policy and for regulating and coordinating the sector's activities. In reality, significant aspects of policy formulation and execution of activities in energy reside with YPFB, the state-owned oil company, and to an extent with ENDE, the state-owned power company. Other influences on energy policy derive from the regional level, where regional development corporations (RDCs) use regional tax revenues and hydrocarbon royalties to carry out some activities in the sector, mainly electrification. The law gives MEH scope in establishing guidelines for energy policy; setting energy prices; and coordinating, controlling, supervising, and monitoring sector activities. MEH is assisted by the Hydrocarbon General Administration (DGH), the National Electricity Administration (DINE), and the Rural Energy Administration (DIFER). 4 ESMAP COUNTRY PAPER The ESMAP-funded National Energy Plan project (1991) has assisted MEH in designing and implementing an energy data base (updated by MEH staff every threc months), training local technical staff, and advising on energy policy guidelines. The energy policy guidelines have been issued as a report, the National Energy Plan (also updated every three months), which ENDE and YPFB use as a basis for formulating their investment plans. Trained staff from the National znergy Plan project should play a critical role as counterparts in the development of the activities identified in this ECP. However, the lack of resources at the MEH makes funding for the staff uncertain. Role of YPFB. The state-owned oil company, YPFB, is responsible for national-level hydrocarbon production and for formulating short-, medium-, and long-term plans for the hydrocarbon subsector. YPFB is also responsible for specifying annual plans within the framework of the national budget and has primary responsibility for all activities associated with exploration, development, refining, industrialization, transport, and commercialization of hydrocarbons. These activities include studies, construction, operation, and administration. YPFB has a monopoly for supply and distribution up to the ex-refinery point. Domestic distribution is done by YPFB and recently by participation of the private sector in accordance with the hydrocarbon law. Overall, the distribution system operates under a cost-plus arrangement. Like all petroleum-related companies and activities in Bolivia, YPFB operates under the mandate of the Hydrocarbon Law. The new 1990 Hydrocarbon Law gives more room than the old 1972 law for private investment in petroleum exploration and development and permits private participation in all phases of petroleum production. Yet, private production is still small-below 20 percent. This is caused in part by YPFB's retention of the most promising oil-producing areas for itself and by the absence of a regulatory and financial environment that would make secondary recovery more attractive to private companies and provide more attractive and transparent financial terms to interested oil companies. Similar contradictions plague other areas of the subsector. For example, the new hydrocarbon law opens possibilities for companies other than YPFB to own and operate natural gas pipelines. However, the law maintains the state's right, through YPFB, to license companies to distribute natural gas to residential customers. This practice-allowing licensing to be controlled by an active participant in the subsector-undermines the competitive environment that MEH has sought to promote. At the level of downstream petroleum operations, YPFB controls all refining and pipeline assets. Domestic distribution is carried out by the private sector and leased stations by YPFB under a cost plus system. Role of ENDE. The state-owned power utility, ENDE, is charged with formulating electricity subsector plans based on the guidelines of the National Energy Plan. It also designs, constructs, and operates interconnected generation and transmission systems under its ownership and under concession. From a legal standpoint, the electricity subsector is regulated by the Electricity Code (1977). The Code covers concession-related regulations for private companies, rights of way, asset evaluation, service conditions, tariffs and taxes, and fines and penalties. Private companies and cooperatives in the electricity subsector are also involved in planning, constructing, and operating electricity generation and distribution facilities and syst-- is under terms of the National Electrification Plan, prepared by ENDE every five ,ars, and the Electricity Code. The main drawbacks in the Electricity Code are that it gives no incentives for operating efficiently; costs can be passed on to consumers because power tariffs are not correlated with marginal costs but are based on rate-of-return legislation. Still, despite the rate-of-return regulation, the Government has not given ENDE tariffs high enough to reach the 7 percent return on fixed assets permitted by the law. Under the current situation, future investments will still be concentrated in ENDE, and the Government will continue to bear the associated risks. This situation thwarts Government objectives, which are to make the power sector self-sustaining (hence avoiding dependence on the national budget) and to incorporate private capital into the electricity industry. Role of the Regional Development Corporations (RDCs). These regionally run entities, created by the state in the 1970s, are mandated to conduct five-year studies of energy requirements and formulate regional development plans. They also formulate energy programs and design and finance energy projects in areas not served by sector institutions, provided these activities are consistent with the National Energy Plan and the subsectoral energy plans. The RDCs also establish operating contracts with cooperatives or private entities to operate RDC-financed energy systems. As decentralization progresses, the RDCs are expected to play a greater role in energy development and planning, particularly in the rural areas. Energy Supply The country's commercial energy resources are liquid hydrocarbons, natural gas, and hydroelectric power. Noncommercial energy sources consist of biomass and solar and wind energy. Proven liquid hydrocarbon reserves are 109.2 million bbl, enough to sustain the local market for 12 years. Probable reserves are 74.9 million bbl, enough to sustain the market for an additional 9 years. All proven reserves of liquid hydrocarbons are now in production, so even assuming all the probable reserves are proven and put into production, reserves will be exhausted by 2012, barring discovery of new oil or gas fields (most liquid production is associated with natural gas production). For natural gas itself, proven reserves are 4 Tcf (759.7 million boe), and probable reserves are 1.9 Tcf (360.6 million boe), or seven times the reserves for liquid hydrocarbon. Production in 1990 was 510 MMcf/d, of which 10 percent was domestically consumed for final use and for electric power production; 42 percent is exported; and the remaining 48 percent is either reinjected, privately consumed, flared, or vented. The 18,000 MW identified potential for hydroelectric power is still undeveloped. Biocnergy (woodfuel, dung) represents 34 percent of total energy use and 80 percent of energy use in rural areas. About 10 to 20 percent of rural households have access to electricity. Most nonelectrified households use candles or wick kerosene lamps for their lighting needs, although LPG or pressurized kerosene lanps would be more 6 ESMAP COUNTRY PAPER efficient. Supply of LPG and kerosene is relatively efficient, although preliminary analysis from ESMAP's Household Energy Strategy study indicates that use of LPG could become more widespread if the LPG bottling system, which is wholly owned and operated by YPFB, were more decentralized. Because of deforestation and erosion that result from using bioenergy sources, the Government plans to encourage substitution by commercial energy. However, such substitution would be economical for only about 30 percent of rural households in the case of rural electrification, mainly in the relatively concentrated ruial agglomerations. Solar energy, because of its high cost and difficulty in storage, has only limited use in agriculture, principally for grain drying, greenhouses, and irrigation pumping. BOLIVIA: CURRENT AND PROJECTED ENERGY DEMAND Bicenergy 31% Bloenergy 88% Eleotrtlity 8% Eleotricity 7% NatL Gas 7X NAtM Cas 10 QCNGGOs CNG 0% Petr. Prott 64% Petr. Prodto 61% 1991 2000 Soure Nawional Enera Plan Note: 1991 total energy demand = 21,022 TCAL; 2000 projected total energy demand = 26,621 TCAL. Figure 1. Bolivia's Current and Projected Energy Demand Energy Demand As Figure I shows, aggregate energy demand is expected to increase about 2.7 percent a year for the next 10 years. By subsector, however, electricity demand is expected to grow at about 6 percent a year, petroleum products by 3.5 percent, and natural gas by 6.1 percent, whereas bioenergy will decline because of substitution by commercial fuels. The projected demand assumes that energy prices are set by the Government based on a cost-plus formula and as a function of economic requirements, with power tariffs based on rate-of-return regulation. Equally, natural gas demand will be influenced by pricing and other policies the Government may set in accordance with the development strategy for natural gas. These conditions may change, as studies, recommendations, and policy reforms and could alter the composition of projected demand. In the petroleum subsector, the expected demand by the year 2000 of 27,039 bbl/d, compared with YPFB's medium projected production level of about 31,000 bbl/d, creates the need for action on the demand side, to increase efficiency of use and economic interfuel substitution; and on the supply side, to increase oil field exploration and development. Main Issues in the Energy Sector The energy sector has not kept pace with the recent structural adjustments in the economy. Competition in the sector is the exception, and Government participation remains strong in all phases of energy production, transformation, and distribution. In the short term, key issues are restructuring of the hydrocarbon subsector and the institutional reform of the energy sector; delaying decisions on these issues could hamper the economic growth rates required to sustain the economy in a vigorous growth path. In the medium term, issues that will have to be addressed include reforming the legal framework in the power subsector to allow more competitive private generation, encouraging a more efficient use of energy with minimal environmental impact, and securing efficient supplies