“Our Electricity System Is One of Our Political Class’ Great Failures”

This leading consumer activist analyses the historical, social, economic and ethical aspects of Nicaragua’s energy crisis from the perspective of the country’s National Consumer Defense Network, which for over three years has been creatively and tenaciously drafting bills and proposals, doing research studies, and organizing denunciations and mobilizations.

Ruth Selma Herrera

When you follow the thread of what’s happening in the Nicaraguan electricity sector, you realize we’re facing one of the greatest failures of the political class that has governed this country. Electricity is fundamental to a country’s possibilities of developing and improving its population’s quality of life, but Nicaragua didn’t make the necessary investments at the right time to provide enough. And we’re currently experiencing the consequences of that irresponsibility and lack of strategic vision.

Electricity generation under
the Somozas and the Sandinistas

In the 1940s electricity in Nicaragua was generated through small private sector hydroelectric and steam turbine generators that mainly served the industrial sector, although a few also offered this service to residential areas in the main cities. Using these methods, the state provided less than 30% of the national supply in 1945, which amounted to 67 gigawatts/hour (GW/h). Over the years this situation reversed itself as the state started investing and buying up existing private plants following a decision in the fifties to assume a predominant role in electricity production. In 1954 it created ENALUF and a year later the National Energy Commission as a regulatory body. By 1957 obsolete plants were being replaced by the Managua steam plant, which extended the service to the Pacific region as a whole and the state had an investment plan that started with studies for and the subsequent construction of the 50 megawatt (MW) Centroamérica hydroelectric plant in Jinotega and the Santa Bárbara hydroelectric plant in Ciudad Dario. By 1963, the country was producing 241 GW/h, of which 198 came from thermal resources. Only 32% was privately generated.

From then until the end of the Somozo dictatorship in 1979, the electricity sector was mainly state owned. Hydroelectric generation reached its peak in 1976, generating 379 MW, 40% of the country’s total production. But successive problems such as droughts and lack of investment reduced the weight of hydroelectric generation to just 11.7% of total production by the end of the 1970s. By the time Somoza was toppled, construction had begun on the first geothermal plant following a number of studies on the nation’s capacity to use its volcanoes to generate electricity. Work also started on the Tiscuco—now Puerto Sandino—thermal plant, in two phases, with 50 and 56 MW respectively, while an interconnection was established with Costa Rica.

In 1979, then, the country had an installed capacity of 357.7 MW, not including the Momotombo geothermal plant, but investment in generation ground to a virtual halt during the eighties. The only notable development of that period was when the Momotombo plant went on line, with a capacity of 50 MW. The only other real changes were the names, with ENALUF becoming ENEL, for example. For a number of different reasons—the war, the US economic blockade, the spending of very scarce foreign currency on unrealizable mega-projects, etc., the revolution added nothing to what it had inherited. The officials responsible for this sector probably had no initiative to submit project proposals for new plants, even though it might have been possible to obtain financing for them. I think that, in the middle of the war, they lacked any strategic vision for the sector and failed to gauge its importance and convert it into a dynamic axis of the whole economy.

Lack of vision has left us
dependent on petroleum

Studies carried out in the Somoza era inventoried the renewable energy potential in Nicaragua, concluding that geothermal power could contribute 1,000 MW, hydroelectric power 1,760 MW and wind-power 200 MW. If only a part of these projects had actually been implemented, Nicaragua would not now depend on oil to generate energy. In fact it would be able to produce three times as much as the demand and even bring in hard currency by exporting electricity to the rest of the region. With the exception of Costa Rica, the energy structure of all our Central American neighbors still depends on oil. According to figures for 2003, thermal-based energy production reached an effective capacity of 534 MW in Nicaragua, with a loss rate of 35.8%, reducing the real capacity to 343 MW. The overall generating structure that same year was 80.3% thermal, or steam (using petroleum derivatives to power the turbines), 9.9% geothermal and 9.7% hydroelectric.

The projections and studies have served for little. The big ideas of the post-Sandinista governments didn’t reach beyond privatizing the thermal generating plants—most of them obsolete—and selling off the energy distribution monopoly at bargain prices to the Spanish-based transnational Unión Fenosa. Thanks to the lack of vision, we now find ourselves landed with an increasingly expensive oil bill for energy generation—the equivalent of almost 100% of our exports. The total cost of buying oil was already US$85.2 million in 2003, and prices are now rising by the day. Looking back, the only possible conclusion is that Nicaragua’s successive ruling classes have never realized that a country that doesn’t control its own electricity capacity has no chance of developing.

