Wednesday, November 11, 2015

Latin America energy integration: a pending challenge

South America is a region blessed with abundant natural and energy resources, fossil fuels and renewable sources, where its appropriate use can bring significant revenue to his population. While in the region remain large settlements of poverty and underdevelopment, with precarious living conditions for a significant part of the population, the region has not take advantage of all its energy resources potential.

In the region's oil reserves are 20% of world reserves and second in amount after the Middle Eastern, and allow meet current demand in the region for the next 100 years; natural gas reserves are 266 trillion cubic feet, and they increase in 500% if we add the technically exploitable reserve of unconventional gas, which is enough to supply the current consumption of the region for the next 400 years. South America also has a great opportunity to develop a renewable energy matrix, with a huge hydropower potential of 360 GW, of which only 40% has been developed. And, the to this availability of renewable hydro resources we must be added the great potential in new sources of electricity generation such as wind, solar, geothermal, tidal and ocean, and biofuels, which in the coming years will have an increasing role in the energy matrix in response to the great challenges facing humanity to develop a low GHGE energy matrix.

While the region has been favored with abundant renewable and conventional energy resources, they are not distributed uniformly in the countries, while also the distribution of these resources is not related to the current energy needs and demands presented in each of the countries. For example, in Chile the high costs of energy are explained in part by scarce energy resources has it is compared with other regional economies, putting on its aspirations to achieving development an obstacle because the loss of competitiveness that the high energy costs mean for the realization of productive enterprises. Energy resource access conditions are more favorable in other countries in the region with abundant energy resources which, besides a progressive consolidation of their democracies, political and social stability, have allowed them to create an increasingly favorable climate for foreign investment.

Energy integration in the region is moving, but slowly, and is an area of ​​development where everyone can win. Exporters get more resources to nurture their growth, employment and finance social programs; while importing countries, under a robust contractual and institutional design, access to more efficient sources of conventional and renewable energy, and at lower prices to reach a more competitive development.

What are the alternatives for energy integration? One possibility is to base the integration in the export of surpluses, based on the availability of energy surpluses existing at the time. In this model, for example, countries complement their electrical systems to reduce the risks of shortage facing a drought season or a glitch in their generation - transmission system, where energy trades have as main objective the provision of backup capacity and reserves to deal with contingencies. Here energy exchanges are small and certainly the benefits, where the countries underscores the concept of energy independence. A second model is one where the countries with abundant energy resources develop and commitment for long periods, energy infrastructure for export. In this model, the benefits of energy integration are higher for all stakeholders, and the exporting country may further advance the development of infrastructure such as electricity, which ultimately is funded by the importing country. An example of such integration is given by the binational Itaipu plant with 14,000 MW, a joint plant equally owned by Brazil and Paraguay, and where 80% of generation is destined to the Brazilian market.



The challenges of moving towards greater integration are not minor, they are technical, regulatory, commercial, but certainly the greatest is geopolitical. It is necessary to generate trust and certainty that what is agreed in matters of energy integration will be respected, and the region should avoid repeating situations like the failed experience of natural gas integration between Argentina and Chile which ended in a deep natural gas crisis where Argentina suspended natural gas exports to Chile. This crisis meant a before and an after in the Latin American energy integration process. It is therefore necessary to move decisively to achieve international agreements that have robust guarantees to generate trusts on the adequate security of energy supply. Undoubtedly, there are suspicions, but the conditions for appropriate energy integration should be worked and decidedly Latin America should move strongly into this game.