of energy for rural areas. Hydrocarbon Subsector. The restructuring of the hydrocarbon sector, and consequently of the hydrocarbon law and its regulations, will assist in addressing the short- and medium-term issues facing this subsector: that is, how to reverse declining oil production and reserves; how to encourare greater private sector participation both upstream and downstream in a more competitive environment; how to diversify and expand the natural gas market; how to restructure or divest YPFB to make it more efficient, autonomous, and accountable; and how to structure an efficient pricing policy for petroleum and natural gas. Even though petroleum prices are above their economic cost, the cost-plus prices and taxes for hydrocarbons, established by ministerial resolution, for example, discourage competition and are a function of the financial revenues required to maintain macroeconomic equilibrium. The Government recognizes that most issues and financing needs are outside the scope of the state oil utility, YPFB, and that YPFB could not influence fiscal requirements, and hence, taxes, even if it were more autonomous. The Government also recognizes the need to increase declining reserves and production of liquid hydrocarbons to ensure the supply of the internal market and generate surplus for exports; the need to diversify and expand the market for natural gas, particularly with exports to Argentina, 8 ESMAP COUNTRY PAPER Brazil and Chile; and the need to create incentives for the private sector to invest. However, if YPFB had more autonomy for self-financing and for managing its own affairs in a more competitive environment-that is, if taxes and royalties were structured to allow YPFB to operate as a commercial oil producing company-it might be able to participate in exploration and development to help meet the US$1.2 billion in investments required by the petroleum subsector by 1995. YPFB has committed to contributing 73 percent of these funds, with the balance to be raised from the private sector, but the company does not presently have the resources to carry out this investment program or to match private or foreign investment. Expenditures for the investment program are expected to average US$180 million per year, which is beyond the country's capacity and level of expenditures for YPFB. However, the use of public funds for risky revenue-eaming investments is inconsistent with the Government's objective of attracting more private sector participation, and it should be reassessed. This would mean reassessing YPFB's level of participation in oil exploration and its control of the most promising prospective fields. If YPFB were allowed to operate as an autonomous company in a competitive environment, its exploration and investment decisions would be made according to commercial factors, and its internal organization could be broken up into functional and independent areas competing with other oil companies. In many cases, joint ventures in their producing fields, oil recovery would increase because private companies have more sophisticated technology and greater financial resources. Natural Gas Subsector. This subsector will remain vital to the country's economic development. Proven gas reserves are around 700 million boe, giving a reserve to production ratio (R/P) of about 40 years. Reserves are sufficient to allow continued supply of the country's major foreign market, Argentina; however, if exports of electricity and gas to Brazil also materialize, the R/P ratio will drop to about 20 years. Thus, key issues in the natural gas subsector include the technical and economic feasibility of supplying another major foreign market as well as an expanding domestic market and how to maximize the returns from natural gas. Power Subsector. At the moment, there are no major issues in the power subsector. The power subsector has 635 MW of installed generating capacity, of which 493 MW is interconnected, with a 1990 peak demand of 400 MW. In the medium term, and once ESMAP has completed the work in the hydrocarbon subsector and on the institutional issues at the energy sector level, the issues in the power subsector will relate to the need to encourage competitive private participation. In addition, efficiency-related issues concern the structure and level of tariffs perceived by consumers, particularly the gap between power tariffs and marginal costs, which may lead in the future to a recurrence of Government transfers to finance the investment program; the organization for reaching a least cost operation of the system; the responsibility for developing the least-cost expansion plan and lack of clear-cut responsibility for the execution of specific projects within the plan. Issues related to quality of service and to efficiency concern the assignment of functions to different entitie: in a rational manner consistent with their activities. For example, ENDE is currently managing both high-voltage developments and the provision of service to small isolated communities that should normally be attended by a local distribution company. The Government's objectives in the power subsector are to strengthen its capacity for regulation and for controlling and enforcing tariff policy; to more clearly definc the functions of the state power utility, ENDE, to enable it to focus on high-voltage developments while local