The justification many electricity specialists offer for the failure to invest more in alternative forms of generation in the sixties, seventies and eighties is that oil was so cheap. In other words, it was actually cheaper to buy it to operate the thermal generators than to invest in a hydroelectric or geothermal plant. But while these alternative plants require very high initial investments, the costs are gradually recovered and they end up being profitable. The international organizations also encouraged us not to spend money on new energy infrastructure. So there was a combination of factors: the price of fuel, the imposition of the international organizations and a lack of strategic vision from those governing the country. The end result is that the only hydroelectric and geothermal plants we have in Nicaragua today were built during the Somoza regime.

Post-1990: The re-privatizing of electricity

Violeta Chamorro’s government started to privatize almost everything that had been nationalized during the Sandinista revolution, and as a result the electricity operating company, ENEL, was separated from the regulatory body, INE. One of the first steps was to privatize the thermal generators, which were sold off at ridiculous prices. Meanwhile a number of foreign companies joined in, investing exclusively in thermal plants, which produce expensive electricity: Censa in León; Coastal Power in Tipitapa; and Corinto Power (successor to the discredited ENRON) in Corinto. Coastal Power, which has US capital in a joint investment with the Banco Uno group, bought the Tiscuco and Chinandega plants, which added to the Tiscapa plant make this company the leading supplier, at more or less 40% of the country’s total electricity.

The public bid for the San Jacinto Tizate geothermal plant (Polaris Geotérmica) was won by current COSEP president Erwin Krüger over ten years ago, when he was a minister in Violeta Chamorro’s government. But this “investor businessman” has made no significant investments and until very recently the geothermal plant has been producing less than 8 of its 70 MW potential, which demonstrates the inefficiency affecting the generating business. The Momotombo geothermal field is administered by the joint investors ORMAT and ENEL and produces approximately 30 MW.

Hidrogesa (initially the Centroamérica and Santa Bárbara plants) is still a state-run public asset. In 2002, during the Bolaños government, an attempt was made to sell it to Ernesto Fernández Hollman’s Banco UNO group, but we put up a fierce fight, filing lawsuits and appeals and various other initiatives, and with the support of the Comptroller General’s Office we managed to stop it going through. The government was going to sell it to Coastal Power for $40 million, to be paid in installments over 5 years. And this at a time when Hidrogesa was producing profits of $18 million a year! This is just one example of how things are done in Nicaragua, a country that has shed its public resources for practically nothing.

The Hidrogesa plant is currently working around the clock without maintenance and could collapse at any moment. Any important spare part the plant needs is manufactured in Germany and brought over, which takes about six months, yet the state preferred to take $5 million from Hidrogesa, a public generating company, to subsidize Unión Fenosa, a private distributing company. And through the “energy stability” law approved by the National Assembly in September, $30 million more of Hidrogesa’s funds were pilfered for the private generators and Unión Fenosa! What is the government doing? It is dismantling, cannibalizing the country’s only profitable hydroelectric plant. Could it be that Bolaños, those running the energy sector and the legislators on the National Assembly’s Infrastructure Commission who approved this law are so ignorant that they can’t figure out that those public funds should be invested in urgent and strategic projects that have already been drawn up? Or is there some other explanation?

The first link in the electricity chain
is the fuel we buy

Finding a solution to our energy problems necessarily involves analyzing and reviewing the whole energy chain. Let’s start with the fuel, the oil we buy. We know—from CEPAL and national economists like Ricardo Meléndez, Adolfo Acevedo and Néstor Avendaño—that Nicaragua pays more for its petroleum than any other Central American country, partly because the generators don’t join together to buy oil or the more polluting bunker oil. Instead, in such a wretchedly impoverished country, each generator has its own separate contracts and imports directly! We know that when you buy this way, you can’t get the best prices and on top of that everyone has to give bribes. In the National Dialogue’s sector-wide round tables, the Network proposed that all of the generators should get together to buy bunker. But they’re not interested in this solution because they’ve already created a whole chain of people who benefit from intermediation and bribes.

