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Electricity Costs: PREPA May Begin Bypassing Traders
To Purchase Fuel Oil Directly
If utility is able to negotiate a lower fuel price
than obtained through fuel oil traders, it can legally bypass
the bid process
by Aura N. Alfaro
March 9, 2000
Copyright © 2000 CARIBBEAN BUSINESS. All Rights Reserved.
There is a possibility that the Puerto Rico Electric Power
Authority (Prepa) will be able to reduce its fuel costs in the
near future through a direct purchase from a foreign oil-producing
country, said Angel Luis Rivera, Prepa director of planning and
Prepa Executive Director Miguel Cordero in the past months
has met with government representatives of several foreign petroleum-producing
countries, including Venezuela and Colombia, to negotiate the
purchase of fuel oil (Bunker) directly.
"There is a good possibility that it will occur if one
of the countries agrees to a sale. However, it will also depend
on whether that country's fuel complies with local environmental
specifications." Rivera told CARIBBEAN
BUSINESS. He added that Mexico's fuel oil couldn't
be used in Puerto Rico because it doesn't comply with the specifications.
By a local law approved some 18 months ago, Cordero, as executive
director of Prepa, can represent the local government in purchase
negotiations with the governments of foreign oil-producing countries
for fuel to be used in electricity production, Rivera said.
The law allows Prepa to purchase fuel directly from a foreign
oil-producing country, instead of through fuel traders, thus bypassing
a bidding process, if the agency is able to find a better price.
Prepa usually obtains the product by issuing requests for bids
to companies authorized to do business in Puerto Rico as fuel
traders. Some of the traders that have done business with the
utility are Veba Oil, Trafigura, Vitol, Texaco International,
Caribbean Petroleum/Gulf (Capeco), and Esso Standard Oil. Yabucoa's
Puerto Rico Sun Oil often supplies traders with fuel.
Residential electricity costs in Puerto Rico were 171% higher
in February than in Feb. 1999, due to Prepa's heavy reliance on
crude oil. Yet, energy consumption levels have barely budged,
Rivera said. In Feb. 1999, Prepa was charging residential consumers
2.1 cents per kilowatt-hour (kWh). Last month a kWh cost consumers
Rivera added that commercial and industrial consumers have
also felt the considerable rise in energy costs, and some have
probably put into effect energy conservation demand site management
Despite the increase in energy costs, Prepa's residential customers
continue to consume electricity at the same rate as prior to the
"Our experience has been that an increase in the cost
of fuel has a barely significant to no effect on the consumption
rate [of electricity]," Rivera said.
Puerto Rico has been feeling the effects of the rapidly rising
crude oil prices in their electricity bills since Augusts 1999,
when the local residential cost of a kWh was 4.6 cents, 24% lower
than last month.
In March 1999, the Organization of Petroleum Exporting Countries
(OPEC) for the first time agreed on a price and production quota,
and have so far stood by their agreement. The price of oil tripled
in the past year.
For the first time in nine years, crude oil surpassed $31 per
barrel in the New York market on March 1, after news spread that
U.S. gasoline reserves dropped significantly during the previous
week. The ministers of energy of Venezuela, Mexico, and Saudi
Arabia met on March 2 in London to evaluate the market. Information
regarding the talks was not available as of press time. However,
the OPEC is expected to decide on a possible production increase
on March 27.
This Caribbean Business article appears
courtesy of Casiano
For further information please contact www.casiano.com