No+ Taxes: why the pension system reform should not be set aside from the private individual capitalization system

(Related publication: No+ administración estatal de 

los fondos: por qué no en las pensiones, 

Emol, ClaseEjecutiva)

As I stated in two previous columns, "NO+ PAYGO: why is the pay-as-you-go system unviable today" and "Yes+ AFP (Private Pension Fund Managers): why the individual capitalization system is the right path", the year '80 Chile made the right decision to replace the pension system based on a pay-as-you-go mechanism for an individual capitalization mechanism administered by specialized private companies.

The current government has announced changes to the current pension system, where it proposes to raise the individual contribution by an additional 5% and that to be administered by a new autonomous state entity. From the additional 5%, 2 percentage point would go to a collective savings insurance and the other 3 percentage points to the individual workers' accounts.

Creating a new state entity to manage the additional contribution increases the system's operating costs and decreases the expected returns on the fund to which the contributors can aspire.

The state has shown not to have competencies to efficiently manage the resources and less to obtain a greater profitability of them. For example, in the last three years the average annual real return obtained by the funds managed by the AFPs is 4.93% on a simple average of funds A to E (A 5.95%, B 5.47%, C 5.15%, D 4.35%, E 3.75%), which compares favorably with the estimated real profitability of 0.16% per annum achieved by the Economic and Social Stabilization Fund (FEES), or the estimated real profitability of 1.44% of the Pension Reserve Fund (FRP), which started in 2007. Even more, during the last three years, the small contributions that the authority has made to the FRP have been financed with withdrawals from the FEES. Beyond the conservative investment strategies of the FEES and the FRP, their expected return is significantly lower than the ones achieved by the more conservative funds administered by the AFPs, Fund D or E.

The value of workers' funds administered by the AFPs in March reached CL $ 123,414,480 million, increasing by CL $ 13,159,135 million in one year, due to the contributions and profitability obtained. For its part, the FEES, which started in 2007, since its creation has received contributions of US $ 21,765.71 million, and has suffered withdrawals of US $ 10,852.81 million. And, today, its value reaches US $ 14.048 million. Of the total withdrawals that have been made from FEES, US $ 9,277.71 million were withdrawn in 2009, the year of presidential elections. In the case of the Pension Reserve Fund, it now accumulates US $ 9 billion, and by law as of this year, it allows the Treasury to withdraw about US $ 600 million to finance the Solidary Pension Pillar (basic solidarity pension -PBS- and social security contributions -APS-). And, where, until the year 2016, the resources to finance the payment of these benefits were contemplated in the fiscal budget. It remains to be seen how the Ministry of Finance will manage this additional source of funding to mobilize additional resources in a year of presidential elections.

The quote of an additional 2% that would go to collective savings insurance is a new labor tax, a regressive tax. And if it materializes, it will affect the workers, the middle class, and all those who depend on a living wage. The announcement made by the authority, emphasizes the 5% increase in workers contribution. But, says nothing about increasing the state's contributions to the Solidarity Pillar, and on to the chances to finance that contribution by reducing public spending, or on making a more efficient use of government revenues.

The additional contribution of 5% must go entirely to the individual capitalization accounts of the workers, these resources must be heritable, and individually are the workers who must decide which pension fund administrator must manage their resources. The creation of a new autonomous state entity would only increase the costs of the system, and will not generate higher returns than those managed by Pension Fund Administrators, specialized in portfolio management.

Achieving higher levels of efficiency, competition, and delivering greater pensions to workers are not resolved with the creation of a new autonomous state entity. If not rather, these objectives are achieved by increasing the competitive spaces between the AFPs, and leading the economy to a path of sustained economic growth, generating more and better jobs in the formal sector; and not with policies that slow growth and lead to greater informality and precariousness of the labor market, which will eventually have an impact on a greater demand for social assistance over the state.

The history of Chile has shown that it is easy and tempting for those who are leading the state apparatus to use the contributed resources from citizens and taxpayers, and history has also shown that on uncountable occasions they have not been good at administering those resources on the benefit of the governed.

