23-08-02 Historically, Uruguay has had one of the strongest and most stable economies in South America, but is now experiencing difficulties due to problems in neighbouring Argentina and Brazil. Uruguay has no significant energy production except for some hydroelectric power generation. Natural gas will soon play an important part of Uruguay's energy sector when several pipelines from Argentina come on line.

Uruguay is a highly urban country of about 3.4 mm people, nearly half of whom reside in greater Montevideo, Uruguay's capital and largest city. Uruguay ranks among the highest in Latin America in literacy, education, provision of social services, and political cohesion. Uruguay is a full member of the MERCOSUR common market with Brazil, Argentina, and Paraguay (Chile and Bolivia are associate members). Jorge Batlle of the right-of-centre Colorado Party has been Uruguay's president since March 2000.
Historically, Uruguay has had one of the strongest and most stable economies in South America, withaverage real gross domestic product (GDP) growth of 4.2 % from 1992 to 1998, and with a high investment grade rating. In recent years, however, Uruguay's economy has struggled, with market reforms moving ahead slowly at best.

Meanwhile, Uruguay's economy has been adversely affected by serious problems in its two much-larger neighbours, Brazil and Argentina. In recent months, Argentina has experienced significant economic, social, and political chaos, while concerns have grown about Brazil as well. Combined, the turmoil in Argentina and Brazil has now spilled over these countries' borders and has caused serious problems in Uruguay's economy.
Among other issues, Argentina's debt default and currency devaluation have increased pressure on Uruguay's currency, causing a severe (about 80 %) decline in foreign reserves as the central bank attempted to defend the currency (Uruguay now has moved to a flexible exchange rate system).

Also, Uruguay's merchandise exports have fallen sharply due to mainly to the problems in its giant neighbours. In early August 2002, the United States lent Uruguay $ 1.5 bn on an emergency basis to help stem a run on Uruguay's banking system, following which the Inter-American Development Bank approved a $ 500 mm loan and the International Monetary Fund (IMF) agreed to increase Uruguay's 2002 standby credit agreement by nearly $ 500 mm.
Combined, these measures appear to have helped Uruguay somewhat, but the country still faces serious economic problems, including a sharp increase in unemployment (to 15.6 %), a continued fall in the peso, a decline in tourism, and a continued exodus of Argentine funds from Uruguayan banks. In the midst of all this, Uruguay's Economy and Finance Minister, Alberto Bension, resigned on July 22 and was replaced by Alejandro Atchugarry two days later. Shortly thereafter, President Batlle also replaced the head of the country's central bank.

The public sector in Uruguay is unusually large, having avoided the wave of privatisation that swept its neighbours in the 1990s, but the country has begun some reforms. Alberto Bension stated in February 2001 that "free competition" would be a government priority. In addition to the government's privatisation plans in the energy sector, privatisation activities in recent years have included concessions for cellular telephone networks, a container terminal at the Port of Montevideo, a major private toll road between Montevideo and the resort town of Punta del Este, and a new $ 40-mm airport for Punta del Este.
Partial privatisation of the state telecom company Antel as well as the national railroad, can now proceed as a result of the February 2001 referendum. Uruguay may pursue the alternate strategy of developing private-sector competitors for the state-owned monopolies. A $ 1-bn, 22-mile bridge -- the longest of its kind in the world -- between Buenos Aires, Argentina, and Colonia, Uruguay, is planned. This would further open up Uruguay as a major trade and transit centre between Argentina and Brazil.

Energy
Uruguay has no fossil fuel resources and only a small amount of hydroelectric power (compared to its neighbours), and thus relies heavily on imports to meet its energy needs. About 57 % of total energy consumption in 2000 came from imported sources. The possibility of building more hydroelectric dams is limited, as Uruguay's rivers already are highly utilized. Energy integration is on the rise throughout the "southern cone" region of South America, with the use of natural gas in particular increasing rapidly.