Another reason for our high prices is that ESSO Nicaragua has special protection. As the owner of the only pipeline bringing petroleum into the country, ESSO has an effective monopoly. It refines the petroleum then sells it more expensively, charging between $5 and $15 dollars more per barrel. And although Nicaragua would be better off buying the final product than buying from ESSO, not a single authority has said it is going to negotiate with this transnational company. Some capitalist countries are currently negotiating with the oil companies to reduce the impact of petroleum price rises on their populations. But not Nicaragua. Nobody’s suggesting any such thing here. Nor did it occur to anyone to take out insurance on petroleum purchases before the international oil price crisis exploded.

The second link:
Generators that don’t invest

If fuel is the first link in the chain, the second is the energy generators. When we take a closer look, we discover that much of their income goes towards paying loans and interest. And when we ask them why they don’t invest their own money if they call themselves investors, they get offended and say that investors everywhere in the world now work with money that isn’t their own, with loans. So we say, “But with the levels of poverty and unemployment in this country, you can’t make big profits, pay intermediary banks and maintain such high salaries as company managers... without risking your own money.” What really happened is that a few Nicaraguan businesspeople have obtained the franchise from a transnational—or local concession—and have suddenly become electricity “entrepreneurs,” but they never invest anything. And they keep plant maintenance to a minimum, which is why those plants could break down at any moment.

In addition to not investing, the energy generators receive a fixed amount from the government—known as the “power factor”—whether they generate electricity or not. This subsidy was invented by Violeta Chamorro’s government in the famous PPA contracts, which offered these companies special conditions because they were coming to invest in a “high risk” country. The contracts were signed for a 14-year period, and although we in the Network thought they were about to expire, it turns out they’ve been renewing them and signing new ones. The Network argues that private generators can’t continue acting with this kind of privilege and that given the current international circumstances—when petroleum prices just keep on rising and pushing up all other prices in the economy—there has to be an authority that can annul these contracts and make public investments in the electricity sector. We can’t depend on a mafia that’s embedded in this sector, produces increasingly expensive electricity and on top of it all wants to appropriate the concessions for alternative electricity sources, such as hydroelectric, geothermal and wind power, as they’re currently aspiring to do.

The third link is distribution

The third link in the chain is the electricity distribution, which is where the Spanish company Unión Fenosa comes in. When ENEL, the state electricity distribution company was going to be privatized, we were sold the idea that the quality of the service would be improved, that coverage would be extended and that prices would probably fall. But that was just fancy wrapping. In practice it has been quite the opposite. We’re now paying very high prices for an inefficient service, in which all these “big investors” are passing on the cost of their inefficiency to us.

Unión Fenosa came to Nicaragua in 1987-1988 to do a kind of consultancy for ENEL on its information systems and the kind of software needed to modernize them. After selling and installing new systems, Unión Fenosa left Nicaragua with all the information it needed about our system. In 1998, National Assembly legislators of all political stripes, including both Liberals and Sandinistas, voted to reform the Energy Law in such a way as to favor the privatization of distribution. The law was deliberately designed with this in mind. In 2000, the service was put up for public tender and the only company to bid was Unión Fenosa. The process should therefore have been declared null and void, but instead Unión Fenosa was declared the winner. The illusion was created that there were really two companies, Disnorte and Dissur, so it wouldn’t appear to be a monopoly. ENEL had previously established the two companies for exactly this reason, and Unión Fenosa subsequently “bought” both of them.

The state “sold” the most profitable part of the national energy sector to Unión Fenosa for just $115 million, including the whole electricity grid and all of its assets. The operation was carried out by current President Enrique Bolaños, who was both president of ENEL and vice president in the Alemán government at the time. Bolaños has acted as Unión Fenosa’s sponsor ever since the company came to Nicaragua. In fact, one of his first missions on becoming President was to travel to Spain to negotiate with the company. He told them that in just a few months he would “support” them by increasing electricity prices, which he indeed authorized after six months. The Network made a legal appeal, because establishing electricity prices is the legal responsibility of ENEL, not the President. We spent nine months in a famous trial and in the end we won. So what did Bolaños do? He ordered his then finance minister and now presidential aspirant, Eduardo Montealegre, to transfer $12 million of public resources to Unión Fenosa as a subsidy, without National Assembly authorization. But the Assembly didn’t challenge him, and the transfer went through. This money was given to Unión Fenosa as part of the proposed sale of Hidrogesa, behind which was—and still is—the group headed by Ernesto Fernández Hollman, partner of La Prensa, Banco Uno and Coastal Power, and very close to Bolaños. So many groups are related to the energy sector with their own vested interests that you never know what to expect next.

