Envío Digital
Central American University - UCA  
  Number 79 | Enero 1988



Energy in Nicaragua: The Problems and the Prospects

Envío team

Frequent power outages, contra sabotage against electrical plants and towers, gas rationing and periodic long lines at gas stations, technical problems at Nicaragua's only oil refinery, unpaved streets, and highways pockmarked with potholes are only a few extreme indications of the daily battle for energy survival in Nicaragua.

Nicaragua is a country rich with potential energy resources, including geothermal, hydroelectric, liquid gas, biomass derivatives and solar power. There is also a high probability of finding both quality petroleum and natural gas in significant quantities in the country. But the missing element, as always, is the financial capacity to exploit this potential. A legacy of underdevelopment, the world economic crisis and the US contra war have blocked Nicaragua from pulling together even a minimal amount of financing.

In this issue envío looks at several aspects of the energy question in Nicaragua, including developing alternative energy sources, drawing on the successes as well as the problems arising from the policies pursued to date by the revolution.

Keeping the Revolution Running

Nicaragua, like the rest of Central America, is a net importer of petroleum. Although Nicaragua has a number of potential energy sources—including rivers, volcanoes and the sun—its dependence on imported petroleum decisively shapes the country's economic situation.

Facing the progressive deterioration in international prices for its agricultural products, Nicaragua has seen its oil bill increase year by year. In 1987, the country's export profits were barely more than $200 million, while its petroleum needs alone added up to more than $150 million. The Nicaraguan government has publicly stated on several occasions that it simply cannot pay its oil bill and that favorable credits are essential to cover it. Currently, only the socialist countries appear willing to concede these credits to Nicaragua on a long-term basis.

Moreover, Nicaragua needs to obtain certain petroleum-derived products on the world market. These costs, even though smaller quantities, constitute one more point of tension for Nicaragua' s seriously weakened economy.
Today, more than ever, generous international assistance in the energy field is vital for the survival of Nicaragua and its revolution.

From San José accords to Soviet oil

In 1980, Nicaragua signed the San José accords, in which Mexico and Venezuela—two of the principal petroleum-producing countries in Latin America—each promised to supply Nicaragua with some 7,500 barrels of petroleum at terms very favorable to Nicaragua. The accords favored 10 countries, including all of Central America, Belize, Panama and several Caribbean nations—Barbados, Jamaica and the Dominican Republic—which agreed to pay 30% of their bills in the 30 days following delivery, while the remaining 70% was to be financed by the supplying countries on a 10-year contract with low interest rates. If the financial equivalent of this 70% was used by the countries in investment, particularly in the area of energy, the credit would take on even more favorable terms—2% interest on a 20-year repayment schedule.

Even with such favorable conditions, Nicaragua quickly began to experience serious limitations in its ability to pay. As early as 1981, the time limit stipulated by the accords for payment of part of the quota expired before Nicaragua could pay. For this reason, Venezuela stopped sending petroleum and Mexico began to supply Nicaragua with 100% of its oil, at even more favorable terms. This gesture of solidarity by the Mexican government brought it under a lot of pressure from the United States.

In 1984, Nicaragua began to receive oil from Libya, the Soviet Union and other socialist countries, totaling 50% of its annual needs. Due to Nicaragua's large accumulated debt with Mexico, that country stopped sending oil to Nicaragua in 1985. Since then, nearly 100% of Nicaragua's oil has been supplied by the socialist community, including Cuba.

In 1986, Nicaragua's oil imports from the socialist countries increased to 733,000 metric tons, or some five and a half million barrels. The amount of oil consumed in Nicaragua is less than in Costa Rica and El Salvador, and somewhat greater than in Honduras, a level considered the bare minimum for the country's development level. The existing policies of austerity and conservation cannot be applied more drastically without causing severe damage to already rock-bottom consumption levels.