Oil
Uruguay has no known oil resources, and must import the 43,000 bpd it consumes. ANCAP owns Uruguay's only refinery, the 37,000-bpd La Teja refinery in Montevideo. In April 2001, it was reported that Uruguay was planning to invest $ 160 mm at La Teja in order to boost refining capacity to 50,000 bpd.
The oil sector in Uruguay is controlled by ANCAP (Administracion Nacional de Combustibles, Alcohol y Portland), the state oil company. As of 2001, Uruguay's government reportedly was considering ending ANCAP's monopoly on the downstream and refined product markets.
ANCAP is active abroad and also announced in January 2002 that France's General Company of Geophysics (CGG) will conduct seismic studies of Uruguayan waters near the border with Brazil in order to determine hydrocarbon potential in the area. The study is expected to be completed by mid-2003.
In general, ANCAP is seeking associations with foreign oil companies in order to help find new oil reserves as well as to lower gasoline prices which are amongst the highest in Latin America. In July 2002, ANCAP purchased 700,000 barrels of Russian Urals oil in preparation for shutting down the Teja refinery as part of its plan to increase capacity there. The refinery is expected to be back online by the end of 2002.

Natural gas
The role of natural gas in Uruguay's energy sector is expected to grow over the next few years. Approximately 850 MW of new gas-fired generating capacity is expected to be installed in Uruguay over the next 10 years. Present plants using oil are to be converted to dual use (oil and gas).
Natural gas is to come from new pipelines linking gas-rich Argentina to Uruguay, including the $ 170 mm Cruz del Sur ("Southern Cross") line being built to enhance natural gas trade between Argentina, Brazil and Uruguay.
The first natural gas pipeline connecting Argentina and Uruguay was inaugurated in late 1998, running from Entre Rios, Argentina, to Paysandu, western Uruguay, where a large power plant is planned. This $ 8-mm, 12-mile pipeline started with a volume of 4.875 mm cfpd, with a potential to double throughput. Argentina's Techint handled the construction of the pipeline, while distribution will be handled by Sempra Energy of the United States and Union Fenosa of Spain. ANCAP has rights to a 45 % stake in the distribution.

Substantive work began in March 2001 on the $ 170-mm, 176.5-mm cfpd, Cruz del Sur gas pipeline that will link Argentina with Uruguay and Brazil. The main market will initially be Montevideo. The gas will be supplied from Argentina's western Neuquen basin and southern Austral basin fields.
This pipeline is part of a 681-mile line from Buenos Aires, Argentina to Porto Alegre, in southern Brazil, and represents a design-construction-operation concession agreement with Gasoducto Cruz del Sur, a consortium comprising British Gas (40 %), Pan American Energy, itself a joint-venture between BP Amoco and Bridas Energy of Argentina (40 %), and ANCAP (20 %).
Cruz del Sur will provide energy to residential, industrial and commercial consumers as well as to power plants. According to the agreement, National Electric Power Generation and Transmission Administration (UTE) will purchase natural gas from this pipeline for the next 15 years. Other investments totalling approximately $ 961 mm will eventually extend the gas network throughout Uruguay. Another $ 67-mm pipeline will be built by a Skanska-led consortium from Colonia to Montevideo by February 2002.

Argentina's Transportadora de Gas del Sur (TGS) announced in February 2000 that it had reached an agreement with British Gas and Pan American Energy to build, operate, and maintain a $ 20-mm gas pipeline to supply Uruguay and southern Brazil with Argentine gas.
The pipeline will connect with the Gasoducto Cruz del Sur pipeline, running about 25 miles (40 km) from Buchanan to Punta Lara, with an initial capacity of 2 mm cm (about 71 mm cfpd). Capacity could be expanded to reach 18.5 mm cmpd (about 653 mm cfpd). The pipeline is expected to begin operations in 2001/2002.
Plans call for Gasoducto eventually to extend its pipeline to Porto Alegre in southern Brazil, located some 540 miles north of Montevideo, at a cost of about $ 500 mm, of which Bridas already has invested $ 200 mm in initial construction. This major pipeline is part of broader trends in the Southern Cone-wide gas market:
-- increased privatisation and deregulation;
-- a need for clean-burning, reliable fuel supplies;
-- increasing cross-border cooperation; and
-- a growing web of pipeline projects.
Overall, the Southern Cone's natural gas industry is poised for unprecedented growth that will limit these economies' exposure to the volatility of world oil prices.

Presently, Gaz de France, through its subsidiary Gaseba, controls the gas distribution of greater Montevideo. In December 1999, the Conecta consortium including Union Fenosa, Sempra Energy, and ANCAP won a 20-year contract to distribute gas in Uruguay. The consortium's investment in the project over a 5-year period is expected to be in the $ 150-$ 200 mm range, with plans to distribute gas to 770,000 potential customers outside of Montevideo.