I leave a question to comment: does the proposal of the authority imply a tax increase?

No+ Impuestos: por qué la reforma al sistema de pensiones no se debe apartar del sistema privado de capitalización individual

(Publicación relacionada: No+ administración estatal de 

los fondos: por qué no en las pensiones, 

Emol, ClaseEjecutiva)

Como afirmé en dos columnas anteriores, “NO+ Reparto: por qué es inviable el sistema de reparto hoy” y “SI+ AFP: por qué el sistema de capitalización individual es la ruta correcta”, el año ’80 Chile tomó la decisión correcta de sustituir el sistema de pensiones basado en un mecanismo de reparto por uno de capitalización individual administrado por empresas especializadas privadas.

El actual gobierno ha anunciado cambios al actual sistema de pensiones, donde propone subir la cotización individual en un 5% adicional y que ésta sea administrada por una nueva entidad estatal autónoma. Ese 5% adicional iría en un 2% a un seguro de ahorro colectivo, y el otro 3% a las cuentas individuales de los trabajadores.

El crear una nueva entidad estatal para administrar la cotización adicional, aumenta los costos de operación del sistema y disminuye los retornos esperados sobre el fondo al que pueden aspirar los cotizantes.

El estado ha mostrado no tener competencias para administrar de manera eficiente los recursos y menos en obtener una mayor rentabilidad de ellos. Por ejemplo, en los últimos tres años, la rentabilidad real anual promedio obtenida por los fondos administrados por las AFP es de 4,93% promedio simple de los fondos A a E (A 5,95%; B 5,47%; C 5,15%; D 4,35%; E 3,75%), lo que se compara favorablemente con la rentabilidad real estimada de 0,16% anual lograda por el Fondo de Estabilización Económica y Social (FEES), o la rentabilidad real estimada de 1,44% del Fondo de Reserva de Pensiones (FRP), que partió el 2007. Aún más, durante los últimos tres años, los pequeños aportes que la autoridad ha realizado al FRP han sido financiados con retiros del FEES. Más allá de las estrategias de inversión conservadoras del FEES y del FRP, su retorno esperado es significativamente menor que los fondos más conservadores administrados por las AFP, fondo D o E.

El valor de los fondos de los trabajadores administrado por las AFP, en marzo llegó a los 123.414.480 millones, aumentando en $ 13.159.135 millones en un año, por las cotizaciones y la rentabilidad obtenida. Por su lado, el FEES, que partió el año 2007, desde su creación ha contado con aportes por US$ 21.765,71 millones, y ha sufrido de retiros por US$ 10.852,81 millones. Y, hoy, su valor alcanza a los US$ 14.048 millones. Del total de retiros que se han efectuado desde el FEES, US$ 9.277,71 millones fueron retirados el año 2009, año de elecciones presidenciales. En el caso del Fondo de Reserva de Pensiones, este hoy acumula US$ 9 mil millones, y por ley a partir de este año permite al Fisco retirar cerca de US$ 600 millones para financiar el Pilar Solidario de Pensiones (pensiones básicas solidarias -PBS- y aporte previsional solidario -APS-). Y, donde, hasta el año 2016, los recursos para costear el pago de estos beneficios estaban contemplados en el presupuesto fiscal. Hoy, está por verse cómo manejará el Ministerio de Hacienda de esta fuente adicional de financiamiento que permitirá movilizar recursos adicionales en un año de elecciones presidenciales.

La cotización de un 2% adicional que iría a un seguro de ahorro colectivo es un nuevo impuesto al trabajo, un impuesto regresivo. Y, de concretarse, afectará en mayor medida a los trabajadores, a la clase media, y a todos los que dependen de un salario para vivir. El anuncio presentado por la autoridad, enfatiza el aumento del aumento de la cotización de un 5% adicional, pero nada dice respecto de aumentar los aportes del estado al Pilar Solidario, y financiar ese aporte disminuyendo el gasto público o haciendo un uso más eficiente de los recursos.