The 1986 drop in oil prices somewhat relieved Nicaragua's debt burden and also allowed for a relative savings in foreign exchange. In addition to Soviet crude oil, Nicaragua has traditionally turned to the Caribbean to obtain certain petroleum-based products: liquid gas and airplane fuel (some 80,000 barrels annually). For these purchases, Nicaragua has to use its foreign exchange and also assume the shipping costs in dollars, as the country lacks a commercial shipping fleet. The costs of receiving, storing and transporting the petroleum derivatives, without taking into account the cost of the products themselves, add up to some $4 million.

The 1987 fuel crisis

Nicaragua went through a fuel crisis in 1987, which touched off national and international speculations, some objective, others quite alarmist in nature. The 1987 Economic Plan calculated oil consumption at 765,000 tons, a slight increase over 1986. Of this total, 300,000 had been contracted with the Soviet Union at the beginning of the year and, based on past years' experience with credits, the Nicaraguan government was confident of contracting the remaining 465,000 tons with other socialist countries in the first half of 1987.

In reality, East Germany agreed to supply 90,000 tons, Bulgaria 38,000 tons, Cuba 60,000 tons, Poland 30,000 tons, Czechoslovakia 30,000 tons and Hungary 10,000 tons, leaving Nicaragua 207,000 tons short of its programmed needs.
Bad estimates on Managua's part? The estimates were based on 1986, when Nicaragua had received 90,000 tons from Czechoslovakia and 50,000 tons from Hungary, quotas that still fell short of Nicaragua's needs, but came closer. The Sandinista government was confident of increasing those levels, and it was not until midway through 1987 that these two socialist countries made it clear to the Nicaraguans that they would have difficulties even maintaining 1986 levels.
This was the main cause of the oil crisis that obliged the Nicaragua to initiate an intense international search to make up its quota. As a first emergency measure, however, Nicaragua reduced its total needs from 765,000 to 750,000 tons. Beginning in September, gasoline consumption was more restricted, without affecting defense requirements, which make up 6% of total national consumption, or its strategic reserves.
Three countries came to Nicaragua's aid. Cuba promised 40,000 more tons; the Soviet Union agreed to send 100,000 more tons; and Peru sent 4,000 tons, thus reducing the deficit to 54,000 tons. To cover the still-remaining deficit, Nicaragua resorted to using its very scarce foreign exchange to buy petroleum in small quantities, even as it continued to seek more credits throughout the world.

It was in this context that Nicaragua signed accords with the Soviet Union in which the latter agreed to maintain its current supply levels—between 300,000 and 400,000 tons annually for the next three years. Nicaragua also signed an agreement with East Germany, which has agreed to supply 90,000 tons in 1988. In addition, the Presidents of Nicaragua and Mexico are currently discussing a resumption of petroleum shipments under the terms of the old San José accords. Prior to these talks, Mexico had expressed its willingness to supply Nicaragua, but only under the new terms of the accords, which call for immediate payment of 80% of the shipment—terms it would be impossible for Nicaragua to meet. (The new accords, signed in 1985, also established new payment terms: 20% could be paid on credit—down from 70% in the 1980 agreement—with 8% annual interest rather than 4% on a 5-year repayment schedule—down from 10 years. If the credits were used to finance economic development projects, the interest would be reduced to 6% rather than the former 2%, on a 20-year repayment schedule.) .

When the socialist countries decreased their oil shipments, speculation included talk of a "cutoff" in Soviet aid to Managua, as a "signal" sent by the USSR to Reagan. Some attributed this alleged cut-off to opposition sectors inside the Soviet Union who were disgruntled with Gorbachev's "perestroika" policies and were hoping to discredit him internationally. It was also said that some of the socialist countries were displeased with Nicaragua's handling of its economy, and especially the extremely low price of gasoline in the country—3,000 córdobas a gallon (the equivalent of 20 cents in US currency).
The full explanation is still open to investigation, but several elements should be taken into account when interpreting the crisis. The production of Soviet crude oil went through a certain stagnation from 1984 to 1986, which created difficulties in supplying the other socialist countries. As confirmed by a number of international news agencies, these difficulties were overcome in 1987, with significant increases in production in Siberian wells. As the energy problems of the socialist countries are resolved, Nicaragua is confident of constant and increasing support from the socialist community, particularly given the successes of perestroika.

