This year El Salvador became the most violent country in the world. It is hard to explain with a sole justification the causes behind more than 15 murders per day in such a tiny country. In this crime afflicted nation it is harder than in any other to start laying out strategies for successful public-private partnerships (PPPs) to achieve a sustainable economy by 2030. This is why writing about this case is so challenging.
This post attempts to identify the root causes of our failure which can help create an antithesis: RENEWABLES ARE AN ECONOMIC OPPORTUNITY, NOT THE NEXT ECONOMIC SLAVERY CHAIN. Developing countries can hardly compete in terms of technology. As a consequence, competitiveness in a globalized world in the short term has led to the need to importing technology. Renewable energy technology is not an exception.
In El Salvador, large renewable energy projects have become large economic tragedies. How can developing countries avoid their plans to limiting increasing global temperatures from becoming national economic failures? To illustrate, here are some examples:
1. Geothermal Energy. The Americas are blessed with abundant geothermal energy resources. El Salvador is home to more than 20 volcanos and it is estimated that the geothermal potential is 640 MW. Back in 2001, the Salvadoran government energy company (CEL) formed a joint venture “LaGeo” with the Italian Enel Green Power to exploit the geothermal resource. Nonetheless, administrators managed to turn a unique and strategic geothermal resource into a costly disgrace. After years of international litigation over shares, last year, the international tribunals ruled in favor of Enel. El Salvador agreed to buy Enel’s shares for $280 MM USD. This case, it is one of the best examples of failed PPPs where greed and corruption played a key role.
2. Hydro-electric energy. For decades, the Americas have produced significant low-carbon footprint electricity with conventional hydroelectric renewable energy. In 2008, after more than half a century without new investments in the hydroelectric sector, the Government authorized a new project: El Chaparral, a 66 MW capacity dam that would be located in the eastern region of El Salvador. The $220 MM USD turn-key hydroelectric project was to be developed by another Italian construction company, Astaldi. The project was abandoned in 2010 when a geological fault was found and design issues surfaced. The contract dissolution cost $108 MM USD. Then, in 2013, the municipality revoked the construction permit. Eight years later, the plan is for the Russian company Tyazhmash to provide the turbine and for local building companies to finish the project for $291 MM USD. If this is the final cost, El Salvador would have paid $291 MM/66 MW = 4.4 MM per installed MW, which is more than double of a typical hydroelectric project (2 MM per installed MW).
3. Transportation fuels. Around the World there is a natural resilience to the transition to alternative transportation fuels. However, in El Salvador, Venezuelan interference is hindering even further such transition. Alba Petroleos in El Salvador is another example of PPP with disadvantageous medium and long term consequences for the nation. While in the short term, preferential petroleum-derived product prices may appears to be a relief in the economy, the reality is, that the scheme is not economic nor environmentally sustainable and will only lag the transition to real sustainable solutions in transportation.
In summary, we can conclude that successful PPPs can only derive from transparent, fair and well-intended agreements with substantial local participation and limited foreign intervention.