distribution enterprises provide service to small, isolated communities; and to ensure reliable and economic supplies of power. Energy Efficiency and the Environment. Until now, end-use energy efficiency and the environmental impact of energy-related operations (production, transport, conversion, and use) have received little attention. However, as energy production and demand increase with expected higher levels of economic growth, particularly in the hydrocarbon and power subsector, the impact of energy production and use on the environment will become increasingly important. In the power subsector, the cost-plus tariff system, which enables the utility to recover its costs plus a return on investment, creates no incentives either for operating efficiently or for using tariffs to manage demand. ESMAP activity will assist the Government in analyzing the potential for demand side management in the power subsector. In the petroleum subsector, ESMAP will evaluate the political and economic aspects of interfuel substitution. Linked to increased energy demand and production are the environmental impacts and externalities of energy-related operations. These issues have not been evaluated, and they require assessments including development and implementation of environmental protection regulations for the energy sector. Rural Energy. Bolivia's rural areas are the altiplanos, valleys, and tropics. The altiplanos comprise 70 percent of the population and are affected by deforestation that has forced much of the population to rely on dung and small shrubs for household cooking and heating. Supply problems are most acute in the altiplanos; the valleys have the greatest resource basis and support about 17 percent of the country's population on 69 percent of the total land mass. At a national level, particularly in the tropics, it is estimated that fuelwood demands account for 12 percent of annual deforestation. The need for dung as a cooking fuel may be restricting its use as a natural fertilizer. Studies have identified two main issues: the inadequacy of the present transportation and distribution system, which impedes the distribution and penetration of commercial fuels; and the lack of an institution to coordinate activities, define execution responsibilities, and mobilize resources in the subsector. 10 ESMAP COUNTRY PAPER II. CRITICAL FACTORS IN THE ENERGY STRATEGY The key factors on which the energy strategy hinges are: (a) the support of the Bolivian Government for restructuring the energy sector along lines compatible with the macroeconomic adjustments; (b) and the development of Bolivia's institutional capacity to implement and sustain the needed reforms. Institutional Reforms. The Government has already manifested its commitment to economic stabilization, institutional reform, pricing based on economic cost, and legal reforms to encourage private investment and participation in the energy sector, and this commitment has been a central factor in Bolivia's inclusion in the ESMAP work program. Over the last three years, ESMAP has started addressing Bolivia's institutional and regulatory weaknesses and lack of trained personnel through the technical assistance project "National Energy Plan". But further assistance is required through the proposed work program, in particular in implementing a more thorough institutional restructuring of the energy sector. Hydrocarbon Subsector. In the hydrocarbon subsector, the Government has recognized the need for greater private sector participation in exploration and development and has enacted the Hydrocarbon Law in 1990 along those lines. Goals are to encourage greater private investment, particularly in exploration; introduce competitive forces in downstream petroleum operations; and establish a pricing system that encourages competition and reflects changes in the market. Making incentives for development and exploitation of hydrocarbons fully operative will require the elaboration and application of a regulatory apparatus reflecting the intent of the new law. Key areas in which hydrocarbon regulations need further clarification and specification involve the role of YPFB in the regulatory and competitive process, the revision of the cost-plus pricing system, and the reevaluation of public funding and control of investment. A step in this direction is the creation of a performance contract for YPFB with supervision by MEH; this is intended to make YPFB more accountable and efficient. To make this transition effective, however, will require MEH to enhance the qualifications and training of its own staff to more effectively supervise YPFB. The reform process is thus a complex one, and the ESMAP program can play a vital role in, the continuation of constructive regulatory reform based on the hydrocarbon law-and hence the development of the petroleum subsector as a whole within a more competitive environment. Power Subsector. Similarly, in the power subsector, reform of the Electricity Code is essential to attract the required level of private capital, and, toward that end, technical assistance is required. Ili. INTERNATIONAL AND ESMAP ASSISTANCE The Bank and ESMAP have been actively involved in Bolivia's energy sector. The Bank's participation has been geared toward financing investments, particularly in the power subsector and IDA financing of YPFB projects. In December 1991, the