It should also be taken into account that the oil Nicaragua receives from other socialist countries comes originally from the Soviet Union and is paid for by those countries in hard cash. At times, as has been the case with Bulgaria, a country gives cash to Nicaragua, so that Managua can buy the oil from a Latin American country. If one of the socialist countries hits a crisis period and experiences foreign exchange problems, this payment mechanism could face serious obstacles, which would significantly hinder the commitments to international cooperation made by the socialist community.

Given this set of problems, it is logical that the countries aiding Nicaragua in petroleum would have concerns about Nicaragua's efficient use of gasoline. Minister of Energy Emilio Rappaccioli told envío, "We don't consider [such concern] either abnormal or an extraordinary requirement that's impossible to accept. As far as we're concerned, it's correct."
There are also a number of other aspects to take into account in examining Nicaragua's relations with the socialist countries in the energy arena. For example, all of Nicaragua's oil from the socialist countries was initially channeled through the one existing Soviet oil exporting company, which oversaw all aspects of the contracts. Thus, it was sufficient for Nicaragua's oil company, Petronic, to maintain relations with this Soviet company without cultivating direct relations with the rest of the socialist countries. In time those countries showed an interest in establishing bilateral relations with Nicaragua, which initially caused certain problems for the Sandinistas, who had to create and implement new mechanisms of coordination.

Infrastructure problems

It is not only that the methods of obtaining petroleum are complex, however. Nicaragua's infrastructure for refining, receiving, storing, and distributing hydrocarbons is also very limited.

This infrastructure in general has been affected by the economic embargo imposed by the United States. Managua's sole refinery belongs to Esso and employs US technology. It was designed specifically for a certain kind of Venezuelan crude oil which the country no longer receives—a "reconstituted," very heavy blend of crude and semi-refined products. As long as Nicaragua imported this type of petroleum, the refinery could produce gasoline and diesel in quantities more or less equivalent to those needed for the country's internal consumption.

Given the type of crude Nicaragua has been importing in recent years—the Mexican "isthmus" crude it was receiving as well as the current Soviet "export blend" ("seb")*—the refinery's yield has decreased to 70% of internal demand, even with the current restrictive measures. Changing the type of crude thus resulted in a 30% deficit in the final product and an increased amount of crude must now be stored at the port of Corinto, where receiving and storing facilities are inadequate. All these factors strain the distribution of gas throughout the country, particularly in Managua, which consumes 40% of the national total.
*Nicaragua must import oil that varies sharply from the Soviet crude, as it cannot be used for asphalt. There is a Soviet crude that produces asphalt, but there are no connections between the wells that produce it and the Black Sea ports, where the ships carrying oil to Nicaragua dock. To supply the country with its minimal amount of needed asphalt, Nicaragua combines Soviet crude with Mexican "maya" crude (which it has to buy with hard cash) in 85% and 15% proportions respectively in order to obtain a good grade of asphalt.

Part of the petroleum consumed by Managua comes directly from Corinto, which further complicates distribution. The situation is made even more critical by any technical problem in the refinery or when the refinery has to stop production due to a delay in the ships that transport the crude to Nicaragua. The limitations on transportation of oil from Corinto, 148 kilometers from Managua, are enormous, especially now that half of the country's nearly 100 storage tanks are in poor repair.
There are also other kinds of crises. For example, a ship delay forced the refinery to close for almost four days in October 1987. It so happened that the gasoline and diesel in the storage tanks at Corinto at the time were from Cuba and thus could not be touched by the refinery, which is obliged to comply with the blockade declared against Cuba and Cuban products by the US government more than 25 years ago. There has been no problem with gasoline or diesel from the Soviet Union financed by Cuba, but when Nicaragua has had to buy gasoline in Cuba, even if it is not a Cuban product, the mere fact that it was stored in Cuba is enough to ensure that neither Texaco nor Esso will touch it.

