Heat Is On to Tackle Cuba's Power Crisis


Heat Is On to Tackle Cuba's Power Crisis
Faced with sporadic unrest prompted by blackouts in the sweltering summer,
Castro pledges to update the antiquated system.
By Carol J. Williams
Times Staff Writer

September 3, 2005

MIAMI - Cuba appears to be limping out of its worst season of blackouts
since the collapse of the Soviet Union, but its economy may be in its
strongest state in decades to address the crisis, analysts and experts said.

Beset by unusual protest during a sweltering summer, President Fidel Castro
has pledged to invest $250 million from booming tourism and nickel ore
revenue into the power system, and has entered into generous deals with
China and Venezuela aimed at averting collapse of an obsolete and
inefficient generation and transmission system.

Across the island, Cubans this summer weathered temperatures in the 90s and
stifling humidity without lights, baseball game broadcasts or their daily
escape of soap operas.

Cuba watchers, meanwhile, are reading the crisis for its potential effect on
the 79-year-old Castro's hold over the country.

"The Cuban population is exasperated with frequent and lengthy blackouts,
increasing epidemics, growing transportation breakdowns and the inability of
the Castro government to provide meaningful responses to these and other
critical problems," said an August report of the Cuba Transition Project, a
working group at the University of Miami's Institute for Cuban and
Cuban-American Studies. The report was based on conversations with residents
of Cuba and recent visitors to the island.

"Reports of sporadic demonstrations and anti-government graffiti are
surfacing throughout the island," the report noted.

After two months of almost daily blackouts, the Cuban Politburo member
heading the Ministry for Basic Industries, Yadira Garcia Vera, acknowledged
in a televised address in July that the national power system was "weak" and
outages were likely to continue through summer.

"We fully understand the complexities this presents for families, for the
economy and for the country," she told Cubans. Garcia's predecessor was
fired after a similar spate of blackouts last year.

Few outside Castro's inner circle know whether the Cuban government can
afford to make the investments needed to improve power supply or expand
domestic oil production, said Kirby Jones, head of the U.S.-Cuba Trade Assn.

"But they're seeing as good days as they've seen in a long time. Tourism is
up. Nickel income is up. Biotech, rum, cigars - everything is up," Jones
said of the Cuban economy, which grew 13% last year and is expected to
expand 5% this year.

Castro's $250-million pledge, announced in July, will go toward the purchase
of large oil-fired generators from Denmark, Spain and Germany, and
improvements to 10,000 miles of power lines that experts say lose an
estimated 22% of their supply en route to consumers.

Castro also has been ordering spot repairs and conservation measures such as
the importation of energy-efficient rice steamers, pressure cookers and
lower-wattage light bulbs from China.

But economic analysts contend those moves are merely symbolic. Billions will
be needed to replace an electricity network of aging Soviet-bloc equipment
ineptly operated since Moscow ceased supplying cheap fuel oil, they say.
Cuba's high-sulfur domestic heavy crude, substituted for Russian oil since
1994, has corroded machinery and parts in its seven major generation plants
that can't be replaced because the Czech and East German suppliers went out
of business after the overthrow of communism.

"It's the Achilles heel of the whole system," said Jorge R. Piñon, a retired
oil industry executive who wrote an extensive report on Cuba's energy crisis
for the Transition Project. "As long as they keep burning crude oil, they're
going to collapse the system."

Venezuela has been providing as many as 90,000 barrels of oil a day to Cuba
under a deferred-payment scheme that shields the impoverished economy from
record oil prices, but has added another $3 billion to the island's
international debt, Piñon said. The U.S. State Department estimates Cuba has
a hard-currency debt of $11 billion.

The summer's crisis, however, may have laid bare Castro's previous promises
from the three-year-old Venezuela deal, as well as his prospects for Chinese
investment in oil exploration.

"The Cuban government was saying that with this great relationship with
Venezuela and investment from China, things are going to be great," said Dan
Erikson, a Cuba specialist at the Inter-American Dialogue, an independent
think tank in Washington. "But you have outages as bad or worse than before
and this has created discontent."

Mismanagement of the power network has also angered Cubans, he said,
describing the level of public complaining experienced during a visit
earlier this year as having reached "fever pitch."

"There's an incompetence role in this, not just the [U.S. trade] embargo and
the traditional woes of the Cuban economy," Erikson said. "It's been an
embarrassment for the Cuban government."

Apparently spurred by the sporadic outbreaks of unrest, Castro has recently
moved the power supply issue to the top of his agenda, vowing an end to
blackouts in part by increasing electrical output by a third by next year.

Bandes, Venezuela's development bank, announced in early August it would
lend Cuba $20 million to upgrade its distribution network, but made the use
of Venezuelan contractors a condition of the loan. That sum is less than
half of what Bandes estimates the first phase of transmission modernization
will cost.

Meanwhile, Petroleo de Venezuela, the state-owned oil company, is working
with Union Cubapetroleo, or Cupet, to improve the quality of oil fed to the
power plants to halt their deterioration. The Venezuelan company and Cupet
also have been weighing whether to finish and modernize the Soviet-built
Cienfuegos refinery to process Cuban crude and take in foreign shipments
amid an international shortage of refining capacity.

There are prospects for a major oil find in Cuba's exclusive economic zone
in the Gulf of Mexico, but it will still be years before the current energy
crisis is alleviated.

In the 13 years since Cuba began allowing foreign contractors to explore its
fields, nearly $2 billion has been invested, boosting oil production from
18,000 barrels a day in 1992 to 75,500 barrels a day last year, Piñon noted.

But that is less than half the 180,000 barrels a day Cuba consumes. A Rice
University report predicts the island will need 349,000 barrels a day by
2015.

In February, China sold Cuba three directional drilling rigs and signed a
production sharing agreement with Cupet to explore further onshore and
coastal areas. Spain's Repsol has joined with Norway's Norsk Hydro to spend
$40 million next year to explore a promising Gulf of Mexico deposit.

It remains to be seen whether international oil companies with deep-water
drilling expertise will conclude the effort is worth what could amount to a
$3-billion investment. A February U.S. Geological Survey report on possible
undiscovered deposits in the North Cuba Basin estimated 4.6 billion barrels
of oil - and possibly as much as 9.3 billion barrels - could be in the
region.

The prospect of Cuba as a potential oil exporter would have important
economic and political consequences - not the least of which is whether
Washington would permit U.S. companies to enter a market that could
otherwise involve nations competing with the United States for limited oil
supplies.

"The prospect of an oil platform 60 miles off the U.S. coast with a Chinese
flag on it - I want to see that," Jones said.





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