Many energy investors are interested in Latin America due to its great renewable energy potential and its relatively untapped markets. Good governance in the energy sector – a government’s ability to ease the flow of investment, and its capacity to handle resources and finances of projects transparently – is a key factor in determining a country’s readiness for renewables. It is not only a matter of getting the money from international and national funds, but also of using funds wisely and directly for the benefit of the population. Many populations suffer from a lack of electricity, and these projects are a way to improve energy services, leading to jobs and better futures. Governance has been an obstacle for renewable investment in many LAC countries, which are well-known for corruption.
The question is, are these governance issues natural and somehow a part of Latin American culture that cannot change? This theory is somehow accepted by many Latin Americans due to their own everyday experiences, plus some well-known scandals involving former presidents and high level authorities of the region for being prosecuted for money laundering and illicit enrichment. The UNDP has found some factors that explain why governance issues, such as corruption, happen in the region: the lack of transparency in a country’s performance, the perceived weakness of a government to implement policies and enforce the law, high insecurity and criminal rates, and unequal distribution of wealth.
According to Transparency International’s Corruption Perceptions Index (CPI) which measures perceived corruption of countries on a scale from 0 (highly corrupt) to 100 (very clean), the majority of LAC countries score below the regional (40.08) and global average (43.26), showing that LAC countries have a higher level of perceived corruption compared to the rest of the world. Heading the study are Haiti, Venezuela and Paraguay, as the region’s three most corrupt countries; leaving Chile, Uruguay and Bahamas as the least corrupt governments in the region.
Various institutions around the world have been researching and applying what they consider the best way to deal with governance issues resulting in interesting case studies, like those Brazil, Dominican Republic, and Panama presented below; showing that there is a way to provide a legitimate transparent environment in which the public can track government activities and investments. Ideally, the successes of these countries can be adapted to respond to energy sector corruption and transparency challenges across the LAC region.
Porto Alegre, Brazil
Documented by UNESCO, Porto Alegre’s “Participative Budget” system, launched in 1989, involved the city’s population in the budget process through debates and consultations on the amount of government income, expenses, and investment across numerous sectors. The first priorities were basic sanitation and sewerage, as well as urban development and education. As a result, 65,000 additional households had gained access to water supply by 1995, sewer system coverage was up to 85 percent of the population by 1996 (from 46 percent in 1989), an average of 25 to 30 km of streets were paved each year, and enrollment in elementary and secondary schools doubled (as well as improved quality) between 1988 and 1995.
In some cases, technology solutions can help to minimize the ease of corruption. In 2008, the Dominican Republic launched a smart meter program – which automatically sends power consumption data from the customer to the utility – in order to improve an electricity system on the brink of financial collapse, plagued by electricity theft, nonpayment, and rolling blackouts. Unfortunately, the smart metering system did not initially reduce corruption since the utility failed to act on the data. Once the utility’s management was replaced, the project was restarted and the results were more optimistic, recovering the initial cost of the project in just seven months. The Dominican Republic’s example demonstrates that it not only takes technology to attack corruption but also the will of people to change and behave according to the law.
Enacted by Panama’s government, Law 44 aims to promote wind power by diversifying the country’s energy mix. Law 44 asks for exclusive wind power purchase tenders for long-term, especially for contracts up to 15 years, in order to provide a stable stream of electricity and constant revenue for developers. The law offers fiscal incentives so as to encourage a more competitive energy market for the development of wind power. By the end of 2011, the year when the law was enacted, Panama successfully established its first and highly competitive wind power energy tender, auctioning 121 MW for a 15 year period (2014-2028).
The transparent path
Based on case of studies like the ones presented above, and “The Cost of Corruption” report from the World Bank, some key factors that reduce corruption and that can be adapted to the energy sector, specifically renewable energy projects, include:
- Promoting transparency in general, to provide citizens the tools to make their voices heard and gain attention for their particular energy needs in order to provide the most adequate solutions;
- Monitoring progress on governance and project development and performance by allowing measurement data and indicators available for the people; and
- Allowing open and transparent private sector competition for the development of new renewable energy projects.
The Latin American and the Caribbean region are a fertile soil for the development of renewable energy projects; however, the governance issues that threaten the sector currently pose a barrier to healthy implementation. Following a more transparent path will allow these countries to access local and international support for renewable energy projects and therefore seek a more financially and environmentally sustainable future.
Benjamin Heras is a research intern with Worldwatch’s Climate and Energy program.