In this particular emergency, Nicaragua had to receive and distribute gasoline and diesel from Corinto through Shell, financed by British and Dutch capital. At the same time, Petronic tried to supply Esso, Texaco and Chevron gas stations with the little fuel that remained in the refinery, until it was empty and they were forced to close.

This total blockade on Cuban products has not always been so rigidly applied by US transnationals. Many times diesel and gasoline from Cuba was received, stored and sold by Texaco in Puerto Cabezas and Esso in El Bluff. Only recently has US pressure resulted in such a drastic application of the blockade, further complicating matters for Nicaragua. Generally, diesel and gasoline arriving at Nicaragua's Atlantic ports came from Cuba in the following manner: when a ship from the Soviet Union carrying petroleum was headed for Corinto, Nicaragua's key Pacific port, some of the petroleum was left in Cuba and transported, little by little, to Nicaragua's Atlantic ports.
Given US intransigence in applying the blockade against Cuba and Cuban products, Nicaragua finally proposed to Esso and Texaco that they should either administer the products coming from Cuba or sell or turn over their port installations to Nicaragua. After a number of talks, the installations were turned over to Nicaragua, as the country wasn't able to buy them in dollars. They are currently being operated by Petronic.

Looking toward possible solutions:
Nicaragua has petroleum

The answer to the question "Is there petroleum in Nicaragua?" is affirmative. This is not a complete surprise, as explorations, with some positive results, have been underway since the 1930s, in Pacific and Atlantic waters as well as on the Pacific Coast.
In 1979, the new revolutionary government tried to get hold of the information resulting from these explorations. However, that information was in the hands of transnational corporations, which were either unwilling to turn it over or demanded exorbitant prices from Nicaragua. During the Somoza dictatorship, these transnationals were the owners of any possible oil platforms found and thus of all information arising from exploration.

The Nicaraguan government has carried out significant efforts to piece together the findings of those exploratory studies. New subsoil and mineral samples have been obtained, and new perforations made with assistance from France, the Soviet Union and regional and international organizations such as the Latin American Energy Organization. Nicaragua by now has sufficient data to affirm the existence of petroleum reserves in the country, especially in the Atlantic platform, in the northeastern zone and in the central-south Pacific region. In the area known as Villa Carlos Fonseca, some 50 kilometers from Managua, there are signs of petroleum reserves, and some rivers in the area have surface gushers. This does not necessarily mean that there are deep deposits in these areas, but it is known that petroleum "moves" through the soil and it could be that liquid deposits are trapped underground as a result of seismic movement throughout the region. It is most probable that the greatest deposits are in the sea and have risen to the surface through subsoil fissures.
Samples of what has appeared on the surface is of high quality—very refined and with low sulfur content. It must be taken into account, however, that pumping liquid up to the surface passes it through a series of natural filters that purify it.
In these investigations carried out with Soviet and French aid, different levels of petroleum exploitation were defined. In some areas, more extensive geophysical research using advanced technologies, the tracing of seismic lines and new interpretations of existing information have been recommended. New perforations have been proposed in other areas.

Right now, Nicaragua is talking to friendly countries and private and state companies about the possibility of expanding this research and doing the test drilling, but it would be an extremely costly undertaking. INE, the Nicaraguan energy institute, estimates that $50-100 million would be needed in the initial stages, a tiny sum when one takes into consideration that Mexico will invest some $15 billion in explorations in the next five or six years, but an enormous amount for Nicaragua. In addition to this key investment capital, modern technology and technical training, currently not available in the country, would be needed. The recently approved foreign investment law creates the beginning of a legal framework in which some of these investment initiatives might be carried out.

Nicaragua had discussed the possibility of assistance in this area with a number of countries. Norway has expressed interest in petroleum prospecting and the Soviet Union and France are willing to provide technical assistance for research. Some Latin American countries have also expressed interest, although nothing has been confirmed to date. Petrobras, Brazil's state-owned petroleum company, was interested but after a series of talks was forced to pull back, given its own severe financial difficulties. Nicaragua had gotten to the point of discussing the terms of a possible contract with Petrobras. As is common, the investor would take on all of the risks and thus if nothing is ever discovered, the country loses nothing. If, on the other hand, petroleum were discovered, Petrobras would recoup its investment and be guaranteed a certain profit level, to be paid in petroleum, with Nicaragua maintaining the right to meet all internal demands first. Nicaragua would maintain ownership of this key natural resource.