Government of Bolivia signed an intention letter with PETROBRAS for the sale of Bolivian natural gas; additionally, the other major project now being planned is a 525MW gas-fueled power plant at Pto. Suarez to sell electricity to Brazil. This project, which represents the largest single investment in the energy sector, is now under preappraisal by the Bank, and IFC ir also involved in analyzing the feasibility of the Sta. Cruz-Pto. Suarez pipeline. The least-cost expansion plan for the power sector will be identifying other potential projects. ESMAP's participation in Bolivia began with an Energy Assessment in the early 1980s, followed by an energy strategy study in 1986. The energy strategy study, supported by UNDP-IPF funds and prepared jointly with local consultants, was an updated diagnosis of the energy sector and the options for reform within the context of the hyperinflationary environment. A second phase, the National Energy Plan project, was initiated in 1989 with the objectives of establishing within MEH a database on the supply, demand, financial, and institutional aspects of the energy sector; and supporting MEH's efforts to analyze and elaborate energy policy. As a result of that project, a local team of three staff has been trained and currently elaborates and updates the energy database and analyses every three months. This team will be a critical counterpart to ESMAP's proposed work program. A third ESMAP activity was the Household Energy Strategy study, the results of which will be discussed in a seminar in Bolivia in February 1992. The results will complement the ESMAP activity, Energy Supply Strategy for the Rural Sector. In natural gas, ESMAP has addressed the issue of establishing gas dirtribution in Bolivia on a financially viable basis, including the economic and financial viability of gas distribution and the framework which is needed for regulation of private sector utilities. Further, currently, ESMAP is conducting the basic analysis required to formulate a strategy to develop the natural gas subsector, both in the domestic and external markets. There is now the need to assist the Government in the implementation of the gas strategy, particularly on implementing the regulatory framework and developing local capacity to maintain policies into the long term. Other international assistance in the energy sector has focused mainly in the rural sector. The Polytechnic University of Madrid is implementing a photovoltaic electrification program in the altiplanos; USAID is in the process of appraising a US$20- 28 million project to implement rural electrification projects through cooperatives. GTZ also has several projects, including one to use solar energy to dry fruits, and it is also 12 ESMAP COUNTRY PAPER helping the Government to develop an economic and social strategy which will be based on the ESMAP-funded National Energy Plan. To avoid overlapping of projects and donors in the rural sector, the Government has created a coordinating and policy body, the National Directorate of Energy Planning in the Rural Sector (DIFER). DIFER will work in tandem with the regional development corporations and thereby support the decentralization of operational responsibilities. In the power subsector in 1988-89, Italian cooperation through ENEL was instrumental in developing local planning capabilities for expansion planning methodologies. The scope of the work included demand projections, development of expansion models for generation and transmission, and economic analysis of various options. At the meeting of the Consultative Group for Bolivia held in Paris in November 1991, the Government called for increased donor coordination to overcome duplication of donor efforts and inconsistencies between Government and donor approaches within and across sectors. To make this operational, the Government has proposed development of coherent sectoral strategies that would permit donors to join in providing support for a reduced num'er of projects within agreed-on sectoral programs. This ECP constitutes a joint effort with the Government to coordinate technical assistance activities in the energy sector. IV. ESMAP'S PROPOSED PROGRAM The objectives of the proposed program are to support the Government's efforts to adopt efficiency-oriented policies compatible with the economic stabilization program; and, more specifically, to improve public sector management and design a legal framework in the sector that encourages investment and private participation and reduces the role of the state in produ.don. To achieve these objectives, ESMAP proposes the following technical assistance activities over a three-year period: (1) development of a natural gas strategy; (2) institutional evaluation of the energy sector; (3) institutional evaluation of the power subsector; (4) development of an energy efficiency program and environmental assessment of energy-related operations; and (5) development of a rural energy supply strategy. 