Tuesday, November 10, 2015

Doing Business: Is there a concern with Chile*

Doing Business: Is there a concern with Chile*

*This note complements on the note “Informe Doing Business: Otro llamado de atención para Chile", published with Felipe Larrain in Diario Financiero, on November 6, 2015, pg. 4. www.df.cl

October 2015 the World Bank released the Doing Business 2016 report (DB 2016), in its 13th edition. This report, with an universe of 189 countries, assesses the main regulatory and economic constraints that affect the development of small and medium enterprises in ten areas:
  • Starting a Business
  • Dealing with Construction Permits
  • Getting Electricity
  • Registering Property
  • Getting Credit
  • Protecting Minority Investors
  • Paying Taxes
  • Trading Across Borders
  • Enforcing Contracts
  • Resolving Insolvency

These areas are covered by more than 40 sub-indicators, with which DB constructs a global ranking on how friendly is the business environment in a country. The report also looks at aspects of labor market regulation, but this variable is not included in the DB ranking. DB is the best known report of the World Bank Group, which attracts the most attention from the media, business and government, and it has strong supporters and detractors.[1] In the past 12 years and for all countries covered, DB has logged over 2600 reforms in the areas measured by the report. The results have been very promising because the gap in regulatory frameworks between the best and the worst performing countries has narrowed, and several of the worst performing countries have undertaken deep reforms which allowed them to catch-up with the best performing countries. By way of example and globally, if in 2003 on average took 51 days to start a business, in 2015 this figure was reduced to 20 days. Easing the business environment does not mean having less or more inefficient regulation.  As is underscored in the  DB 2016, the best 30 performer countries are not those with little regulation but those with good rules that allow efficient and transparent functioning of businesses and markets while protecting the public interest.

Regarding previous years, the DB 2016 comes with many improvements that were considered in a thorough methodological revision recommended from an Independent Expert Panel that was called by the WBG for that effect in 2013. As previously committed, some of the recommended changes were introduced in the DB 2015 and the remaining ones in the DB 2016. The changes have meant methodological improvements over the previous reports, incorporating in the indicators aspects of quality while the previous indicators only accounted for efficiency. Thus, it has become more difficult to compare the DB rankings in a year with those of previous years. However, beyond the methodological changes, the broad assessment of a country business environment, in those areas measured by the DB report, has not changed as much, as illustrated by the following picture which shows for the sample of countries the distance to frontier scores under the old and the new methodology.

Distance to frontier scores remain similar under the new methodology

Source: DB 2016

A concern on Chile

For Chile in a window that runs from mid-2006 until mid-2015 (i.e., from the DB 2007 to 2016) the country has a total of 9 regulatory and institutional reforms in the areas covered DB which affect the business environment of small and medium enterprises. Until 2015 DB report, Chile had locked 7 of these 9 reforms, where all of them have been positively assessed by the World Bank in terms of their impact on the business environment for small and medium enterprises. In DB 2016 report, Chile locked two new reforms: a New Bankruptcy Law, positively assessed by the World Bank, which entered into force in October 2014; and a tax reform, implemented by the current administration and which was negatively assessed by the World Bank on the effects that it has on the business environment for small and medium enterprises. Thus and on balance, the net effects of these two reforms are that they cancel one another and Chile remained in the same position of the DB ranking globally. For the first time since the DB report is published, Chile has locked a reform that was negatively assessed on its impacts for the business environment, affecting SME which generate near 80% of employment is the country and are the ones with the greatest difficulties to increase their productivity. 

Chile: Topics in DB
DB 2016 Rank
DB 2015 Rank
Change in Rank
62
58
-4
24
25
1
51
47
-4
56
55
-1
79
71
-8
36
33
-3
33
28
-5
63
62
-1
56
56
No change
58
72
14

But, and beyond the assessment of Chile in DB 2016, the main concern on Chile should be on the long term trends of the country in the DB rankings. With the exception of the years 2010-2013, since 2006 the country shows a long term downward trend in the ranking of DB. While in the DB 2006 Chile leads the ranking in Latin America, with the position No. 24 globally, followed by Mexico in position No. 62 (a distance of 38 positions in the global ranking), in the DB 2016 Chile is in the position No. 48, behind Mexico in the position No. 38 globally. The lack of reform in the second half of the past decade, added to the fact that other countries have engaged in doing reforms to improve their business environment, relegated in DB 2010 Chile to position No. 53 globally and the fourth place of Latin America, behind Colombia, Mexico and Peru. Shortly, on the period of DB 2011 – 2013, Chile leaded again in Latin America, reaching the position No. 37 globally in the DB 2013. However, the DB 2016 has not good news for Chile, where is behind Mexico, in position No. 48, and 24 positions down in the global ranking from where Chile was in DB 2006.

