Chile to keep crude price under $ 55/bbl ceiling

May 30, 2005 02:00 AM

Chile's government will subsidize crude oil imports to keep the domestic price under $ 55 a barrel until at least March 2006, President Ricardo Lagos said in an address to congress. Lagos announced this as one of several measures to mitigate the impact of high international crude prices and natural gas export restrictions from Argentina on Chile's economy.
"I can tell Chile that from the point of view of diesel, which is fundamental for transport, for companies and for power generation, the price will be maintained with a ceiling of $ 55/bbl. That is my decision as President," Lagos said.

State oil company Enap will use its own financial resources to cover some of the subsidy and the government will purchase international insurance to cover the additional cost should crude rise above the $ 55/bbl mark, Lagos said.
The insurance will cost about $ 10 mm and will subsidize crude purchases for up to $ 100 mm, finance minister Nicolas Eyzaguirre was quoted as saying.

Power subsidy
In addition, Lagos announced a new subsidy for 1.4 mm low-income families, equivalent to 6 mm people, whose monthly power consumption does not exceed 150 kW.
The subsidy, which will cost the government $ 16 mm-$ 17mm over the next 10 months, is designed to compensate poor families for electricity price hikes as a result of fuel price increases. The government will send the bill to congress in June to be approved within a maximum of 10 days, Eyzaguirre said.

Fuel subsidy
Lagos has also approved a 36.4 bn-peso ($ 63.2mn) subsidy for low-income families that was approved to mitigate fuel price increases during the southern hemisphere winter. The 16,000-peso subsidy, which will benefit about 5 mm people, will be paid in two quotas of 10,000 pesos and 6,000 pesos in May and July 2005 respectively.
The subsidy is designed to offset rising fuel prices and their impact on low-income families through recent increases in public transport and heating fuel costs.

Longer term measures
Fuel and power subsidies will help mitigate the impact of higher fuel prices in the short term, but the government is studying other measures to reduce reliance on Argentine gas imports and ensure energy security in 2007 and beyond. The government has called for bids on a project to build and/or supply a liquefied natural gas (LNG) regasification terminal at the port of Quintero in central Chile, energy and economy minister Jorge Rodriguez told on the sidelines of a conference in La Jolla, California.
Bids are due in July and the idea is to start receiving LNG by 2008-2009, Rodriguez said.

Enap, gas distributor Metrogas and power generator Endesa have signed up to be offtakers from the terminal and local generators Colbun and AES Gener are expected to sign agreements "very soon," Rodriguez said. The LNG supply contracts are "normally 15 years," Lagos said.
"The re-gasification plant will be a reality and Chile will start to have greater energy autonomy," he added. Lagos also thanked congress for approving the electric reform law designed to attract investments in hydroelectric generation by allowing generators to sign long-term contracts with distributors.

However, Lagos noted that over-dependence on hydro generation would make Chile vulnerable to droughts that can destabilize the country's energy matrix.
"If we want safe and clean energy for the future we are obliged to think of other non-conventional sources of power generation. We need to rethink the new technological processes for non-polluting coal and we also need to think about nuclear energy," Lagos said.

Lagos said he would create a high-level commission to study the "advantages and disadvantages, costs and benefits, risks and certainties of using new forms of energy" including nuclear energy.
Chile does not have any nuclear power plants and most of its electricity currently comes from hydroelectric dams.

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