La cotización adicional de 5% debe ir íntegramente as las cuentas de capitalización individual de los trabajadores, estos recursos deben ser heredables, e individualmente son los trabajadores quienes deben decir que administradora de fondos de pensiones debe administrar sus recursos. La creación de una nueva entidad estatal autónoma sólo aumentaría los costos del sistema, y no va a generar mayores rentabilidades que las que pueden entregar las Administradoras de Fondos de Pensiones especializadas en la administración de carteras.

El lograr mayores niveles de eficiencia, competencia, y entregar mayores pensiones a los trabajadores no se resuelven con la creación de un nuevo ente estatal autónomo. Si no más bien, estos objetivos se logran aumentando los espacios de competencia entre las AFP, y llevando a la economía por una senda de crecimiento económico sostenido, de generación de más y mejores empleos en el sector formal; y no con políticas que frenan el crecimiento y llevan a una mayor informalidad y precariedad del mercado laboral, lo que finalmente va a repercutir en una mayor demanda de asistencia social sobre el estado.

La historia de Chile ha demostrado que es fácil y tentador para quienes están liderando el aparato estatal disponer de los recursos de terceros, y la historia también ha demostrado que en un sinnúmero de ocasiones no han sido buenos en administrar esos recursos en beneficio de los gobernados.

Les dejo una pregunta para comentar: ¿conlleva la propuesta de la autoridad un alza de impuestos?

Yes+ AFP (Private Pension Fund Managers): why the individual capitalization system is the right path

(Source: Clase Ejecutiva, Emol)

As I stated in the previous column, NO+ PAYGO: why is the pay-as-you-go system unviable today, the year '80 Chile made the right decision to replace the pension system based on a pay as you go system for an individual capitalization mechanism.

In the present system, a worker contributes 10% of his remuneration to his individual capitalization account, resources that belong to him and that can be inherited by his spouse and children in case of death (in the old PAYGO system, the contribution rate was generally more than 20%). In the current system, when someone does not get enough savings in his account, the State contributes with the solidarity pillar to guarantee a minimum pension.

Since its inception, the average annual return of the private pension funds has been 8.21% real (Fund C from July 1981 to February 2017), which means multiplying $ 1 invested in 1981 by more than 15 times in real terms today.

What do the results of the current system depend on? Several factors: the contribution that people make to their account during their active period (the "gaps" and the number of years without contributions have a very negative impact on the amount of pension a person receives later); the good management of the fund made by the AFPs (Spanish acronyms for the private pension fund specialized management companies – Administradoras de Fondos de Pensiones – or AFP); on the decisions that people make regarding the AFP they decide that will manage their fund, and in which fund they will put their money (A, B, C, D, and E; where the A fund is the more riskier with higher expected return and a larger share of investments made in stock, and the E is the lest riskier with all its investments in bonds and government debt bills); and the dynamism of the economy (the more the economy growth, the more opportunities for formal employment are generated, what increases salaries as well as improves the profitability of the pension fund).

Today the discussion is about raising the contribution by an additional 5%, which is part of the gross remuneration to be paid by the employer. The professional and specialized administration that has shown the AFP, who have obtained the aforementioned profitability, justifies that they assume the management of the 5% of additional contributions.

It is not appropriate for that 5% of additional contribution not to go entirely to the worker's' individual capitalization accounts, because regardless of how is camouflage it is part of the gross remuneration that employers will pay to their workers, and it will be discounted from the gross income to determine the workers net income.

Any mechanism that implies that the 5% of additional contribution does not reach the worker's individual capitalization account, can be read as a hidden tax hike.

In addition, it is very important to move ahead in generating greater competition in the system, which together with the search for spaces to reduce commissions, make it possible to improve the efficiency and profitability of the fund by the investment management companies.

Improvements in the system must advance on how to improve workers' pensions. There are no magic formulas. The most important variables to be analyzed are the increase in the amount of the contribution and the revision of the retirement age, seeking to solve the problems of gaps in contributions and to get people to have a greater number of years with contributions along with their life.

The Chilean pension system is not broken, and on the contrary, the funds of the workers - US $ 170 billion invested in Chile and abroad - are highly solvent.