The negative trend in the global ranking of Chile should be a matter of concern. As Chile is not engaging in second generation reforms, many countries are making progress copying the best practices and creating a much better business environment to attractive investments. The advantage that once Chile had in the DB ranking within LAC has vanished, and the country has no longer a strong regional leadership on those areas being measure by the DB report; and competes in these areas with countries such as Mexico, Peru and Colombia.

Economy
DB 2016 Rank
DB 2006 Rank
Mexico
38
62
Chile
48
24
Peru
50
78
Colombia
54
76
Uruguay
92
70
Paraguay
100
110
Brazil
116
122
Ecuador
117
120
Argentina
121
93
Bolivia
157
126
Venezuela, RB
186
144

Chile, a country with about 17.5 million citizens, inserted in a globalize economy with over 7 billion people, has no room for bad reforms that hinder the business climate. For the first time Chile fails with one of the reforms recorded in the DB ranking. Had it not been for the Bankruptcy Act which came into force in October 2014, which cushion the poor assessment obtained by the tax reform and the absence of other reforms, Chile would have felled noticeable in the DB 2016 report.


But beyond the DB report, concerns about the future of the Chilean economy goes with respect to the impacts of the 2014 tax reform on investment, growth, job creation, shared prosperity and poverty reduction; and on the uncertainty that emerges with the announcement to open the discussion for a new constitution, together with some law proposals discussed in the congress that might imply a deep change in the labor and educational arena, where there is a deep disagreement about their benefits for social and economic development.

The DB reports is an invitation for the governments to improve the standards, the regulatory frameworks and to reduce the transaction costs which affect the business environment, promoting simple, well-designed and crafted policies to spur business investment, job creation, economic growth and development. Countries that do not take advantage of the opportunity to learn and implement reforms inspiered on the best practices, will lag behind of those who take the opportunity to improve the business environment and the living conditions for their citizens promoting the proper reforms.

*This note complements on the note “Informe Doing Business: Otro llamado de atención para Chile", published with Felipe Larrain in Diario Financiero, on November 6, 2015, pg. 4. www.df.cl





[1] For example, critics against the DB have notice disagreements with issues such as the frequent changes made to the methodologies (change that were recommended by an Independent Expert Panel that revised the DB report in 2013); the retroactive revision of the rankings a year after their publication (because of methodological changes); that it does not give due consideration to on-the-ground reforms compared with changes in laws or written codes; or that it has a built-in bias towards deregulation. However, supporters say that Doing Business is objective, thoroughly researched and spurs reform as countries try to improve their ranking. Further, a group of academics and policy makers has published an open letter to the World Bank calling on it to keep the rankings and broaden the data in the report. Further, as noticed in DB 2016, the majority of Doing Business indicators are based on a reading of the law, which makes the indicators “actionable”—as the law is well within the sphere of influence of policy makers and is thus amenable to change.

El Informe Doing Business: Otro llamado de atención para Chile*

El Informe Doing Business: Otro llamado de atención para Chile*
Felipe Larraín B. y Ricardo Raineri B.
Clapes UC y Facultad de Ingeniería PUC

El Banco Mundial (BM) dio a conocer recientemente el informe Doing Business 2016 (DB 2016) para 189 países. Este es el informe más conocido del BM: en un año su sitio web registra casi 4 millones de visitas y medio millón de descargas. El DB evalúa las principales restricciones  regulatorias y económicas que afectan el desarrollo de las PYMEs en diez áreas: iniciar una empresa, obtener permisos de construcción, acceso a energía eléctrica, registro de propiedad, acceso al crédito, protección a inversionistas minoritarios, pago de impuestos, comercio inter-fronterizo, cumplimiento de contratos y solución de insolvencia. A partir de éstas se construye un ranking global de cuán amigable es el ambiente para hacer negocios en cada país.

