| BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- LATIN AMERICA
A Firestorm over Electric Power in Chile (int'l edition) As blackouts worsen, hundreds of companies could go under Chileans can't seem to buy a break these days. Falling commodity prices have hammered the huge copper industry, shrinking government revenues and sending unemployment to a 14-year record. Foreign capital flows have slowed to a trickle in the wake of the crisis in Brazil. Now, a severe energy shortage is threatening to deepen Chile's worst economic slump since the early 1980s. Power outages of three or more hours a day started hitting Santiago in April. Soon, manufacturers and retailers could face crippling blackouts of up to 10 hours a day. Blame this latest calamity on the weather. Last year was Chile's driest in five decades. That hurts in a nation that draws 60% of its power from hydroelectric generators. Brief outages in the capital have already ignited popular criticism of Chile's privatized utilities. Many Chileans are especially angry about the $2.1 billion sale on May 11 of a controlling stake in Chile's largest power supplier to Enersis, a utility holding company controlled by privatized Spanish electricity company Endesa. The mounting political tensions could not be timed worse for the government of President Eduardo Frei, whose ruling coalition faces a primary on May 30 and a national election at yearend. The next few months, when the southern winter's snow and rain ordinarily fill Chile's reservoirs, are crucial. But the situation looks grim. After a disastrous 1998--when rainfall was less than a third of the annual average--La Nina, sister of the El Nino phenomenon, is blocking rain and snow clouds that normally form over Chile in the winter. Without a serious drenching and a surge in power supply soon, economic growth this year could fall almost to zero. Larrain Vial, a Santiago-based brokerage, is already slashing its growth forecast for next year from 4.3% to 2% if the drought continues. That's a long climb down for Latin America's star performer, which averaged growth of 7.3% from 1990-98. From food producers to textile manufacturers, businesses are already smarting. ''I don't want to even think about 8-hour power cuts. At 3-hour cuts, we were already in a critical situation,'' says Jaime Cifuentes, secretary general of Chile's Textile Chamber. He says only 13% of the country's 2,000 major textile producers have the generators needed to keep production running. Productivity has slumped 14% since the start of the energy crisis, he adds. And if power cuts grow to 8 or 10 hours, business leaders say Chile could lose $100 million a month in productivity and sales. Hundreds of companies could face bankruptcy. SCRAMBLING. The dry spell is exacerbating other problems faced by Chile's privatized utilities, which now supply 100% of the country's power. The outages began in April, after a new gas plant operated by Chile's Empresa Electrica Colbun Machicura malfunctioned five months after its startup. Some 5,000 residents took to the streets to protest the outages and the Endesa deal. Although three other gas plants are under construction, only one is expected to be completed by June, 2000. So without rain, energy will remain scarce at least until then. So far, Frei has taken a purely political approach to solving the energy problem. In early May, he ordered the power cuts suspended as political and business leaders called for consumers to conserve. Meanwhile, private power generators are scrambling to install new capacity, most of which will serve the capital, where shortages are worst. And Endesa is rushing to bring four small generating plants on line. But it will take big capital investments to reduce Chile's dependence on hydropower and its vulnerability to erratic weather. Until that happens, Chilean citizens and businesses will have to be ready to put up with blackouts--and all their costs and inconvenience. By Greg Brown in Santiago _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS A Firestorm over Electric Power in Chile (int'l edition) TABLE: The Fallout from Chile's Power Shortage INTERACT E-Mail to Business Week Online | |||