The contract with Unión Fenosa—which the Network has challenged without yet succeeding in getting INE, the Comptroller General’s Office or the other relevant bodies to review it—specifies that if the company that wins the concession is not a specialist in electricity distribution it has to contract a “suitable operator,” which would put up 25% of the capital and receive 2% of the sales revenue. But even though Unión Fenosa was in fact a specialist in distributing electrical energy, it exploited that clause to invent a “paper company” called Distribuidora de Energía de Nicaragua, which it contracted as its “suitable operator.” This invented company then simply signed off on Unión Fenosa Internacional’s actions. So without any need for it at all, this “suitable operator” has transferred over $2 million in profits to Spain up to 2003.

Unión Fenosa hasn’t extended the service
and is working with the infrastructure it inherited

Unión Fenosa was audited for the 2001-2003 period by Gaitán y Asociados at INE’s request. The Network has the executive summary of that audit, which effectively ratifies what we have been denouncing for years. In short, Unión Fenosa has not made the investments it promised, is still working with virtually the same lines, cables and conductors it inherited and has barely extended the distribution grid. Most of the lines we’re currently using date back to the Somoza era, while rotten, leaning and practically fallen posts can be seen all over Managua. The beginning of this year’s rainy season brought a series of blackouts due to the collapse of obsolete lines and transformers.

Nicaragua’s electricity coverage is among the most limited in Central American, with only half of the population connected to the national grid. Unión Fenosa says it has increased the service to 150,000 more users, but this only covers people in squatter settlements who have legalized their previously clandestine connection. In fact, in some neighborhoods or rural districts electrification was only possible due to the collaboration of the United Nations’ Development Program, CARE and Japanese and Taiwanese counterpart funds, although Unión Fenosa registered all of this as its own investment. Furthermore, it never takes population growth into account. We’re at the same point as ten years ago, with just half of the Nicaraguan population connected to the grid.

According to the audit, Unión Fenosa’s main investment has been in electricity meters. The Network has also denounced this, because they’ve installed more sensitive meters that don’t measure the real electricity consumption in the kind of houses found in Nicaragua, whose internal systems haven’t been updated. So many users have seen their bill practically double with the installation of the new meter, and not because they’re consuming more. We believe that the meters are also badly calibrated. The Network is calling for the state to regulate the meters, but the state also handed over its laboratory in a concession to Unión Fenosa. So the company imports the kind of meters it wants from wherever it wants, calibrates them itself, then installs and removes them whenever it wants. It’s the only authority regulating the whole process. The Network has demanded that a state-run or independent laboratory—the latter do exist in the country—should be available for users to check their meter.

Inefficiency passed on to the users:
A long list of illegal charges

The most serious audit finding confirms something the Network has already been denouncing: that the level of technical electricity leakage in Unión Fenosa’s distribution has not changed since it took over the service. CEPAL projected that with privatization Nicaragua should have had maximum losses through technical leakage of 15% by 2005. But Unión Fenosa still has leakage of 29-30%. The audit demonstrates that by not making investments to improve electricity distribution, 30% of the energy received from the generators is still being lost on its way to the user. Unión Fenosa, however, claims that most of the company’s losses are caused by illegal connections in squatter settlements and by big consumers who practice fraud or outright refuse to pay. From information we’ve obtained from CEPAL and even Unión Fenosa itself, we know that the losses attributable to such fraudulent practices add up to no more than 5%.

Unión Fenosa has put up billboards saying “You pay for the energy others steal.” This is a perverse propaganda campaign to get us users fighting among ourselves and take the heat off their own inefficiencies. It’s the same story with the private company in Corn Island, which hasn’t even invested in a system to turn off the streetlights, so they stay lit day and night. And of course that cost is passed on to the users when their bill arrives, even though it’s the company’s responsibility, not the users’.