En los últimos 12 años un número importante de los países peor evaluados han llevado a cabo reformas importantes que les han permitido acortar la brecha con los mejores. Un ejemplo: en 2003, en promedio, tomaba 51 días iniciar un negocio; en 2015 esta cifra se redujo a 20 días.

DB 2016 tiene muchas mejoras luego de una exhaustiva revisión metodológica que se realizó a partir de las recomendaciones de un panel de expertos en 2013 y de su consejo asesor formado en 2014. Los cambios introducidos incorporan aspectos de calidad a los indicadores de eficiencia previos. Aunque esto dificulta comparar los rankings del DB en el tiempo, sí es posible apreciar cuales son las tendencias de largo plazo de los países.

Chile, desde mediados de 2006 hasta mediados de 2015 (esto es desde el DB 2007 hasta el DB 2016) registra un total de 9 reformas regulatorias e institucionales en las variables que mide DB. Hasta el DB 2015 Chile ya había sumado 7 de estas 9 reformas, todas evaluadas favorablemente por el BM en tener un impacto positivo sobre el ambiente de negocios. El informe DB 2016 suma las últimas 2 reformas de las 9: la Nueva Ley de Quiebras, evaluada positivamente por el BM y en vigencia desde octubre de 2014; y la reforma tributaria del actual gobierno, evaluada negativamente por el BM dados sus efectos adversos sobre las PYMEs. Así, por primera vez desde que se desarrolla el informe DB, Chile se hace un autogol con una reforma que impacta negativamente el ambiente para hacer negocios.

Asimismo, resulta muy preocupante la tendencia de largo plazo negativa de Chile en el ranking DB --con excepción principalmente de los años 2010-2013, en que mejoramos. En 2006 Chile lideró el ranking en América Latina con la posición 24 a nivel global, seguido por México en la 62 (38 posiciones de ventaja). Sin embargo, la falta de reformas en la segunda mitad en la década pasada relegó a Chile en el DB 2010 al cuarto lugar en América Latina, en la posición 53, por debajo de Colombia, México y Perú. Esta tendencia se quebró en DB 2011, y Chile logró recuperar la primera posición de América Latina con el DB 2013, en el lugar 37 del ranking global. Hoy, con el último DB 2016, Chile cae a la posición 48, por debajo de México. La tendencia de largo plazo de deterioro en el ranking global debe ser materia de inquietud. Mientras Chile no avanza o retrocede, muchos países siguen progresando en generar un ambiente de negocios más seductor y atractivo. Hoy, la ventaja que otrora tuvo Chile en el ranking DB sobre los países de la región --en sus aspectos institucionales y en su clima de negocios-- se desvaneció. Chile hoy ya no tiene un liderazgo marcado, y compite en estos aspectos con países como México, Perú y Colombia. Como el DB es un análisis dinámico, si Chile no implementa nuevas reformas que mejoren el ambiente de negocios --o si sigue implementando malas reformas, como la tributaria-- el liderazgo que hemos tenido en el ranking DB puede llegar a ser una anécdota.

Chile, un país pequeño inserto en la economía global, no tiene holguras para hacer reformas que deterioren el clima de negocios, puesto que el emprendimiento, las PYMEs y los empleos que éstas generan son una de las principales herramientas para promover la movilidad social, mejorar la calidad de vida de la población, dignificar a la persona y dotarles de libertad.

La invitación del DB es a perfeccionar normas, marcos regulatorios y reducir los costos de transacción que afectan el ambiente de negocios con políticas simples y bien diseñadas. Los países que no tomen en serio este desafío en una economía globalizada, sólo obstaculizarán su desarrollo y perderán terreno en mejorar las condiciones de vida de sus ciudadanos. Hoy por primera vez Chile reprueba con una de las reformas que se registra en el ranking DB. De no haber sido por la Ley de Quiebras que permitió amortiguar la mala evaluación de la reforma tributaria, la falta de otras reformas y los retrocesos en los otros indicadores del ranking DB, la caída de Chile en ese ranking habría sido mucho más notoria.


