ENEE to be privatized

At the very end of its term, the out-going Congress in Honduras passed a law Monday mandating that no later than June, 2015, the Empresa Nacional de Energia Electrica must be taken private.

Well, semi-private.

The law has two main thrusts.  It first creates the Comision Reguladora de Energia Electrica (CREE) a commission to regulate the newly created electricity marketplace in Honduras.

CREE will be situated in the Superministry of Strategic Planning, but the law designs it to be semi-independent, with its own budget and technical resources.  It will be charged with setting up a free market electricity marketplace for Honduras.

The legislation enables private companies to build competing transmission and distribution systems.  Emil Hawit, current head of ENEE, says that this energy marketplace will result in lower electricity prices for Hondurans

The new law also mandates that the Empresa Nacional de Energia Electrica be broken up into three private companies:  one charged with competing in the power generation market, one charged with running the current power transmission system and electrical grid, and a third overseeing the distribution of power to customers.

Each company will be given its own shares, but the government will continue to own all the shares for at least the next 30 years.  Current ENEE employees will be assigned to one of the three companies based on their duties.

Much of Honduras's high electricity price is based on the ridiculous energy contracts ENEE signed with Honduran power generators, contracts that had ENEE buying all of the fuel oil used to generate power, and still paying a premium for the power generated with that oil.

Hawit did allow that Hondurans will have to pay the real price for electricity, suggesting that the new law might also end subsidies for light users: people with low energy consumption.

So on the macro-level, costs may come down; but with private companies and shareholders expecting profits, there may well be greater impact on the most vulnerable users of electricty.

Welcome to the world the Hernández administration wants to promote: the rush by the outgoing congress to pass legislation before the more diverse legislative body comes in is giving us a much more transparent view of his vision than anything he or his transition team has had to say.

Another Questionable Power Deal?

On February 12 Emil Hawit, the head of the National Electric Company (ENEE in Spanish), and Porfirio Lobo Sosa signed a letter of intent with the Spanish company Isofotón, to construct a 50 megawatt photovoltaic power station in Honduras.

The powerplant is supposed to be expandable to 150 megawatts.  The investment needed to make this happen is estimated at $200 million dollars.  The location of the proposed power plant was not announced, but is said by the press to be somewhere in the south of the country in Choluteca.  Hawitt told El Heraldo

 "they've been working on locating the right place and gave me the required information in meetings held at ENEE."

Juan Orlando Hernandez told Congress that an important agreement had been signed for the construction of a solar power plant in the south of the country as part of the reborn model cities initiative.

Hmm...model cities initiative in Choluteca.  That should sound familiar to our readers.  Choluteca is one of the three locations mentioned in every discussion of model cities in Honduras.

Isofotón is a privately owned company and as such releases no financial information.  The Affirma Business Group owns 80 percent, and a Korean company called TOPTEC owns the other 20 percent.  TOPTEC, a specialist in industrial automation, reportedly already has an office in Honduras.

But Isofotón is in financial hot water.  According to PV Magazine, which covers photovoltaic markets, it is contemplating bankruptcy filings.  It has told Spanish government officials that it has begun negotiations to refinance its debt.  A Madrid law firm has set up a web page soliciting Isofotón's creditors to represent their interests in insolvency proceedings against Isofotón.

In 2009, Isofotón's sales dropped 83%.  It had three different CEOs in less than a year.  Then in 2010 it was acquired by Affirma Energy Engineering and TOPTEC.  Its profits have dropped from a high of 10 million euros to less than 5 million this year.  Meanwhile in Spain Isofotón has responded to three days of protests by its employees threatened with layoffs by announcing that on March 5 it will release the terms under which it will lay off 380 of its 600 Spanish employees.

It is currently building a manufacturing plant in Toledo, Ohio, scheduled to open in July, and in February partnered with China National to acquire minority share in Tianjin Lishen Battery Co. to build solar panels in China.  At the same time as Isofotón announced the Honduras deal, it announced a new partnership to build a photovoltaic manufacturing line and polysilicon plant in Kazakhstan.