In the whole of Central America, from Panama to Guatemala, technical leakage loss ranges between the acceptable rates of 8% and 10%. If this is the range in neighboring countries, why should we accept such a high level from this company in Nicaragua? Recently an official from INE—the state electricity regulatory agency now part of the Superintendence of Public Services (SISEP) following this year’s constitutional reforms—defended Unión Fenosa’s price rises to the consumer. He said that INE doesn’t care whether Unión Fenosa wastes 15%, 20%, 40% or 50% of the electricity, because it is only granted 15% for losses in the tariff. The Network challenged him: “Maybe you lot don’t care because you earn well and what you pay for electricity hardly dents your salary, but it does matter to us users because if the leakage is really 30%, that other 15% that you don’t recognize is charged to us some other way. And it also matters to Nicaragua, because that leakage means that almost 30% of the country’s petroleum bill is being wasted.”

In addition to the “suitable operator” Unión Fenosa invented, it also created four satellite companies in 2002. One is responsible for cutting off the service, another for reconnecting those cut off, another for providing certain maintenance work and the fourth for distributing the bills to the houses. The workers in these four companies have no contracts or social security benefits. They are subcontracted to do piecework, earning a certain amount for each cut-off and each reconnection. Some of them therefore get involved in all kinds of fraudulent practices, cutting deals with the users to let them off paying, allow them to pay less, make illegal connections, etc.

We demonstrated that they have been charging us for leakage and other inefficiencies through our electricity bills since 2001. We’ve gathered samples of receipts from different kinds of neighborhood and found that the bills of the lowest income consumers have increased by at least 100%, those of average income consumers by 200% and those of people who consume over 500 Kilowatts by 400%. How can you explain that someone who was paying 500 córdobas for electricity is now paying 2,000 córdobas, even though they still use the same amount and the official price has only increased by a maximum of 20% over the years in question? Either Unión Fenosa is charging us more kilowatts than we actually use, isn’t reading the meters, its meters are badly calibrated or we’re being charged for other items we shouldn’t be charged for.

The fact is that Unión Fenosa is adding many illegal charges to our bill. The item listed as “commercialization” simply means that one of the four satellite companies prints the bill and delivers it to your house. Just for doing that they charge a minimum of 30 córdobas and up to 100 córdobas in some neighborhoods. The bill also lists “public lighting,” even when your street or even neighborhood doesn’t have any. Another illegal charge is the municipal tax that companies have to pay, which Unión Fenosa also passes on to consumers in Managua and other municipalities through its bills.

And speaking of illegal charges, they’re also lying to us when they state that 70% of users—they’re now saying almost 80%—consume fewer than 150 Kilowatts/hour. Unión Fenosa started saying this and it has since been repeated by ministers, legislators, magistrates and President Bolaños, without any of them ever asking where the figure came from. But would Unión Fenosa really be in the electricity business here if so many consumers were consuming under 150 kW, which is about the amount consumed in a house with two light bulbs and an electric fan? The real figures are exactly the opposite: not 30% of users consume 150 kW/hour or less.

Complaining to Unión Fenosa has become a form of torture. No state authority currently oversees this company, which should be done because it’s a private company providing a public utility. According to article 105 of the Constitution, whether provided by a state or private company, a public service should always be guaranteed by the state to ensure that it is accessible to the whole population.

The Nicaraguan state covers
the private electricity companies’ losses

Petroleum companies, generating companies, distributors… a supply chain that ends with the state. So what is it doing? In Nicaragua at least four state entities have responsibilities for electrical energy. One of them is the regulatory body formerly called INE and now called the Energy Intendancy, following its recent move into SISEP despite the strong objections of the executive branch. The Energy Intendancy regulates the generating companies, Unión Fenosa, user rates and transmission. While it has no track record yet, its predecessor’s murky history tended to favor both the generating companies and Unión Fenosa.

Another of these bodies is the National Energy Commission, headed by Raúl Solórzano, a relic of the Somoza dictatorship in this field. Its mission is to design the country’s energy policy, but it currently acts as little more than an aide-de-camp for all investors interested in hydroelectric, geothermal and eolic electricity generation projects. The Network argues that the state should own at least 50% of any alternative energy generating company created in the country, to mitigate our dependence on foreigners who come to exploit what is an increasingly profitable business throughout the world. Solórzano, however, never talks about the state’s role. He’s one of those government officials Nicaragua has in such abundance, who oppose all public sector investment. They simply don’t understand the social function of the state, even though they’re part of it and have always lived off the public sector earning large salaries paid for with public resources.

