Building a strong energy industryAugust 24, 2017
Mauricio Bejarano, Paraguay’s deputy minister of energy and hydrocarbons, talks to TOGY about Paraguay’s emerging energy policy, the development of the oil and gas industry, and the energy relationship the country has with its neighbours.
• On Paraguay’s energy objectives: “We would also like to become an integration axis for electricity and hydrocarbons. We are the heart of South America, in terms of our geographical position, and we want to take advantage of that by becoming the first market for electricity in South America.”
• On Argentina’s beneficial expertise: “Argentina will always be a source of experience and know-how. There are Argentine technicians that have even worked in Vaca Muerta and are now working for private companies with blocks in Paraguay. It is very important to share know-how and stay close with countries that have all that experience.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with Mauricio Bejarano below.
What is Paraguay’s energy and hydrocarbons policy?
We have 205 years of history as a free republic, and in 2016, we developed our first energy policy. It looks towards 2040 and anticipates energy security and quality service for all the inhabitants of the country. It has been developed under this administration and has been guaranteed by Executive Decree No. 6092. We would like to create a law in 2017, so that it become a state policy that lasts through time.
Moreover, we are encouraging the use of all natural resources, including wind and sun. There is a strong incentive in regards to the upstream sector because we have great evidence for potential new discoveries. As a nation, we have to encourage exploration so we can eventually avoid being dependent on imports. We currently rely 100% on other countries. This situation does not generate energy security, and it also represents a foreign exchange leak of USD 1.6 billion per year. There is a great incentive to invite investment to develop the sector.
We would also like to become an integration axis for electricity and hydrocarbons. We are the heart of South America, in terms of our geographical position, and we want to take advantage of that by becoming the first market for electricity in South America. We want to keep adding megawatts [of generation capacity], integrate the region and potentially become a tendering market.
In 2017, we are working on small electricity plants that might take about five years [to develop]. President Horacio Cartes has just signed three new turbines for Yacyreta dam, the mechanisation of the Brazo Aña Cua dam and two complementary works at the Corpus Christi and Itatí-Itacorá hydroelectric plants.
After 2030, we also plan to generate power from our own natural gas. Although there is a commitment towards decreasing the consumption of hydrocarbons, we will add, mainly in Chaco, about 1.8 GW [in generation capacity] with combined cycles as the area moves towards industrialisation.
The other main axis of the policy is focused on generating awareness in terms of responsible energy consumption. There was a wrong idea amongst citizens that there was energy to be wasted. Nowadays, the prospects show that in 12 or 15 years, Paraguay will consume all its potential. We are growing 8% per year and this figure may increase as we industrialise. We consume 250 MW of electricity, which represents 18% of the energy matrix. That is expected to grow by 10% in the coming years.
We are working very hard on our efficiency plan. It is being included in school curriculums so we can build awareness in children.
What is the status of Paraguay’s hydrocarbons market?
We have a very small hydrocarbons production at the moment. It is carried out by Primo Cano, which is a private company that produces oil from the Gabino Mendoza block, located on the border with Bolivia. The gas is being burned at the Bahía Negra plant, which is undergoing a tendering process. We want to continue using that gas and encourage exploration.
Prospective studies at a national level indicate great results. Of 52 wells, 60% have oil and gas. Unfortunately, it is not economically viable to produce from these wells nowadays.
The idea is for private companies and the state company to continue with exploration and prospective studies. This government’s goal is to heavily intervene in Petropar so it is involved in the entire hydrocarbons chain. We want it to become a more vertically integrated company. Petropar has been awarded five blocks. One of the main challenges is to find one or several partners that could provide financing and technical know-how, and build a large conventional refinery in the Chaco area.
What kind of partners is the government interested in attracting?
We are open to everything. We have been in talks with big companies. We have participated in several important rounds. I am travelling to an expo in Alberta next month to keep presenting our country and opportunities. I am also working at a continental level with OLADE [Latin American Energy Organisation]. We have decided to analyse the possibilities we have as a region for unconventional methods.
The US has carried out a study that proves that our western region has great potential. It is called the Parana Basin and it is shared with Brazil. We are very hopeful that in the future, once it is economically viable, we will be ready in terms of environmental and technical aspects as a region.