Isfotón CEO Angel Luis Serrano told Bloomberg:

We want to increase manufacturing capacity and that will happen in the United States, China and Latin America rather than in our plant in Spain.

Its Latin American presence is limited. In addition to Honduras, Isofotón signed a memorandum of understanding with the government of the state of Yucatan in Mexico for a 150 megawatt photovoltaic generation plant to be built starting in 2014.

As with other proposed investments in power generation in Honduras, this deal seems rocky from the start. Where will this $200 million investment in Honduras come from?

Reading between the lines, Isofotón is depending on the Honduran government to act as intermediary and connect it with either governmental, NGO, or private money interested in actually investing in the project.  It does not have access to the funding to build the plant on its own. We aren't quite in the position of concluding this is another questionable power deal-- but we certainly can raise the question: is this another deal doomed to fail?

Westport Out

Westport Finance LLC has finally been acknowledged by Emil Hawit, head of ENEE as not having complied with the contract.  He will therefore take the legal steps to terminate the contract.

Hawit found that there was no electricity emergency, as had been declared when the contract was rushed through; that repairs to the transmission lines more than mitigated the losses they were seeing.  He said that even after the contract with Westport was signed, the company was never in compliance with it.  The only step they took was to pay the bond required by the contract, and they did not heed the instructions contained in the contract about how to do that, or do so in the time stipulated by the contract;  The bond was returned to them.

Hawit told El Heraldo:

We have arrived at a legal procedure which will rescind the contract with no liability to ENEE.

Westport Energy Contract Update

This is an overdue update on one of the many dicey energy contracts that blossomed in the wake of the 2009 coup.

Back in November, 2011, the then-head of the Empressa Nacional de Energia Electrica (ENEE), Roberto Martinez Lozano entered into a contract with Westport Finance LLC, and Ira Ginsburg as its legal representative, for the installation of emergency power generation capacity totaling 100 megawatts for 16 years. 

It was a lucrative contract for Mr. Ginsburg, if carried out, and he stood to make a ton of money.  Martinez Lozano said Westport Finance LLC was backed by the Finnish energy equipment company Wartsila. Westport Finance LLC is run out of Ira and Carla Ginsburg's home in Westport, CT.  The full contract is available on ENEE's web site here.

Shortly after the contract was signed, approved by Congress, and published per Honduran law, Martinez Lozano was dismissed as head of ENEE.  It turned out that Martinez Lozano had lied about one of the steps necessary for the contract to be approved by ENEE prior to its submission to Congress.  The contract was never properly approved by a majority of the directors of ENEE when a quorum was present.  To date it still has not be properly approved.

When contacted in February, 2012 by a blogger in Westport, CT, Ginsburg said:

Politics in Honduras are unique.  My contract is in full force and effect.  The Minister of Energy's problems pre-date the negotiation of my deal, in 2009; they go back several years.  Honduras is ruled by an oligarchy of three families.  They own 100 percent of power generation and all the newspapers.  The fact that a power company from outside the country came in -- they don't like that.

Yikes.  Westport Finance LLC was founded in 2009, and began negotiating for a Honduran energy contract in its first year of business?  Was that pre- or post- coup, we wonder?

Westport Finance missed every milestone in the contract, and appears to have done nothing since the signing.  The new head of ENEE, Emil Hawit, told the press on April 23 that Westport Finance LLC had attempted to file the financial guarantee with the Honduran government, but it was returned because it didn't meet the legal requirements: it didn't follow the template attached to the contract. 

Hawit also told the press on that day that sometime prior to April 23 he had notified Westport Finance LLC in writing of their non-compliance.  Under the terms of the contract, Westport has until one month after notification to begin remediating all the non-compliant issues, and if they do, up to two more months to come into full compliance with the terms of the contract.  Otherwise, if Westport does not begin correcting its compliance, two months after notification, the contract is terminated.

As of today, there is no indication that Westport has done anything to come into compliance with the contract terms. Depending on when, exactly, Hawit notified them that their contract was non-compliant, the one-month clock should be getting close to running out. It should be an interesting couple of weeks.