*Este comentario fue publicado en el Diario Financiero, el día 6 de Noviembre de 2015, página 4. www.df.cl

Friday, May 1, 2015

In office after an 8.8 earthquake: the resilience of Chilean energy sector*


Chile is a country highly exposed to extreme natural events. In this note I look  how the F27 earthquake impacted in the energy sector and how its recovery was the result of preparedness, institutional strength, solid construction codes, leadership and the commitment of the private sector, the government, and state companies what enabled a teamwork environment to overcome the emergency and achieve a success reconstruction process.
Chile a country highly exposed to natural disasters

Chile is a country highly exposed to extreme natural events, severe earthquakes, floods, tsunamis, volcano eruptions, and dry seasons are part of its history, and according to the World Risk Report 2014, the country ranks in the position number 26 within the countries more exposed to extreme natural events. Since 1900, Chile has the unfortunate record of registering, among the ten strongest earthquakes, the strongest one in May 22-1960 with a magnitude of 9.5 MMS, known as the Great Chilean Earthquake, which impacted a distance of more than 1,000 km along the Chilean side, with the City of Valdivia as the more severely affected.
USGS ShakeMap for the May 22, 1960 Valdivia earthquake

More recently, on February 27-2010, Chile put a new unfortunate record with the 6th strongest earthquake with a magnitude of 8.8 MMS which affected a vast area of the center and south of the country, bringing vast destruction in the cities of Concepción and Talcahuano, and many others in an extension of 1,000 km.
USGS Shake map of the magnitude 8.8 earthquake offshore Chile February 27, 2010.
Aftermath tsunamy
Both earthquakes were followed by a tsunamy, where the 1960 earthquake brought waves as tall as 25 meters, with the tsunamy traveled across the Pacific Ocean impacting places as far as Hilo in Hawaii, Japan or the Philippines. The 2010 earthquake also triggered a tsunamy with destructive effects in many coastal city areas, and also reached places as far as San Diego in California, and Japan.
February 27-2010 Tsunamy
Casualties
In terms of casualties, in the 1960s earthquake there is no consensus on the number of deaths, with a figure that goes up to 6,000, and in the 2010 earthquake official records place the number in 525 deaths (where 156 are attributed to the tsunamy and misinformation regarding it likelihood) and 25 missing persons. Given the magnitude, and compared with other earthquakes, the February 27-2010 Chilean earthquake was in the lower range of deaths counts. On January 10-2010, Haiti was hit by a 7.0 MMS earthquake, with huge damage and a terrifying figure of deaths estimates in a range from 100,000 to about 160,000, and the Haitian government speaking on a figure of 220,000 deaths. On March 11-2011, Japan was hit by a 9.0 MMS earthquake and devastating tsunami (the 2011 Tohoku Earthquake), with a death count reaching 15,891. And recently, on April 25-2015 we witnessed the devastating earthquake in Nepal, where the deaths count surpassed 6.762, with a large number of deaths and injured persons still unaccounted.
Economic losses
In the 2010 earthquake, losses to the Chilean economy have been estimated by the Government in US$30 billion. And, from those US$ billions, the damage in energy infrastructure reached US$ 1.6 billion, with most of it accruing to the private sector. Most of the energy sector in Chile is a private industry, except for the State Oil Company (ENAP) and its ownership of a percentage of an LNG terminal. However, a large percentage of private infrastructure, as well as in the energy sector and the State Oil Company, have insurances that cover part of the damage and economic losses. Where the insurance market pays out around US$ 8 billion.
On February 27.201 at 3.34 a.m. the earthquake strikes with an intense shaking that lasted for about three minutes. With it, the main electric system collapsed, and brought 92% of the country´s population to dark in the earthquake and before the tsunami. The lack of information, with mobile and landlines phones congested, being unavailable or destroyed, anxiety, fear, confusion and disinformation start to grow up on the population. Further, the national emergency office (ONEMI), face serious information problems and was complex for it to know and inform about the consequences of the earthquake and tsunamis that hit the coastal towns, only 30 minutes after the first earthquake shock. Anxiety, confusion and chaos describe the first hours after the earthquake. In the morning, with the first rays of sun light was possible to make an assessment of the earthquake and tsunami.
Preparedness