1. Development of Natural Gas Strategy This activity will help the Government in implementing a strategic framework for natural gas development and improve sector management. Specific areas where assistance will be provided include, finalization and implementation of regulatory framework for natural gas, as proposed on ESMAP's report on natural gas distribution, including setting up the regulatory agency; building up the local export marketing capacity through the provision of advice for sales to the regional countries; implementation of pricing and gas tariff system; assistance with implementation of gas distribution projects. This activity will assist in averting a petroleum shortage even though ESMAP will not directly address the issue of declining oil production. The study will be conducted by a team of international consultants coordinated in the field by a technical committee including representatives from the MEH, YPFB, ENDE, and National Energy Plan staff. The study will be carried over periodic missions in mid 1992 over a nine month period and will assist development of internal, extemal, and regional marketing strategies; refinement of the legal instruments that regulate gas production, quality, transport, distribution, and marketing; and evaluation of the structure of the regulatory entities in other countries. Budget The total cost of this activity is estimated at US$400,000, broken down as follows: Consultant fees 200,000 Consultants' travel and subsistence 50,000 ESMAP/Bank staff supervision: 25 sw 60,000 ESMAP travel and subsistence 20,000 Report preparation and Seminar 30,000 Contingencies 10,000 TOTAL $400,000 2. Institutional Evaluation of the Energy Sector This activity will assist the Government in the institutional restructuring of the energy sector by supporting action in four areas: First, at the sectoral level, it will play a role in evaluating and making tecommendations regarding the advisory and regulatory relationship of the MEH to the YPFB and the private sector, and in recommending and assisting in the implementation of a more efficient institutional and regulatory framework for the energy sector. Second, in the hydrocarbon subsector, it help make the hydrocarbn and investment law fully operative by fostering competition in the subsector, both in upstream and downstream petroleum operations, which, in turn, will require a redefinition of the role of YPFB to make it more efficient in a competitive environment. 14 ESMAP COUNTRY PAPER Third, the activity wili assist in directly building up institutional capacity and human resources at MEH by providing field training to staff. Finally, ESMAP will assess the economic impact of energy pricing, tax policies, and regulation on fiscal revenues, energy enterprises, demand, and the market, under current and competitive market conditions. This project will expand the scope and training of the staff assigned by the MEH to the National Energy Plan to develop ad-hoc assistance to the MEH regarding regulatory reforms in the Hydrocarbon Law to introduce more competition and accountability in the hydrocarbon subsector. The study will be carried out over a 14-month period by a team of local and international consultants. The evaluation of the regulatory functions of the MEH, the introduction of more competition in the hydrocarbon subsector and consequent restructuring of YPFB, and the energy pricing /taxation analyses will be done in a 6 month period starting in the first quarter of 1992. Training of local staff will be developed over a 14 month period. The local consultants were trained under an earlier ESMAP project and are now responsible for updating the National Energy Plan. The study will be conducted along the lines of an energy strategy project: long periods of field analysis followed by report writing in the field. Budget This activi4y will cost US$600,000, broken down as follows: Consultant fees 200,000 Local Staff Training 160,000 Travel and subsistence 80,000 ESMAP supervision: 25sw 60,000 ESMAP travel and subsistence 30,000 Report preparation 10,000 Seminars 40,000 Contingencies 20,000 TOTAL $600,000 3. Institutional Evaluation of the Power Subsector and its Structure This activity will assist the Government in conducting an organizational study of the National Electricity Directorate (DINE) and analyses of the laws and tariffs, and to use these studies as a basis for modifying the electricity code and the regulations for joining and operating within the interconnected system (i.e., modifying the interconnection contract). Specifically, this activity will assist in the establishment of a new regulatory framework to encourage private sector participation and competition in the power subsector; encourage efficiency and entrepreneurial development of the power utilities, BOJVIA 15 while broadening the service coverage; and help ensure a reliable supply of energy 't a competitive price that reflects economic cost. This activity will be carried out by a team of international and local (mainly legal) consultants in the areas of regulation and tariff analysis, and supported by task forces on system dispatch, interconnection, financial issues, tariff/economic issues, organizational, and legal issues. Budget The funds required for this study are US$450,000, broken down as follows: Consulting services 250,000 Travel and subsistence 50,000 ESMAP supervision: 30 sw 75,A0 ESMAP travel and subsistence 25,000 Report preparation and seminars 25,0 Contingencies 25,000 TOTAL $450,000 4. Energy Efficiency and Environmental Impact of Energy-Related Operations This activity will assist MEH in evaluating energy use patterns and the potential for conservation using pricing and nonpricing instruments, in order to identify barrie-s to implementing