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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 environmental compliance.

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 5.7 cents.

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 programs.

Despite the increase in energy costs, Prepa's residential customers continue to consume electricity at the same rate as prior to the fuel increase.

"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 Communications.
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