I leave a question to comment: How do you think it could be increased the competition in the AFP?

(Source: Clase Ejecutiva, Emol)

SI+ AFP: por qué el sistema de capitalización individual es la ruta correcta

(Fuente: Clase Ejecutiva, Emol)

Como afirmé en la columna anterior, NO+ Reparto: por qué es inviable el sistema de reparto hoy, el año ’80 Chile tomó la decisión correcta de sustituir el sistema de pensiones basado en un mecanismo de reparto por uno de capitalización individual.

En el actual sistema, un trabajador contribuye con el 10% de su remuneración para su cuenta de capitalización individual, recursos que le pertenecen y que pueden ser heredados por su cónyuge e hijos en caso de fallecimiento (en el antiguo sistema de reparto, la tasa de cotización, por lo general superaba el 20%). Cuando alguien no logra suficientes ahorros en su cuenta, el Estado aporta con el pilar solidario para que obtenga una pensión mínima.

Desde su creación, la rentabilidad promedio anual de los fondos de pensiones ha sido de 8,21% real (Fondo C desde julio 1981 a febrero de 2017), lo que significa multiplicar $ 1 invertido en 1981 por más de 15 veces en términos reales al día de hoy.

¿De qué dependen los resultados del sistema actual? De varios factores: del aporte que las personas hagan a su cuenta durante su etapa activa (las “lagunas” y el número de años de cotización inciden muy negativamente sobre el monto de las pensiones); de la buena gestión del fondo por parte de las AFP; de las decisiones que las personas tomen respecto de la AFP y fondo (A, B, C, D, y E) elegidos, y del dinamismo de la economía (si hay crecimiento, se generan más oportunidades de empleo formal, las remuneraciones aumentan, y mejora la rentabilidad del fondo de pensiones).

Hoy la discusión está en aumentar la cotización en un 5% adicional, que es parte de la remuneración bruta que deberá pagar el empleador. La administración profesional y especializada que han mostrado las AFP, que han obtenido la citada rentabilidad, justifica que sean ellas quienes asuman la gestión del 5% de cotización adicional.

No corresponde que ese 5% no vaya íntegramente a las cuentas de capitalización individual de los trabajadores, porque independientemente de cómo se disfrace, es parte de la remuneración bruta que los empleadores pagarán a sus trabajadores, y será descontada al momento de determinar su renta líquida.

Otro mecanismo que implique que ese 5% de cotización adicional no llegue a la cuenta de capitalización individual del trabajador, puede ser leído como un alza de impuestos encubierta.

De manera adicional, es muy importante avanzar en generar mayor competencia, que junto a buscar espacios que permitan reducir las comisiones, hagan posible mejorar la eficiencia y rentabilidad de la gestión de las inversiones.

Los perfeccionamientos del sistema deben avanzar en cómo mejorar las pensiones de los trabajadores. No hay fórmulas mágicas. Las variables más importantes a analizar son el aumento en el monto de la cotización y la revisión de la edad de jubilación, buscando subsanar los problemas de lagunas de cotizaciones y de lograr que las personas cuenten con un mayor número de años con cotizaciones a lo largo de su vida.

El sistema de pensiones chileno no está quebrado, y, por el contrario, los fondos de los trabajadores — US$ 170 mil millones invertidos en Chile y el extranjero— cuentan con gran solvencia.

Les dejo una pregunta para comentar: ¿Cómo cree Ud. que podría aumentar la competencia en las AFP?

(Fuente: Clase Ejecutiva, Emol)

NO+ PAYGO: why is the pay-as-you-go system unviable today

(Source: Clase Ejecutiva, Emol)

The low birth rate and the increase in life expectancy explain why the pay-as-you-go system would not improve pensions.

In 1980, Chile made the right decision to replace the pension system based on a pay-as-you-go (PAYGO) mechanism, with a fully funded individual capitalization system run by private sector pension funds. In a pay-as-you-go system, the active population pays contributions with which pensioners' pensions are paid, and in an individual capitalization, the employee's contributions made to their individual savings account is what builds the fund that will be used to finance their pension.