an energy efficiency program; evaluate the impact of energy production, transformation, and consumption on the environment; and evaluate the country's legal and institutional capacity to ensure that energy is supplied with the least ecological damage. This preliminary evaluation will yield the outlines of an energy efficiency strategy. It will also identify specific projects and identify energy efficiency and environmental issues that require further assistance. The specific tasks associated with this activity will be an evaluation of energy conservation potential that covers its economic use, managing the demand for power in the industrial and domestic subsectors, protection of the environment, and efficiency audits; analysis of the impact of both operative programs and resource use on the environment; creation of a natural environment preservation strategy in relation to the operative programs and current use of resources; drafting of environmental regulations that coordinate with mechanisms in other sectors; and assisting YPFB and ENDE in creating and conducting environmental preservation programs. This activity will also include an evaluation of the institutional and legal framework. 16 ESMAP COUNTRY PAPER A team of international consultants, assisted by local staff, will carry out the study over a 12-month period. The length of the study will be influenced by the several surveys required to determine demand behavior. Budget Resources required for this activity are US$350,000, broken down as follows: Item US$'000 Consultant services 175,000 Consultants travel and subsistence 50,000 ESMAP supervision: 20 sw 50,000 ESMAP travel and subsistence 20,000 Surveys 30,000 Report preparation 10,000 Contingencies 15,000 TOTAL $350,000 5. Energy Supply Strategy for the Rural Sector Based on the ESMAP-funded Household Energy Strategy study, ESMAP has already recommended specific projects to streamline the distribution of commercial energy in the rural sector, increase end-use efficiency, and decentralize those Government institutions related to rural energy supply. The ESMAP work program for the rural sector is a follow- up to these recommendations; it consists of assisting MEH in strengthening the Rural Energy Development Directorate; and implementing the recommendations of the earlier ESMAP-funded rural energy study, particularly to streamline the rural distribution systems for commercial fuels. To catalyze additional assistance from other NGOs and donor agencies, ESMAP will organize a seminar to discuss the results of the ESMAP-funded Household Energy Strategy study; and, as a result of the seminar, to define, jointly with the Government and other organizations, a strategy to implement further assistant to the rural sector. In addition to the seminar, ESMAP will assist in setting up the National Energy Directorate of Planning for the Rural Sector (DIFER); and in organizing a database that can be used to evaluate and regulate rural energy supply. BOLIVIA 17 Budget The estimated budget' is US$300,00r ')roken down as follows: Item US$'000 Consultants 140,000 Consultant travel and subsistence 40,000 ESMAP supervision: 20 sw 40,000 ESMAP travel and subsistence 20,000 Seminars 40,000 Report Production 10,000 Contingencies 10,000 TOTAL $300,000 1. To be refined and confirmed subsequent to the household energy seminar. 18 ESMAP COUNTRY PAPER ANNEX I: ENERGY SECTOR INVESTMENT PLANS HYDROCARBON SUBSECTOR ESTIMATED INVESTMENT PROGRAM, 1991-95 MILLIONS OF U.S. DOLLARS YPFB Activity 1991 1992 1993 1994 1995 Total Private Exploration 76.0 84.4 67.8 63.3 65.2 356.7 176.6 Production 62.5 54.4 60.5 68.6 79.5 329.5 145.8 Industrialization 33.2 40.3 42.9 36.8 26.0 179.2 Others 10.1 5.2 2.3 5.3 2.8 22.2 TOTAL 182.0 184.3 173.9 174.0 173.5 887.6 322.4 YPFB Resources 97.0 98.2 92.7 92.8 92.4 473.1 322.4 External Credit 85.0 86.1 81.2 81.2 81.1 414.5 Sources: YPFB, National Energy Plan. ELECTRICITY SUBSECTOR ESTIMATED INVESTMENT PROGRAi4, 1991-95 MILLIONS OF U.S. DOLLARS 1991 1992 1993 1994 1995 Activity ENDE PC ENDE PC ENDE PC ENDE PC ENDE PC Generation 34.6 1.1 58.8 0.6 28.8 18.1 56.8 18.2 69.9 45.5 Transmission 19.0 12.6 36.1 2.1 21.4 2.6 2.7 8.7 -- 3.5 Distribution 0.0 15.0 0.0 14.3 0.0 11.6 0.0 12.0 -- 13.2 TOTAL 53.6 28.7 94.9 17.1 50.2 32.3 59.5 38.9 69.9 62.2 PC = Private and Cooperative. Sources: ENDE, National Energy Plan. RURAL ENERGY SUBSECTOR ESTIMATED INVESTMENT PROGRAM MILLIONS OF U.S. DOLLARS Activity TOTAL Nonconventional Energies to 1995 1.79 EXPORT ESTIMATED INVESTMENT PROGRAM MILLIONS OF U.S. DOLLARS Activity TOTAL Brazil Pto. Suarez Power Project 600 Source: National Energy Plan (Portfolio June 1991). 