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Too much tape, especially red

Tuesday, January 24, 2012

Last week, Central America wrote the latest chapter in the book - bound in red tape, naturally –which describes the ways in which the region resists becoming more efficient.

In this case, the issue involves barriers to commerce in energy among Central American countries, specifically the rejection of a sale of electricity by Guatemala to El Salvador.

On one hand, the $250 million Xacbal hydroelectric plant, the largest in the region, appears to be a shining example of economic integration.
The project was built and is operated in Guatemala by Honduras-based Grupo Terra, led by Fredy Nasser, with the goal of providing power to local clients, as well as to those in the rest of the region.

Terra has interests throughout Central America in power generation, gasoline stations, public works and telecommunications, along with a hydro project in Peru.

In this case, it was natural for Xacbal to agree to a sale of 30 megawatts, almost a third of its capacity, to a distributor in El Salvador, a subsidiary of United States-based AES.

The 15-year contract was due to come into force on New Year's Day, 2012, having been signed more than two years before construction of Xacbal was completed.

It seemed as though Xacbal and AES had planned well - except that two weeks ago, authorities in Guatemala and El Salvador found that local law does not allow transfers of electricity between the two countries.

The new Central American Electrical Interconnection System can make new rules governing such cases.

Unfortunately, it has not yet get round to devising them.

The Xacbal contract seemed like a sweet deal, gift-wrapped for energy-hungry consumers and industries in El Salvador.

Instead, it has been tied up in red tape.