The decision to replace the pay-as-you-go system with an individual capitalization system responded to the unfeasibility of sustaining it in a context of declining fertility rates, and an increasingly healthy population with increasing life expectancies, what would invariably condemn the pay-as-you-go system the collapse.

The functioning of the pay-as-you-go system is strongly influenced by demographic changes. In Chile, there is a strong drop in the fertility rate. In 1960, a woman had an average of 5.6 children, in 2012, only 1.83. There is also a strong increase in life expectancy. At the beginning of the 80s, the latter reached 71 years, and today it has increased to more than 80 years.

In theory, the pay-as-you-go system could work and provide pensions similar to the salary that was received at the time of retirement. For this to happen, however, the growth of the labor force is expected to outpace those who are retiring, or that strong economic growth leads to higher wages in a way that active workers can pay higher contributions to finance the pensioners' pensions.

If today the contribution rate of an active person is 10% of his salary, in a pay-as-you-go system for that person to receive a pension that is equivalent to his salary, requires that there are 10 active people with a similar salary, where each have to contribute 10% to finance the pension of those who have already retired.

In 1980 people aged between 20 and 65 were in a ratio of 10 to 1 compared to those over 65. But in 2015, Chileans between the ages of 20 and 65 are at a rate of 6 to 1 compared to those over 65.
If in addition, the projections are that life expectancy continues to increase and the fertility rate will decrease somewhat, then the proportion of people over the age of 65 will increase even more than those between 20 and 65. By 2040, it is projected that this ratio will be less than 3 to 1.

And so, the burden on the working population, in terms of paying with a proportion of their salaries the contributions needed to the financing of retirees' pensions, will not be sustainable, and will lead to diminishing pensions; except the case that the system and the country increases its debt, or sells parts of its assets to finance the growing deficit that, due to the low number of contributors and an increasing number of beneficiaries, is being created in the economy.

I leave you with a question to comment: With the proportion of workers between the ages of 20 and 65 decreasing more and more, is it the right decision the tying the pensions to the contributions that can be made by active workers?

(Source: Clase Ejecutiva, Emol)

NO+ Reparto: por qué es inviable el sistema de reparto hoy

(Fuente: Clase Ejecutiva, Emol)

La baja natalidad y el aumento en la expectativa de vida explican por qué el sistema de reparto no mejoraría las pensiones.

En 1980, Chile tomó la decisión correcta de sustituir el sistema de pensiones basado en un mecanismo de reparto, por uno de capitalización individual. En un sistema de reparto, la población activa paga cotizaciones con las que se pagan las jubilaciones de los pensionados, y en uno de capitalización individual, los activos contribuyen con ahorros para construir un fondo propio que será usado para financiar su pensión.

La decisión de reemplazar el sistema de reparto por uno de capitalización individual respondió a la inviabilidad de sostenerlo en un contexto de tasas de fertilidad decrecientes, con una población cada día más sana y con expectativas de vida crecientes, lo que invariablemente llevaría al colapso de las cajas de previsión.

El funcionamiento del sistema de reparto está fuertemente influenciado por los cambios demográficos. En Chile hay una fuerte caída en la tasa de fertilidad. En 1960, una mujer tenía en promedio 5,6 hijos, en 2012, solo 1,83. También hay un fuerte aumento en las expectativas de vida. A inicios de los ´80, esta última llegaba a 71 años, y hoy ha aumentado a más de 80 años.

En teoría el sistema de reparto podría funcionar y entregar pensiones similares a la renta que se tenía al momento del retiro. Sin embargo, para que ello ocurra, se requiere que el crecimiento de la población activa supere al de aquellos que se están retirando, o que las tasas de crecimiento de la economía y de remuneraciones sean elevadas para que los trabajadores activos puedan contribuir con cotizaciones mayores.

Si hoy la tasa de cotización de una persona activa es del 10% de su salario, en un sistema de reparto para que ella pueda recibir una pensión equivalente a su sueldo, se requiere que existan 10 personas activas con un salario similar que contribuyan cada una con un 10% para financiar la pensión de quien ya se ha retirado.