This was one of the main topics during the last Arpel congress that took place in Punta del Este in April 2017. We want all the environmental ministries and institutions to come together. We need to have the best practices to avoid mistakes that we have seen around the world. I strongly believe that we have to be ready for when market conditions are good, or for when somebody comes to invest.
What are the advantages of investing in Paraguay compared to other countries?
Paraguay has the lowest tax rates and royalties. Whoever finds something here will have a lot of benefits. This is the main incentive. For example, there is a tax exemption for importing machinery.
We also believe that our prospective studies are giving us very good signs. It is not easy to compete with producing countries such as Argentina, Brazil or Bolivia, but we believe that some of our conditions can attract investment.
Moreover, our macroeconomy has been growing consistently. There is legal security and political stability. As some of our big neighbours, such as Brazil and Argentina, decrease economically, Paraguay’s economy keeps growing at 4% per year and domestic consumption of oil has increased substantially in the last few years, reaching 85,000 bopd.
From where does Paraguay import hydrocarbons?
Hydrocarbons represent just 38% of our primary energy mix. The majority of that is oil, since we have almost no natural gas in our energy matrix. We buy oil from different sources. Most of our LPG comes from Bolivia, due to a very convenient agreement.
How is Paraguay’s energy market connected to the rest of the region?
We have a great advantage due to our binational connections. In terms of electricity connections, we are currently studying one important project with Bolivia, which, if successful, will allow us to be connected with all our neighbours. We also have been managing our relationship with Brazil and Argentina, despite our differences, to improve our connection, and will negotiate a connection with the Itaipú dam in 2023. It will be very important and it will benefit all parties.
In natural gas, the Northeast Argentine Gas Pipeline will transport gas from Bolivia to Argentina. It will border the frontier, and hopefully, we will build our connection with it. All these connections are very important.
What is the status of Paraguay’s energy regulatory framework and institutions?
Nowadays, the hydrocarbons sector is a little bit chaotic. The upstream sector is within the portfolio of the Deputy Ministry of Mines and Energy, the downstream sector belongs to the Ministry of Industry and Commerce, and the midstream sector does not exist. For the next eight years, the national energy policy states the creation of a new ministry during the next government. We understand the need to have a Ministry of Hydrocarbons and Energy to have a strong institution with real control over the entire value chain.
We also understand that we will make a transition towards [becoming] a regulating entity once there are more players. There is currently no need for this in the upstream sector because we do not have major players. We might have to migrate towards this soon in the downstream sector.
However, we do not put the wagon before the ox. We need to have a strong structure. Without strengthening human resources, we cannot expect to keep growing. One of the main axes of our policy focuses on this.
The Ministry of Public Works and Communication has given scholarships to 250 junior engineers to go to São Paulo through an agreement with the University of São Paulo. The students have a commitment to the Paraguayan government under which they have to provide service for the next five years after completing their master’s degree. We have a lot of geologists, but very few engineers. We want more trained human resources.
All this happens according to demand, but we want to be ready to grow and move towards [being] a regulator. First, we need a ministry that can control the entire process and sector. We will do the same for the electrical sector, of which we hold 98% of national commercialisation.
What will be Argentina’s role in Paraguay’s new energy plan?
I have been in touch with Segemar [Argentine Geological Mining Service], which is something we don’t currently have in Paraguay. We should have better knowledge of what is going on in our subsoil and the areas we share with our neighbours.
The Pirity Basin is productive. We have gone there to see the wells. The frontier is very close and we want to find synergies with our neighbours and learn from them so we can offer those blocks. If we had a deeper knowledge, we could present ourselves differently and save costs in terms of prospective studies.
Argentina will always be a source of experience and know-how. There are Argentine technicians that have even worked in Vaca Muerta and are now working for private companies with blocks in Paraguay. It is very important to share know-how and stay close with countries that have all that experience.
In terms of electrical energy, both countries made an agreement in May 2017, ending 30 years of dispute over the Yacyreta hydroelectric plant. [The agreement] is very important and [will see] Paraguay save USD 17.8 billion. The debt has gone down to USD 4 billion.
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