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Uruguay hit by Argentinean energy crisis

July 5, 2007

It’s pretty incredible reading back on a story I wrote about three years ago on how Argentina’s energy crisis had hit Uruguay. No matter how vulnerable the tiny South American country is on its neighbors for power and gas import, it’s energy supply problems are far from over despite construction of a gas-diesel power plant at Punta del Tigre, located 39km west of Montevideo.

Uruguay and Petrobras are now talking about building an LNG terminal estimated to about $400 million. While building such a terminal may be easier said than done because of very tight global LNG markets, it shows how desperate the energy situation is in Argentina.

But let’s go back in time to 2004…

Everything that could have gone wrong in Uruguay’s power sector did in 2004. The first blow came in March, when Argentina scaled back exports to Uruguay by 64.4% to 138MWh from 388MWh. The measure forced state-owned power company Administración Nacional de Usinas y Transmisiones Eléctricas (UTE) to put online two oil-fired power plants in Montevideo to plug the shortage caused by imports.

Starting up the aging heavy fuel oil-fired Battle y Ordoñez’ unit 5 (88MW) and 6 (125MW), together with the diesel-fired La Tablada (113MW) plant, was very costly, especially during a period when global crude prices had soared to record highs. In one shot, UTE ended up with a monthly bill of $14 million to fuel both plants compared with $1.5 million it paid for power imports from Argentina, according to UTE workers’ union AUTE.

Despite the soaring costs of generating electricity, UTE raised tariffs only once in June by 4%-8%. Critics of President Jorge Batlle’s administration said presidential elections in October were forcing the government to hide the real cost of the crisis and for raising tariffs only once after a hike in January.

The second blow to the power sector came from Mother Nature. Lower-than-average rainfall has undermined output at the Salto Grande hydropower plant jointly operated with Argentina. The 1,890 MW plant is presently generating at 50%-60% capacity. The situation on the Rio Negro River, where UTE operates the Gabriel Terra (152MW), Baygorria (108MW) and Constitución (333MW) hydropower plants, is a bit better than at Salto Grande, according to Uruguayan energy officials.

In order to compensate for the shortfall in hydropower output, UTE has had to import more power from Argentina and Brazil and to implement energy-saving measures in September like moving clocks forward by an hour. If this isn’t enough, the power company can bring on line its two oil-fired plants in Montevideo, but at a costly price.

Even if Minister of Industry, Energy and Mines José Villar officially declared in July an end to the power crisis, some analysts believe that Uruguay must move rapidly to build a 350MW-400MW combined cycle gas turbine (CCGT) plant and a 500kV transmission line that will allow Uruguay to import more power from Brazil.

Uruguay and Brazil are interconnected at Rivera-Santa Ana do Livramento by a line that can transport 70MW of power.

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