The third state body is ENEL, the technical apparatus responsible for Hidrogesa and the Las Minas and Puerto Cabezas plants, which are all still state-run. The people from ENEL are forever doing technical studies that they never implement.

And finally there’s President Bolaños. In the month of June, when international oil prices were skyrocketing, the President announced an “economic state of emergency” to “avoid power cuts” and issued a decree increasing electricity rates by almost 12% to compensate Unión Fenosa and the generators for their losses. The President is not empowered to do this; this responsibility lies with the regulatory entity. The Network appealed to the Supreme Court, which annulled the decree, less because that was the correct ruling than because it was a handy way to jockey for political position in the ongoing institutional battle between the executive and legislative branches. In this battle, the Supreme Court is lined up behind the legislative branch, as both are controlled by the PLC and the FSLN—the two parties to the current political pact.

Soon after, the Energy Intendancy ordered a 5.98% price rise plus a 1.5% monthly increase, which in the seven remaining months of the year would amount to 13%, a little higher than the increase decreed by the President. The Network again went to the Supreme Court, which at first agreed with our argument. Immediately the generators and Unión Fenosa replied with over two weeks of a disorderly series of long power cuts to extort a favorable ruling out of the court, thus aggravating the country’s economic and social crisis. In line with Court procedures, we then arrived at a mediation process with SISEP’s Energy Intendancy, knowing full well that the Court would rule against the users, because the PLC-FSLN pact created SISEP and is obviously now going to protect it. So we offered to drop our case if SISEP promised to review Unión Fenosa’s costs in an operational audit with participation by the organized users and eliminate all illegal charges on consumers’ electricity bills. We did this to “test” SISEP, to see if, unlike INE, it’s really ready to benefit the users, as the parties involved in the pact promised us.

But oil prices keep rising and Unión Fenosa and the generators keep demanding compensation for their losses. Following the September power cuts, President Bolaños and the legislators designed and agreed to an “energy stability law” that doesn’t mention reviewing the energy chain or the costs and inefficiencies of Unión Fenosa and the generators, but continues privileging the private companies at the cost of the state. By signing this law, the executive and the legislative branches decided, among other things, to hand over the $30 million of Hidrogesa’s profits to Unión Fenosa and the generators and to index electricity prices—already indexed to the dollar—to oil prices instead.

The problem is that even if the government gives Unión Fenosa and the generators $50 million or $100 million, it’s like throwing money into a bottomless pit. Even César Zamora from the Corinto Power generator, who always talks like a Unión Fenosa spokesman, admitted in a press conference that they had already spent the $30 million they were going to receive and that this “solution” would only last until September 30. He warned that there would be more power cuts if they didn’t receive more subsidies.

The problem is that they keep on buying the most expensive fuel, the state continues paying a “power factor” whether they produce or not and they don’t maintain their plants, which results in lower, less efficient production output. Unión Fenosa should buy electricity on the Central American market if the national generators can’t supply the energy it needs, but it doesn’t do that. It doesn’t invest. It sends all its profits back to Spain. In almost any capitalist country, a company has to inject capital in order to continue if it enters into crisis; it has to negotiate, juggle prices, come up with initiatives. All companies today are affected by a global economic depression. But not here, where the state covers their losses; in short, it subsidizes them. Obviously the Network is going to appeal this law.

Unión Fenosa is looking to leave
and cash in on its insurance

How long can this absurd and irresponsible situation continue? With the newly approved “energy stability” law, how many Nicaraguans will be able to pay their electricity bills when, on top of already subsidizing the inefficiency of our thermal generators and a distributing company that squanders 30% of the energy it buys, a barrel of crude hits the $100 mark, as predicted?

We reckon that Unión Fenosa is wearing down and that we users are contributing to that by demanding that they pay us back the taxes they’re overcharging us, stop charging us “commercialization” and “unregistered energy” and calibrate our meters in another way. We’re demanding that they stop passing on illegal charges to us and extend the electricity service.