En 1980 las personas con edades entre 20 y 65 años estaban en una razón de 10 a 1 respecto de quienes tienen más de 65 años. Pero, en 2015,  los chilenos entre 20 y 65 años están en una razón de 6 a 1 respecto de las mayores de 65 años.

Si, además, las proyecciones son de que las expectativas de vida sigan aumentando y la tasa de fertilidad disminuya algo más, se dará que la proporción de personas con edades por sobre los 65 aumentará aún más respecto de los que tienen entre 20 y 65. Para el año 2040, se proyecta que dicha razón será de menos de 3 a 1.

Y, con ello, la carga para lo población activa, en términos de contribuir con sus cotizaciones al financiamiento de las pensiones de los retirados, no será sostenible, y llevará a pensiones cada vez menores; excepto, que el sistema y el país se endeude, o desprenda de patrimonio, para financiar el déficit creciente que, por el bajo número de cotizantes y un número creciente de beneficiados, se va creando en la economía.

Les dejo una pregunta para comentar: Con una proporción de trabajadores entre 20 y 65 años que será cada vez menor, ¿es la decisión correcta amarrar las pensiones a las cotizaciones que puedan aportar los activos?

(Fuente: Clase Ejecutiva, Emol)

How did the US to contribute to global energy security?

Source: El Mercurio 28 de Marzo 2017, page B10

The technological innovation allowed the rebirth of the oil industry, and with that, it was able to stop price hikes.

Regardless of the most favorable scenario, Chile must continue to pursue cost-effective solutions to improve its energy security.

FEWER IMPORTS

The United States is one of the largest energy consumers in the world and was the first for many decades. At the beginning of the 1960s, it accounted for 35% of the world's primary energy consumption, and now 17.5%, surpassed by China which accounts for 23% of global demand. However, in oil and gas, the US remains as the world's largest consumer with almost 20% and 23% respectively, and is the third largest consumer of coal, with 10%.

China, for its part, accounted for 13% of global oil demand in 2015, compared to 3.5% in 1990, and is the largest consumer of coal, with 50% of world consumption, seconded by India with 11%. Regarding CO₂ emissions, China accounts for 27.3% of total emissions and US 16.4%.

The US along with having a high level of energy consumption has also been a net importer, particularly of oil and natural gas, having imported up to 67% of the oil it consumes in the decade of 2000, a figure that now comes to 35%. This energy often comes from regions politically unstable and exposed to wars and conflicts.

The US decline in the percentage of oil imports in its total oil consumption is due, marginally, to a small reduction in domestic consumption, but above all to a significant increase in local liquid production from 6,785 thousand barrels per days in 2008 to 13,800 thousand barrels per days in 2015. In 2016, unconventional oil production accounted for more than 50% of domestic production.

How did they do it? It has been the technological innovation in the oil industry, in horizontal drilling and rock fracturing technology that began to bear fruit since the middle of the last decade, and which was followed by significant increases in productivity.

Depending on the region, the average maximum output of a well increased from about 100 barrels a day in 2007 to over 1,000 barrels a day in 2017. Thus, today a new unconventional well produces the same as was achieved with ten of these wells in 2007. This has led to significant cost reductions that have made the United States unconventional oil industry very resilient to lower oil price levels, and, at the same time, has acted as a break to new price hikes, despite the lower production quota agreed between the OPEC countries at the end of 2016.

THE NATURAL GAS

A similar situation has occurred with the production of natural gas, which has increased from 510 billion cubic meters in 2005 to 770 billion in 2015, generating surpluses that have open the door to US LNG exports.

The significant technological development in the oil and gas industry not only shook the US energy industry but also global energy markets, including renewables.

Another element that has been essential to the success of the US oil industry is that oil and gas are usually privately owned, with small landowners who partner with corporations to exploit resources, rather than being Government ownership as is the case in many countries.

The increase in oil and gas production and the lifting of export restrictions on US crude in December 2015 has led to exports of crude oil, refined products, and natural gas (LNG) to increase and to reach more countries.