The first objective after a major event like this, is to overcome the emergency, take care of the injured and trapped persons and the casualties, help the afflicted population, and assess an evaluate the damages. The only way to succeed in this endeavor is to be prepared! Once the disaster hits, you need the proper institutional capacity being ready to deliver, with well trained persons, appropriate protocols, equipments, budget and communication systems ready to work. All these, should be seen as the a prerequisite to have an effective arm to confront the urgent needs of the emergency, taking actions, and delivering the information needed by the authorities and the civil society to take the right decisions. Historically, in Chile the armed forces have played a key and leading role in the emergency response to catastrophes, role that was changed and diminished only a few days before the earthquake adding to the confusion in the first hours after the earthquake hits. Risk assessment and preparedness is something that takes decades, and for many decades Chile, might be since the Great Chilean Earthquake and even before, has work to be better prepared to confront a major catastrophe as this. For many decades Chile has work in partnership with leading research centers in developed countries to improve its construction codes and bring the best construction practices to the country. However, once the event knocks your door, anything you have done before will always look as not being enough.
The catastrophe exposed the flaws of the Chilean emergency response system, some weakness on its oversight practices and construction norms, and many other deficiencies. However, this created a learning opportunity on what should be improved to be much prepared when the next catastrophe hits. One of the major issues uncovered immediately after the earthquake, was the lack of a proper information system and the confusion that come out. Everyone who was exposed to the shake knew that this was a major event, and if you were not injured or suffer a major damage in your belongings, you knew that somewhere close to you some huge problems have taken place.
To move forward, to respond to the emergency and begin the reconstruction, an appropriate and positive level of leadership from the highest government authority was fundamental. It was crucial to set priorities, define responsibilities, allocate resources, and to agglutinate and conduct the aid and work coming from civil society, the international community, the private and the public sector. Leadership was key, but also peoples compromise, the sense of urgency and team work.
From catastrophe to action in the energy sector
The Ministry of Energy developed a reconstruction plan focused on restoring the affected services, and to restore the operational capacity that the system has previous to the earthquake. To achieve this, the ministry coordinated and agree targets with the industry, mostly private, to restores operations and services when possible. This was very important in:
  • Electricity
  • Gas
  • Oil
The industry commitment and generosity is important to be recognized, which incurred huge costs, in general beyond their commercial obligations, to move the situation back to normal. For example, to restitute services as soon as possible the energy sector brings work crews from other regions of the country and also from other Latin American countries, where business international relations in the energy community were vital.
A.-. Electricity
The electricity sector was severely affected, and many power generation units, representing more than 6% of the installed capacity have been damaged, and become unavailability for an extended period of up to 6 months. Also some new power generation projects, that were expected to begin operations shortly, were delayed for more than six months because of important damage on their infrastructure.
The following graph illustrates daily electricity demand as well as peak load from January to march for years 2009 and 2010. It clearly displays the collapse of the system, and the lost of energy consumption in the month following the earthquake.
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The transmission grid also suffered from extensive damage and losses of essential equipment, the fall of transmission towers and the destruction in substations had to be rebuilt, and a main problem was the shortage of spare parts that were suddenly needed for the repairs.
In distribution, the damage was further with fallen utility poles, where in several villages near the earthquake zone the distribution grid collapsed. Fortunately, most electricity supply, where there was a livable house or industry, was restored within two weeks after the earthquake. However, it took a few months to restore100% of supply, mainly in remote or areas difficult to reach that suffered a significant loss of poles and power lines. The following graph illustrates the evolution of customers without power supply.
Evolution Number of Customers without Power Supply Service
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However, through all 2010 the electric grid, mainly the transmission lines and substations, remained under a stressful operating and unstable condition, and this was evident after a sequence of blackouts and brownouts that affected the elect electric system. On March 14-2010 at 8:43 p.m. a problem in a major substation created a blackout that brings back the memories of the February 27 earthquake, when a loss of power supply preceded the earth movement in the areas that were not the epicenter of the earthquake. Also, in the months to come, other blackouts and brownout took place, and the situation become critical between Tuesday 27 and Wednesday 28 of July, what exposed the precarious condition that was facing the electrical system. In part because of the lack of spare parts needed to properly repair the damages of the earthquake, where spare parts were consumed in its entirety with the emergency, but also because of some flaws and lax safety standards and protocols applied in the operation of the system by some players in the industry. At the time, to improve the security and standards of operation of the power sector, the ministry announced seven measures to be implemented by the electric sector, which are mention below.