The crisis is so complex that we’re convinced Unión Fenosa is eventually going to pull up stakes, because it can’t maintain its profit levels in a country with such low wages and such an impoverished population. If no authority forces it to be more efficient, reduce its costs and lower its rates, prices will just keep on rising. Then what will people do when they can’t pay and are cut off? They’ll illegally reconnect, and when they’re found out, they’ll just do it again. I’m sure that half the people they cut off for nonpayment will find some ingenuous way to bring electricity into their house, even if just for a while. So Unión Fenosa will have to contract more people to go around checking out the neighborhoods. They’re already doing it in some areas of Managua, where their brigades patrol to make sure people aren’t “stealing” electricity.

We calculate that Unión Fenosa, which recovered its initial investment in its first three years here and has invested so little, will not invest any more in Nicaragua. We reckon that it’s already scheming to leave the country and has designed the company so it can transfer it to the Pellas Group. But before going, Unión Fenosa wants to create the right conditions to cash in on the insurance established in its contract. This is insurance for over $100 million that Nicaragua will have to pay if it decides to nationalize electricity, as many people are already demanding. We in the Network are arguing that before nationalizing, the contract conceding the service to Unión Fenosa should be reviewed to see if they honored their part of it, and cancel the contract if they have not. Otherwise they’ll demand the payment of the $100 million, which is an onerous insurance the international banks force governments to pay to transnational corporations that “invest” in our countries when they withdraw. This same kind of insurance is now also included in the free trade agreements.

With everything that’s happening—oil price rises, threatened power cuts, rising prices—we believe that the population is a bit more aware that we have to find a different solution. And the Network has also found that certain legislators also have a better perception of this issue and are more sensitive. Opinions are currently divided in Nicaragua. People who have the money to pay say, “Put up the prices; I just don’t want power cuts.” But most people, those who have little income, say the opposite: “We’re clear that oil prices are rising and electricity prices have to go up, so ration the electricity, honoring the schedule and don’t extend the power cut or cut it off twice a day. Just don’t increase our bill!”

There won’t be chaos if Unión Fenosa goes,
but we must struggle to cancel its contract

What would happen if Unión Fenosa leaves Nicaragua? It had to leave the Dominican Republic, and it will have to leave here for the same reasons. The resistance it encountered there was for the same illegal charges, the same inefficiency and lack of investment. It’s the same insensitive and inefficient company wherever it goes, with the same methods, the same procedures. When Unión Fenosa pulled out of the Dominican Republic, it left the grid disarticulated. The government there is still sorting it out.

But there won’t be chaos when Unión Fenosa leaves Nicaragua. Its personnel is practically the same as worked at ENEL before privatization. What’s more, most of the INE officials are Unión Fenosa officials , particularly since the Spaniard who acted as the company’s first manager left. He was ordered from Spain to include more Nicaraguans, because he had 50 Spaniards living in hotels earning $8,000 a month. Nicaraguans now manage the system and they know how it operates. We shouldn’t worry; it won’t be chaos if Unión Fenosa goes; we’re on the brink of chaos with them or without them. If Unión Fenosa goes, only the top leadership will leave; the rest will remain the same.

The struggle to cancel the contract is feasible. It’s an idea that has to be floated, popularized. Unión Fenosa isn’t even loved by its own workers. The unions are afraid of it. The Network can’t even get a meeting with them, because we have a reputation for obtaining information wherever we go—we even surprise Unión Fenosa with all the information we have. The workers have been organized in such a way that a worker on level A doesn’t know what workers are doing on level B or level C. The work process has been segmented so that the workers don’t know any more than they strictly need to.

How will those in power respond
to the electricity crisis?

The Network believes that in 2006, an electoral year, we have to demand that the presidential candidates clearly state what commitments they will assume regarding the country’s energy problem. We have to demand that they nationalize electricity, or if not, that distribution follow the Panamanian model, where there are five distribution companies instead of one monopoly. We also have to be assured that the state will invest in other companies that will start to cover determined areas.

