From dark to darker
Our September report was entitled “A dark fourth quarter". That is precisely what we expect for the past quarter, with the problem of blackouts of up to 10 hours for every industrial and household sector and no near-term solution in sight, since rain—the main ally of a slow government—will not be coming until December. The deficit of around 1500 MW is equivalent to what Coca Codo Sinclair could produce at its optimum capacity. Thermoelectric energy will close just half that gap and requires financing, which as of now, is scarce.
Representatives from all production sectors have been meeting with the government to agree on a solution other than stopping production for 10 hours a day with losses of $12 million per hour for various sectors. But they have not reached an agreement. Many industrial and commercial companies have been forced to initiate layoffs to keep operative what is possible when electricity is available. Others have forced their employees to take vacations to avoid additional costs and losses.
Even though a large part of the problem has deep roots in past governments, the so-called "inter-institutional liquidity agreements" the government has resorted to in order to fill financing gaps in the last two years have taken their toll on Petroecuador and to CELEC/CENACE, reducing their investment capacity to critical levels. Also, the government is proving day after day its lack of capacity to develop any planned schedule of oncoming new energy, and communication and programming is awful. President Noboa addressed the country last night to speak about security and said nothing about the electricity situation! In this context, Noboa lost Antonio Goncalvez, already the second Minister of Electricity, which adds another complication to the already vulnerable situation.
At the beginning of the year, the government sent and received legislative approval for an emergency economic law to change investment conditions in the electricity sector and named this bill “No More Blackouts”. But the law was ineffective in attracting the private investment that was expected for a very simple reason: electricity generation has to be paid for by distributors, many of which have no capacity to pay. Thus, signed contracts and potential contracts need a guaranty or collateral from the government, which has its own complications, to say the least. It was a catchy name that will come back like a boomerang on President Noboa as the anger of the people—even the patient ones—starts to rise.
This gloomy panorama makes the official downgrade of 2024 GDP performance to 0.9% y/y growth into optimistic wishful thinking. Q2 already shows a negative y/y change of 2.17%, and there is no reason to raise hopes for Q3, and even less for Q4. In this context, a negative change of approximately 0.2% might be expected.
As stated before, we do not completely blame the government for the severe problems in the electricity sector. But its mismanagement of communication and poor planning is giving precious raw material to political opponents during this electoral period. Recent polls reveal that Noboa still leads vote intention for 2025, at a few points over Luisa Gonzalez, and with Jan Topic not far behind in third place. However, polls also show his support has fallen by nearly 20 pps. because of the electricity situation. Noboa won last year’s presidential election unexpectedly. Jan Topic could do the same in 2025.
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