Electricity
Uruguay's power generation capacity currently amounts to about 2.2 GW. Uruguay's main source of electricity comes from hydroelectric plants. Uruguay's remaining electricity generation comes from oil and diesel, as well as a small amount from coal and firewood.
Uruguay has four dams producing hydroelectric power:
-- Gabriel Terra Dam (148-MW capacity);
-- Baygorria Dam (108 MW);
-- Constitucion Dam (333 MW); and
-- the Salto Grande Dam, shared with Argentina (total capacity of 1,890 MW, of which Uruguay is allotted 945 MW).
Electricity had to be imported in 1999 and into 2000 as a drought reduced hydroelectric power supply. This drought continued into 2000, and UTE had to absorb the bulk of increased energy costs. UTE controls and supervises all Uruguayan power companies, and coordinates the integration of the sector. This includes coordinating and supervising the expansion and operation of the country's generation, transmission and distribution systems.

Despite the country's current economic difficulties, Uruguay's electricity consumption is expected to grow over the next decade. The National Interconnected System (SINU) has a 500-kV system linking up the hydroelectric generators in the central part of the country with all the southern areas, where more than 60 % of total demand is located. According to the Regional Electrical Integration Commission (CIER), in 2000 there were 2,118 miles of 100-160 kV high-tension lines and 478 miles of greater than 450 kV high tension lines. Uruguay has one of the highest rates of electrification (95 %) in Latin America.
The use of natural gas in electricity production will rise dramatically in the future. State planners estimate that companies will add some 850 MW of new gas-fired generating capacity in Uruguay over the next 10 years. According to an agreement signed with Argentina and contractors Pan-American Energy (BP) and Wintershall Energy (of Germany) in late 2000, UTE will purchase 61.8 mm cfpd (1.75 mm cmpd) natural gas from the Cruz del Sur pipeline to generate electricity at its 360-MW Batlle y Ordonez plant and 226-MW La Tablada plant over the next 15 years. In March 2002, UTE announced that it had prequalified four international consortia to build a $ 170 mm power plant that will utilize natural gas sent by pipeline from Argentina.

Uruguay has begun integrating parts of its transmission network with neighbouring countries and is promoting a series of transmission and generation projects intended to make the country a key link in the growing trade in electricity between Brazil and Argentina. Interconnection with Argentina's electric system -- with a capacity to handle up to 2,000 MW -- has been in effect since 1974, and Uruguay often exports electricity to its western neighbour, though it imported electricity from Argentina in 1999 and much of 2000.
In January 1997, the presidents of Uruguay and Brazil signed an agreement which would allow the interconnection of the power grids of both countries. Presently there is a 60-MW converter station in Uruguiana, Argentina, which Uruguay uses for its limited exports to Brazil.

In June 1997, the Uruguayan Parliament approved legislation liberalizing the generation and commercialisation of electricity and allowing independent power producers to generate power. Uruguay willmaintain the state monopoly company, UTE, for transmission and distribution, while it prepares the company for possible associations with national and foreign private capital.
UTE also has the option of taking 40 % stakes in any new power plants built by private developers. Uruguay's executive branch will have the responsibility to determine maximum tariffs for the generation, transmission and distribution of electricity. Another important law provides for the creation of a new non-governmental institution called ADME, the electrical market administration, which will control Uruguay's electrical wholesale market.
The executive branch will give ADME authorization to negotiate with UTE on the distribution of energy throughout the national grid. ADME will have the chance to purchase UTE's energy distribution facilities to carry out these services. The February 2001 referendum allowed laws to go into effect that will permit federal ownership of the public electrical infrastructure of certain municipalities. Uruguay's energy laws prohibit the use of nuclear energy.