It is alleged that the state will be inefficient. But what we’ve seen in Nicaragua is that it’s better to have public services in state hands than in the hands of transnationals and inefficient private companies, as the only thing they can be counted on to do efficiently is turn a profit for themselves. State companies operate well if there is the political will to administer public services well, if the officials are civil servants who do their job properly, have plans and goals, and bad ones are shown the door or prosecuted if they embezzle public funds. But to achieve all this, the users and consumers have to be organized. Making the state work well is a challenge for its citizens, and it can go either way. In Costa Rica, the state has assumed the public services and they work well. In New Orleans, on the other hand, the US public services responded very poorly to Hurricane Katrina. Many countries have experienced good public management and we have to learn from them. I think that we in Nicaragua face many challenges in this regard, but we have enough people willing to commit themselves to making the state function well.

The problem is not so much that Unión Fenosa might go. The underlying problem is what those in power today are going to do in response to the crisis in our electricity system. All countries are immersed in a great neoliberal wave, and our country has a great disadvantage: “big business” is so underdeveloped, so shortsighted, so parasitic, that it’s almost impossible to sit down with them and draw up proposals with a national vision. Most are willing to sell their business, concession or license to the first transnational that turns up. In addition, some of our legislators are linked to the groups involved in generating or transmitting electricity and to transnational projects aimed at nationalizing our water.

The struggle to regulate water

Water is as crucial as electricity. We’ve managed to create a more complex level of awareness about this issue and there are now more critical voices, as well as proposals. As a result, we have so far been able to stop the privatization of water. We’ve been fighting privatization for three years now and there has been some capacity to react. There’s a certain resistance movement that we believe is going to grow.

Our struggle began when the Network presented a general bill on water. Legislator Jaime Morales Carazo, who heads the National Assembly’s Environmental Commission, reacted positively and called us to present our points of view. We’ve had many meetings in which the commission members have been receptive, if not to the entire bill, at least to a number of our suggestions, which they have used to adjust their own draft.

Our bill wasn’t what the legislators were expecting. They thought we’d only make demands around drinking water, but our proposals were broader. We proposed that the first thing that needs to be done in Nicaragua is to protect all of our water resources: the watersheds, all our bodies of water and also our underground water sources. Nicaragua has a lot of water, but most of it is already contaminated or well on the way. Moreover, we’ll become a desert in less than 20 years if our current levels of deforestation and lumber trafficking, as well as the aggressive agricultural practices of our peasants and the extension of the agricultural frontier all continue.

We also proposed the creation of a water authority whose attributions include regulating water use, reversing the contamination processes and protecting the use of subterranean waters. The following example provides an idea of the current disorder in this area. The Parmalat dairy company, the Victoria brewery and Coca-Cola have sunk a number of wells to extract water, bottle it and sell it. They have no authorization or licenses from anyone. It’s proving to be more profitable than their original businesses and the bottled water they are now selling is more expensive than beer, soft drinks and milk. And they haven’t paid any money for those “private” wells that should have been nationalized. At the same time, they’ve left several communities in Managua’s eastern neighborhoods without potable water.

The bill also contemplates that regulating the use of bodies of water should involve a feasibility study to determine what the water in question can be used for, establishing a list of priorities always headed by human consumption. This would make it impossible to authorize irrigation or hydroelectric generation or any other water use in the area if it would mean depriving certain communities of water. The studies should also guarantee that there will be no environmental damage. In addition to doing all of the studies and establishing the appropriate permits, we also argued that the state should own at least 70% of the country’s hydroelectric generation.

Some of these proposals were left out of the bill the legislators gave their overall approval to, but what they have approved will allow the state to exercise greater control than in the past. The law contains five or six articles that still seem quite dangerous to us and which we need to keep lobbying against before the article by article debate and final passage. The Network is struggling against these articles but also pushing to get the law definitively passed before the National Assembly ratifies the Central American Free Trade Agreement with the United States, to ensure that CAFTA can’t be used to privatize water.

Electricity and water are two very profitable resources and it’s no coincidence that transnationals come to our country to take them over. But there’s still time. We Nicaraguans still have enough resources to forge our own truly national electricity and water strategy. What we need are rulers and a political class with another kind of attitude and commitment to Nicaragua. We need social organizations that fight, lobby, inform themselves and make proposals. We still have the chance to avoid a tragic future for Nicaragua, to produce cleaner and more sustainable electricity, to guarantee abundant water. And any country with water and electricity will be in a very advantageous position in the globalized world in which we are already living.

Ruth Selma Herrera is coordinator of Nicaragua’s National Consumer Defense Network.

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