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Posted September 06, 2005 by Cubana in Castro's Cuba

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Los Angeles Times: September 3, 2005

Faced with sporadic unrest prompted by blackouts in the sweltering summer, Castro pledges to update the antiquated system.

By Carol J. Williams, Times Staff Writer

MIAMI ó Cuba appears to be limping out of its worst season of blackouts since the collapse of the Soviet Union, but its economy may be in its strongest state in decades to address the crisis, analysts and experts said.

Beset by unusual protest during a sweltering summer, President Fidel Castro has pledged to invest $250 million from booming tourism and nickel ore revenue into the power system, and has entered into generous deals with China and Venezuela aimed at averting collapse of an obsolete and inefficient generation and transmission system.

Across the island, Cubans this summer weathered temperatures in the 90s and stifling humidity without lights, baseball game broadcasts or their daily escape of soap operas.

Cuba watchers, meanwhile, are reading the crisis for its potential effect on the 79-year-old Castro’s hold over the country.

“The Cuban population is exasperated with frequent and lengthy blackouts, increasing epidemics, growing transportation breakdowns and the inability of the Castro government to provide meaningful responses to these and other critical problems,” said an August report of the Cuba Transition Project, a working group at the University of Miami’s Institute for Cuban and Cuban-American Studies. The report was based on conversations with residents of Cuba and recent visitors to the island.

“Reports of sporadic demonstrations and anti-government graffiti are surfacing throughout the island,” the report noted.

After two months of almost daily blackouts, the Cuban Politburo member heading the Ministry for Basic Industries, Yadira Garcia Vera, acknowledged in a televised address in July that the national power system was “weak” and outages were likely to continue through summer.

“We fully understand the complexities this presents for families, for the economy and for the country,” she told Cubans. Garcia’s predecessor was fired after a similar spate of blackouts last year.

Few outside Castro’s inner circle know whether the Cuban government can afford to make the investments needed to improve power supply or expand domestic oil production, said Kirby Jones, head of the U.S.-Cuba Trade Assn.

“But they’re seeing as good days as they’ve seen in a long time. Tourism is up. Nickel income is up. Biotech, rum, cigars ó everything is up,” Jones said of the Cuban economy, which grew 13% last year and is expected to expand 5% this year.

Castro’s $250-million pledge, announced in July, will go toward the purchase of large oil-fired generators from Denmark, Spain and Germany, and improvements to 10,000 miles of power lines that experts say lose an estimated 22% of their supply en route to consumers.

Castro also has been ordering spot repairs and conservation measures such as the importation of energy-efficient rice steamers, pressure cookers and lower-wattage light bulbs from China.

But economic analysts contend those moves are merely symbolic. Billions will be needed to replace an electricity network of aging Soviet-bloc equipment ineptly operated since Moscow ceased supplying cheap fuel oil, they say. Cuba’s high-sulfur domestic heavy crude, substituted for Russian oil since 1994, has corroded machinery and parts in its seven major generation plants that can’t be replaced because the Czech and East German suppliers went out of business after the overthrow of communism.

“It’s the Achilles heel of the whole system,” said Jorge R. Pion, a retired oil industry executive who wrote an extensive report on Cuba’s energy crisis for the Transition Project. “As long as they keep burning crude oil, they’re going to collapse the system.”

Venezuela has been providing as many as 90,000 barrels of oil a day to Cuba under a deferred-payment scheme that shields the impoverished economy from record oil prices, but has added another $3 billion to the island’s international debt, Pion said. The U.S. State Department estimates Cuba has a hard-currency debt of $11 billion.

The summer’s crisis, however, may have laid bare Castro’s previous promises from the three-year-old Venezuela deal, as well as his prospects for Chinese investment in oil exploration.

“The Cuban government was saying that with this great relationship with Venezuela and investment from China, things are going to be great,” said Dan Erikson, a Cuba specialist at the Inter-American Dialogue, an independent think tank in Washington. “But you have outages as bad or worse than before and this has created discontent.”

Mismanagement of the power network has also angered Cubans, he said, describing the level of public complaining experienced during a visit earlier this year as having reached “fever pitch.”

“There’s an incompetence role in this, not just the [U.S. trade] embargo and the traditional woes of the Cuban economy,” Erikson said. “It’s been an embarrassment for the Cuban government.”

Apparently spurred by the sporadic outbreaks of unrest, Castro has recently moved the power supply issue to the top of his agenda, vowing an end to blackouts in part by increasing electrical output by a third by next year.

Bandes, Venezuela’s development bank, announced in early August it would lend Cuba $20 million to upgrade its distribution network, but made the use of Venezuelan contractors a condition of the loan. That sum is less than half of what Bandes estimates the first phase of transmission modernization will cost.

Meanwhile, Petroleo de Venezuela, the state-owned oil company, is working with Union Cubapetroleo, or Cupet, to improve the quality of oil fed to the power plants to halt their deterioration. The Venezuelan company and Cupet also have been weighing whether to finish and modernize the Soviet-built Cienfuegos refinery to process Cuban crude and take in foreign shipments amid an international shortage of refining capacity.

There are prospects for a major oil find in Cuba’s exclusive economic zone in the Gulf of Mexico, but it will still be years before the current energy crisis is alleviated.

In the 13 years since Cuba began allowing foreign contractors to explore its fields, nearly $2 billion has been invested, boosting oil production from 18,000 barrels a day in 1992 to 75,500 barrels a day last year, Pion noted.

But that is less than half the 180,000 barrels a day Cuba consumes. A Rice University report predicts the island will need 349,000 barrels a day by 2015.

In February, China sold Cuba three directional drilling rigs and signed a production sharing agreement with Cupet to explore further onshore and coastal areas. Spain’s Repsol has joined with Norway’s Norsk Hydro to spend $40 million next year to explore a promising Gulf of Mexico deposit.

It remains to be seen whether international oil companies with deep-water drilling expertise will conclude the effort is worth what could amount to a $3-billion investment. A February U.S. Geological Survey report on possible undiscovered deposits in the North Cuba Basin estimated 4.6 billion barrels of oil ó and possibly as much as 9.3 billion barrels ó could be in the region.

The prospect of Cuba as a potential oil exporter would have important economic and political consequences ó not the least of which is whether Washington would permit U.S. companies to enter a market that could otherwise involve nations competing with the United States for limited oil supplies.

“The prospect of an oil platform 60 miles off the U.S. coast with a Chinese flag on it ó I want to see that,” Jones said.

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