B. City gas in the area affected by the earthquake
GPS measurement showed that the telluric movement moved the entire city of Concepción 3.04 meters (10.0 ft) to the west. With it, the gas grid in the cities of Concepción, Talcahuano and Hualpén was destroyed. We have a highly devastated area and winter time was coming fast. Gas was key for heating and cooking in an area characterized by cold, humid and rainy winters. At the time, the local gas utility presented a plan to restore gas supply, which will be accomplished in one year in the cities whose gas grid was destroyed. That was not viable for the Energy Minister. And, with his intervention, the understanding, compromise and support of the gas utility, their management and workers, the restitution of the service was accomplished in record time: in one and a half month, instead of 12 months originally planned. Thus, wherever consumption existed, all the residents in the cities of Concepción, Talcahuano and Hualpén have gas before wintertime!
C. Hydrocarbons
The State Oil Company (Enap), his management in a coordinated action with the Ministry of Energy, and despite the destruction of the two main refineries of the country, the damage to storage facilities and pipelines, secured the proper fuel supply for the months to come in the country. The refineries are responsible for over 75% of refined consumed in the country, and with the damage they suffered there was an imminent risk of shortage of supply. It should be recognized the courage of ENAP refinery workers at the time of the 8.8 earthquake, with timely and temperate conduct, the operation of refineries was properly stop which avoided a much bigger crisis, with consequences that could have been very serious for the refineries and the surrounding areas to them. The Hualpén refinery has the record of being the refinery being exposed to an 8.8 MMS earthquake, and to survive to it.
It was in this context, that also should be recognized the prompt response, to contracted shipments of refined products, by the administration of the company and the government, and this was immediately produced the earthquake. Thus, in mid-April the arrival of 140,000m3 of diesel in the oil tanker Northia to the port of Talcahuano Chile guaranteed the supply of fuel to the south of the country until the refineries start to resume their normal operation.
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The Aconcagua refinery production activities normalized to 100% capacity on April 21-2010, with the commissioning of its last unit (Coker); and the Hualpén refinery was fully operational in July 2010, but still lacking the implementation of co-generation plant Petropower which did it later.
D. Emergency villages
With the earthquake and tsunami 370,000 homes were damaged, of which 81,444 were destroyed, 108,914 suffered major damage and 179,693 had minor damage. The emergency demanded the construction of emergency homes, known as mediagua, and in two and a half moth 40,000 of them were built. These emergency homes needed some basic facilities, such as electricity and street lighting, if the mediagua was installed in an emergency village. For these purposes was design in record time, including the regulations, and contractual arrangements with electric utilities, municipalities, Ministry of Interior and Regional Government, a system to electrify homes and village, for indoor use and street lighting.
Further, and to provide a better quality of life for most families affected by the disaster, the Energy Ministry invested in an innovative plan, developed with FOSIS, called "Sustainable Quinchos" which consists of communitary cooking facilities with photovoltaic solar panels, intended to save energy in the emergency villages.
E. Communications Protocol
Following the lack of information during the earthquake, and as a result of total blackout on Sunday March 14 at night, the Ministry of Energy designed and implemented the first communications protocol for the energy industry, what was a serious flaw in all sectors and at all levels during the emergency that followed the earthquake. With the earthquake and the March 14 blackout, was evident the need for a communication protocol between the different entities that are part of the energy sector, and design and implemented a national emergency communication protocol involving various departments of the State and all the relevant actors in the energy industry. The Protocol describes in detail the flow of information during a sudden energy disruption or emergency, and establishes the responsibilities and tasks of each authority and institution. It includes the electricity load dispatch centers, Ministry of Energy, Ministry of Interior, ONEMI, National Commission of Energy, electricity and energy oil and gas companies. This protocol was applied in subsequent crisis and demonstrated to be a success.
F. Seven actions to improve security of supply industry
Because of the fragility under which was operating the generation / transmission system the Ministry of Energy demanded from the energy industry to meet international standards. The Minister of Energy with representatives of major energy companies, in power generation, electricity transmission and distribution, agreed on seven areas of improvement:


  1. Endow the load dispatch center (CDEC) with the best technical elements to visualize and analyze online the electrical system. This demanded large investments in monitoring, analysis tools and adequate software and equipments, to anticipate and maneuver in the face of events that may lead to a failure
  2. Deepen the autonomy of the CDEC
  3. Ensure the participation of the CDEC in the planning and the development of the electrical system.
  4. Improve the standards for security of supply
  5. Promote a practice of a permanent training and certification for the workers performing critical activities. Companies should certify maintenance programs, operations and maneuvers.
  6. The expansion of the transmission system should be made respecting the established safety criteria (n-1).
  7. The authority shall ensure that the new transmission lines should be planned with enough time in advance.
G. Energy Security Committee
The Ministry of Energy creates an Energy Security Committee to coordinate joint actions to enable a safer operation of the energy sector as a whole. This is a fora for a permanent dialogue within all stakeholders of the electricity sector (generation, transmission, and distribution) and hydrocarbons sector (oil, gas and coal) to address the issues of relevance for the industry, organized in five commissions or areas: 
  1. Perception of the Electric Industry
  2. Future Supply of SIC electric system 
  3. Future Supply of SING electric system
  4. Security and systems operation
  5. Liquid / gaseous fuels and energy security
H. Is started the process to become members of the International Energy Agency IEA
The IEA is intended to promote coordinated action on energy security among its members. As a way to improve the levels of energy security, confronting the risks of sudden interruptions on energy supply, in 2010 Chile officially applied to begin the process to become an IEA member. Also, the IEA conducted in Chile, at the request of government of Chile represented by the Minister of Energy, its first study of energy security where jointly addressed electricity and fuels, considering different risk situations both from natural and anthropogenic source.
I. Virtual Pipeline
To secure the supply to the VIII region of the country, epicenter of the earthquake, ENAP designed and implemented a "Virtual Pipeline", where with special tanker trucks, LNG was transported from the V region to the VIII region. This initiative provided a backup for Argentinean imported natural gas for residential and commercial consumption, and brought natural gas to the Hualpén Refinery, with an important reduction in its refinery costs. This project starts operations in June 2011.
J. Budget Reallocation
The earthquake demanded budget reallocations in the public sector and in its companies, what unlock important resources that were used in the emergency and reconstruction. In this regard the Ministry of Energy, contributed with the biggest percentage budget cut of all ministries.
In the emergency and reconstruction, leadership at the highest level of the government was critical, but is important to recognize the tremendous and important contribution of the private sector, the public sector, the employees, management, and entrepreneurs. The generosity of all acting as a team, behind a common objective, to overcome the emergency, move ahead with the reconstruction, and bring life back to normal as possible, have been fundamental.
In short, leadership acted as a unifying force to mobilize the key role of the private sector, the government and the state, which generously enabled an environment of compromise and cooperation through the emergency, and make the way for a successful reconstruction.
*On March 11, 2010 with a new government coalition I became the Minister of Energy of Chile, where I thanks Former President Sebastián Piñera for inviting me to his cabinet, and for the opportunity and the privilege to contribute in the energy sector after the earthquake that ravaged the country on February 27, 2010.