According to projections from the US Energy Information Agency (EIA), by the end of this decade, the country will become a net exporter of natural gas. Something that was unthinkable a decade ago, after the country's consumption and dependence on imported oil increased while local production fell.

The world's largest economy has been and will be, for many years, a relevant player in global energy markets. The energy balance of the US, its policy and technology have led, among other things, to those regions that are abundant in oil and gas resources, often to see in the United States a stable market where they sell their products; other energy importing countries have also benefited from the greater supply of fuel. And, the technological change has contributed with innovations that have been able to apply in other regions.

WITH TRUMP IN THE WHITE HOUSE

With a new administration in the US federal government, it is important to read the orientation of that country's energy policy, and how it can impact global energy markets and security, international relations, technological change, and on the environment.

Since his arrival in the White House, Donald Trump has issued executive orders and has made announcements about the direction of policies during his term. In addition, on March 16, he submitted to Congress the budget proposal "America First: A Budget Plan to Make America Big Again." It proposes a decrease in the resources of several departments, including Energy (-5.6%), Interior (-11.7%), and the Environmental Protection Agency (-31.4%), all of them agencies that have interference in energy matters.

Of its announcements and executive orders, stand out those that look to give a boost to the economic activity and to take advantage of the country`s abundant energy resources, requesting:

·      Streamline the approval of projects that are of high priority for the country, such as those of energy infrastructure that allow to revitalize the economy activity and reduce energy costs.

·       Restrict new regulations and eliminate others, with the aim of relieving people and companies of regulations that inhibit growth and employment.

·      Review federal water and land use control regulations to facilitate access to energy resources.

·      Review the relevance of environmental protection and project development standards.

·     Review the emission and gasoline consumption standards to be adopted by the automotive industry.

And we expect:

·         Less stringent standards on coal-based power generation.

·        Reduction or elimination of subsidies to renewable energies.

·   In the development of new technologies, efforts would be concentrated on financing technological developments in basic science, at an early stage, canceling programs in which the private sector is better placed to finance research and development.

·        Elimination of preferential conditions that some technologies have regarding the protection of species in danger of extinction.

·         Review of the requirements of minimum percentages of biofuels in gasoline.

·     Reduction of the obstacles that have hampered the development of nuclear energy for electricity generation, seeking to facilitate the development of new technologies (nuclear reactors of smaller size or using thorium as fuel).

·         Revitalization of the development of hydroelectric projects.

·       Development of new infrastructure that would bring Canadian oil to the Michigan and Gulf of Mexico refineries.

·         A decrease in transport subsidies.

In addition, the President would have under analysis the permanence of the United States in the climate change agreement, agreed in Paris at the end of 2015, which establishes commitments to reduce greenhouse gas emissions.

With all the above, an increase in oil, gas, and energy production is expected, which would further lower imports, creating a greater supply of oil and gas in global markets.

HOW DOES IT AFFECT CHILE?

Chile imports about 70% of the energy used, more than 95% of the oil it consumes, and 100% of the liquefied natural gas (LNG) that reaches the Quintero and Mejillones terminals. The country is always very exposed to the vagaries of global energy markets. However, Chile will benefit from US contributions to these markets in the coming years.

A greater global supply of energy coupled with more competition would mean that the price of oil and other fuels will for some time be less influenced by agreements restricting supply from OPEC.

Regardless of the most favorable scenario, Chile must continue to seek cost-effective solutions to improve its energy security, reducing its dependence on what may occur in countries or regions exposed to political instability, and from potential price manipulations which can occur in global markets.

For a competitive Chile, the country must count on an energy matrix that assures reliability of supply, and with energy costs that are a competitive advantage of the country. And in this, Chile cannot renounce to use its main energy resources, within which is the hydroelectricity, and recently the wind and solar energy. These last ones do impose the challenge of requiring other sources to overcome the current limitation of not being able to operate continuously.

Source: El Mercurio 28 de Marzo 2017, page B10

On March 28, President Trump signed the Executive Order "Promoting Energy Independence and Economic Growth," which details the various rules and regulations that need to be revised or eliminated