20 ES/HAP COUNTRY PAPER ANNEX II: ISSUES AND ACTIONS IN THE ENERGY SECTOR Problems Actions SECTORAL The efficiency of ENDE and YPFB is - Establish performance contracts with restricted by its lack of self sufficient ENDE and YPFB. entrepreneurial management (Administra- - Reorganization and restructuring of tive and financing) YPFB. A price system adjustment of hydrocar- - Periodically adjustment of hydrocar- bon does not exist in which it would bon prices, according with the inter- reflect economic costs with the purpose national market and macroeconomic of stimulating the economic use of fuel. variables. The natural environment impact of the - The Ministry of Energy and Hydro- energy sector has not been evaluated yet. carbon along with the Ministry of Agriculture (Natural Environment Subsecretary) will carry out periodi- cal studies of the sector impacts and will adopt protection measurements to the natural environment. HYDROCARBON LIQUIDS Insufficient investments for the sector to Increase the YPFB's investments funds accomplish its objectives, to cover the investments program. - Attract private investments with hydrocarbon law, investment law and electricity law. The current liquid hydrocarbon provi- - Increase provisions. sions are insufficient to cover a medium - Increase YPFB investment funds to term demand. cover the investment program - Establish risk contracts with private enterprises. - Increase efficiency of hydrocarbon use. - Conservation program. BOLIVIA 21 Problems Actions - Partial substitution of liquid hydro- carbon by natural gas - Create enterprises with private capi- tal - Regulation of the distribution and marketing of natural gas. YPFB-has a high percentage of accounts YPFB agreements with debtors and receivables in the internal market (equiv- claiming a bad debt. alent to 38 percent of its investments in 1989). YPFB does not have a medium and short - Elaborate a master investment plan. term investment plan in order to guaran- tee production at a minimum cost. HYDROCARBON/NATURAL GAS Increase the gas export market. Carry out the Brazil project. - Continuation of the gas sale contract to Argentina. - Explore possibilities of regional gas markets. POWER SUBSECTOR The electric energy tariffs do not reflect - A study of the generation, transmis- its economic costs and therefore do not sion and distribution of electricity. incentive it economic use. - Implement a new tariff system based on long term marginal costs. The current compensation system of the - Formulate a new electricity law electric energy enterprises based in its changing the compensation system operative costs plus a fixed percentage in order to reward the efficient over its assets does not reward efficien- enterprises and punish the inefficient cy. in order to lower costs to the con- sumers. - Strengthen DINE so that it accom- plishes its functions of regulating institution of the electric subsector. 22 ESMAP COUNTRY PAPER Problems Actions There is an interest conflict of ENDE as - Formation of a bureau administra- bureau administrator of the despatch tion committee with the participa- system and consumer at the same time. tion of COBEE, ENDE and the National Electricity Commission. ENERGY IN RURAL SECTOR High distribution cost of LPG in the - Improve distribution systems with rund areas. mobile (LPG) tankers with canister filling capacity. - Establish specific distribution con- tracts in the rural area. In the rural area the investments in ener- - Decentralize energy supply devel- gy development are not made at a mini- opment in the rural area through the mum cost. development corporations, coopera- tives and other private firms. - Intensify electricity use for produc- tive uses in the rural area. Alternative energies (eoli-, solar) are not - Increase utilization of eolic energy being conveniently utilized. for solar water pumping for green house farming and for drying pro- duce through the corporations and private programs. In some regions, animal cartage is used - Promote the use of animal drawn in the field mainly for farming and its carts being subutilized for transport. Deforestation process in the plains - Improve distribution of commercial (North of La Paz, Beni Santa Cruz, energy. Tarija). - implement the existing reforestation plans with donating funds. The transformation, transport and final - Elaborate an energy conservation use of energy is inefficient (antieco- program and an energy efficient nomic). program. ANNEX III: SUMMARIZED ENERGY BALANCE, BOLIVIA, 1990 ('000 of BOE) PRIMARY PRODUCTION BOE Natural Gas 35570 Condensed Petroleum 8061 Bioenergy 5495 Hydroenergy 2926 Total 51852 FINAL CONSUMPTION Liquid Hydrocarbons 6474 Bioenergy 5184 GLP 1519 Electricity 1103 Natural Gas 1145 Total 15425 EXPORTS Natural Gas 14771 LPG 89 Electricity 1 Total 14861 OTHER Reinjection Nat'l Gas 15278 Inventory Changes 391 Own Consumption 2028 Nonenergy Consumption 174 Losses 194 Transformation Losses 3760 Adjustments (253) Imports (6) Total 21566 The World Bank UNDP Headquarters New York 1818 H Street, N.W. United Nations Development Programme Washington, D.C. 20433, U.S.A. I United Nations Plaia New York. N.Y. 10017 Telephone: (202) 477-1234 Telex: WUI 64145 WORLDBANK Telephone: (212) 754-1234 RCA 248423 WORLDBK Telex: 125980 (domestic) Cable Address: INTBAFRAD 232-422 (overseas) WASHINGTONDC Cable Address: UNDEVPRO Facsimile: (202) 477-6391 NEW YORK Facsimile: (212) 906-6350 European Office 66. avenue d'l6na Geneva Office 75116 Paris, France Palais des Nations CH-1211 Geneva 10 Telephone: (1) 40-69-30-00 Switzerland Telex: 842-640651 Facsimile: (1) 40-69-30-68 Telephone: 98-84-00 98-58-50 Tokyo Office Telex: (UNDP) 28.96.20 or (UN)28.96.96. Kokusai Building Cable Address: UNDEVPRO I-I Marunouchi 3-chome GENEVA (SWITZERLAND) Chiyoda-ku. Tokyo 100. Japan Facsimile: (022) 98-75-24 Telephone: (03) 214-5001 Tokyo Office Telex: 781-26838 Shin Aoyama Building Facsimile: 3214-3657 Room 2255 1 -1 Minami Aoyama I -Chome Minato-Ku Tokyo 107. Japan Telephone: 03-475- 1619/20 Telex: 128 334 AB TKOPI 128 334 Cable Address: UNDEVPRO TOKYO (JAPAN)