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THE ELECTRIFICATION OF THE ECONOMY

One of the deterrents for industrial investment in Ecuador has been the high cost of its electricity. It is clear that this is a pre-condition for new industrial projects, so the government of Lucio Gutierrez has announced measures to lower the costs of electric generation and distribution. Following the incorporation of government electricity companies last year, the next step has been the tender of concessions for new hydroelectric projects.

"We are tendering various hydroelectric projects in Ecuador because this country has a huge hydro potential waiting to be tapped. We have opened the sector to strategic investment in the form of management contracts", said Patricio Johnson, President of National Council of Electrification CONELEC.

"President Gutierrez is working hand-to-hand with the IMF to modernize public companies. We are inviting the private sector to establish joint ventures and jointly manage the reforms of these companies" adds Johnson.

One sample of the government's efforts to allow private participation in the sector was the announcement of a concession to build the Mazar dam, the most important hydro-electrical project of the country, to a private enterprise. After twenty years of indecisions and failures to grant the concession, the government finally entrusted the project to Hidropaute, the main generator of the country.

Hidropaute is a joint-stock company whose stocks belong to the Fondo de Solidaridad. Being the main generator of the country, it has great liquidity due to the continuous incomes from the sales of energy. The investment required for this project is $ 362 Million, which will be financed directly by Hidropaute, along with multilateral credit funds.

Rene Morales, Executive President of Hidropaute, predicts that "this project is going to provide insurance to investors that their investments are safe in Hidropaute", he said.

Milton Ordoñez, General Manager of Fondo de Solidaridad, indicates that in the country there are "around 80 projects with less than 50 megawatts" which will need direct foreign investment. By increasing overall generation, combining the Mazar project and many smaller projects, Ordoñez believes that the cost of electricity will decrease drastically in the next 4 years. As a first step towards this goal, last month the government announced a gradual 10% decrease in the cost of electricity to spur investment and job creation.

"We are faced with many challenges. The first is to lower the market price of Kilowatts per hour that would benefit the most affected sectors of the country, and the second is to make our enterprises more efficient, transforming them with 180 degree shift in management approach so that they may become profitable again. Our objective is to make sure that these projects happen very soon, so that the country can take off and develop", says Ordoñez.