Country overview
President: Jorge Batlle (since March 2000)
Independence: August 25, 1828 (from Brazil)
Population (July 2001E): 3.4 mm
Location/size: Southern South America, bordering the South Atlantic Ocean, between Argentina and Brazil / 68,500 sq miles-25 % larger than New York State
Capital: Montevideo
Language: Spanish
Ethnic groups: White 88 %, mestizo 8 %, black 4 %
Religion: Roman Catholic 66 %, Protestant 2 %, Jewish 2 %, non-professing or other 30 %
Defence (8/98): Army: 17,600; navy: 5,000; air force: 3,000; paramilitary forces: 920

Economic overview
Minister of the Economy and Finance: Alejandro Atchugarry
Currency: Uruguayan peso
Market exchange rate (August 14, 2002): $ 1 = 25.0 Uruguayan pesos
Gross Domestic Product (GDP, 2002E): $ 13 bn
GDP per capita (2002E): $ 3,808 real
GDP growth rate (2001E): -3.1 % (2002E): -10.0 %
Inflation Rate (2001E): 4.4 % (2002E): 23.0 %
Unemployment rate (December 2000E): 14.4 %
Major trading partners: Brazil, Argentina, European Union, United States
Merchandise exports (2002E): $ 1.95 bn
Merchandise imports (2002E): $ 2.37 bn
Merchandise trade balance (2001E): -$ 0.9 bn (2002E): -$ 0.4 bn
Major export products: Wool, meat, rice, leather, textiles
Major import products: Oil, intermediate goods excluding fuels, consumer goods, capital goods, electricity
Total foreign debt (2000E): $ 8.4 bn

Energy overview
Minister of Industry, Energy, and Mining: Sergio Abreu
Oil reserves and production: None
Oil consumption (2000E): 43,000 bpd, all of which is imported
Crude oil refining capacity (1/1/02E): 37,000 bpd
Natural gas consumption (2000E): 1.4 bn cf -- all imported
Coal production: None
Coal consumption (2000E): 1.3 thousand tons
Electricity generation capacity (2000E): 2.2 GW (70 % hydroelectric, 30 % thermal)
Electricity production (2000E): 7.5 bn kWh, of which 7.0 bn kWh was hydroelectric
Electricity consumption (2000E): 7.4 bn kWh

Environmental overview
Minister of Housing and Environment: Carlos Cat
Total energy consumption (2000E): 0.17 quadrillion Btu*(0.1 % of world total energy consumption)
Energy-related carbon emissions (2000E): 1.7 mm tons of carbon(0.1 % of world total carbon emissions)
Per capita energy consumption (2000E): 50.4 mm Btu (vs. US value of 351.0 mm Btu) Per capita carbon emissions (2000E): 0.5 tons of carbon (vs. US value of 5.6 tons of carbon)
Energy intensity (2000E): 7,818 Btu/$ 1995 (vs. US value of 10,918 Btu/$ 1995)**
Carbon intensity (2000E): 0.08 tons of carbon/thousand $ 1995 (vs. US value of 0.17 tons/thousand $ 1995)**
Sectoral share of energy consumption (1998E): Industrial (30.1 %), residential (30.4 %), transportation (25.0 %), commercial (14.5 %)
Sectoral share of carbon emissions (1998E): Transportation (51.2 %), industrial (33.1 %), residential (11.5%), commercial (4.2 %)
Fuel share of energy consumption (2000E): Oil (54 %), hydroelectricity (42 %), natural gas (0.6 %)
Fuel share of carbon emissions (2000E): Oil (99 %), natural gas (1 %)
Renewable energy consumption (1998E): 114 t Btu* (22 % increase from 1997)
Number of people per motor vehicle (1998): 5.9 (vs. US value of 1.3)
Status in Climate Change Negotiations: Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified August 18th, 1994). Ratified the Kyoto Protocol on February 5th, 2001.
Major environmental issues: Working with Brazil to monitor and minimize trans-boundary pollution caused by a Brazilian power plant near the border; water pollution from meat packing/tannery industry; inadequate solid/hazardous waste disposal.
Major international environmental agreements: A party to the Antarctic-Environmental Protocol, Antarctic Treaty, Biodiversity, Climate Change, Endangered Species, Environmental Modification, Hazardous Wastes, Lawof the Sea, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution and Wetlands. Has signed, but not ratified, Marine Dumping and Marine Life Conservation.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, and wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP based on EIA International Energy Annual 2000

Energy industry
Organization: Oil, natural gas, and refining -- Administracion Nacional de Combustibles, Alcohol y Portland (ANCAP), the state oil and gas company; Electric power -- Administracion Nacional de Usinas y Transmisiones Electricas (UTE), the state electricity company.
Port: Montevideo
Major oil/gas producing fields (2002): none Refinery (Capacity -- 1/1/01E): ANCAP-La Teja, Montevideo (37,000 bpd)