Other energy sources

Nicaragua is rich in other sources of energy, too, although it still has not taken advantage of their full potential. Water, geothermal energy from Nicaragua's volcanoes, firewood and renewable biomass resources are abundant in the country. It is currently estimated that 48.5% of the national energy consumption is still firewood—greatly utilized in home cooking—and 1% is charcoal. Another 32.9% is hydrocarbons; 11.4% vegetable waste, primarily the waste from sugar cane used to fuel the sugar refineries; and 6.2% is electric energy.

studies were done during 1987 identifying 18.6% of this electrical energy as coming from the hydroelectric sector; 21% from geothermal energy; 58% from the central thermal-electric plants; while 1.7% is imported from neighboring countries. Total national consumption is 1,323.7 million kilowatts.*
*Nicaragua's current capacity is 315,000 kilowatts, with a reserve of 77,000 kilowatts over maximum demand. International norms establish that each country should have a reserve capacity equal to the largest operating unit. In Nicaragua, the largest unit is the Nicaragua plant with a 50,000-kilowatt/hour capacity. Thus the minimum reserve is assured in the case of technical problems in one of the plants.

The government has made rehabilitation of the country's electrical system a priority, but a project of this order needs significant foreign resources. Minimally, $20 million would be required, an extremely large sum for Nicaragua. Most recently, some contacts have been made with Italy, given that the majority of the turbines and other existing installations are of Italian origin and Italy is currently working closely with Nicaragua in the construction of the second geothermal plant at the Momotombo volcano.

As can be seen, the importance of petroleum in the production of the country's electrical energy is already considerable: around one-third of the petroleum that arrives in country is used to produce electricity. For this reason, investment efforts in the energy field are primarily concentrated on evaluating and developing Nicaragua's natural resources: water, geothermal steam and renewal biomass resources.

It is estimated that the potential of hydroelectric power in Nicaragua is more than 5,582 megawatts. More than 78 projects are currently underway, 30% of which are economically advantageous. Included among these are "mini-plants" like the one Benjamin Linder was building when he was killed by contra forces on April 28, 1987.

The new Asturias dam project north of Jinotega is almost finished. By the first half of 1988, if there is no drought, it will be possible with this new project to increase the hydroelectric power in the region's two existing plants, Central America and Carlos Fonseca, by 25%, thus producing 100 million kilowatts/hour more each year.

Nicaragua's volcanic energy potential is equally high. Conservative estimates are of some 700 megawatts, while more optimistic projections are for 2,000. The first geothermal unit at the Momotombo volcano began operation in 1983. Since then its annual production has been 1,200 kilowatts per hour, between 20-25% of total national production. A second, 35,000-kilowatt unit is currently under construction and expected to become operational by mid-1989. In terms of substituting geothermal energy for petroleum, the first plant means a savings of some 500,000 barrels annually, a savings that will double when the second plant begins operation.

The Tipitapa-Malacatoya project (Timal), which has the largest sugar refinery in Central America, is self-sufficient in energy, thanks to the Las Canoas project, a sizeable artificial lake. When the refinery does not demand all of Timal's energy, the surplus can be transferred over to national use.
The project also anticipates the installation of a processing plant to produce fuel from sugar-cane derivatives. Ethanol obtained in this way can reportedly be mixed with gasoline at a 1:9 proportion and used by vehicles with no damage to their motors.

The majority of the industrial countries are currently looking toward introducing ethanol as an additive to substitute for the toxic lead contained in gasoline. The Soviet Union and other countries have banned its use since 1959.
The cost of ethanol production is still relatively high compared to the price of gasoline, although large-scale production would reduce these costs. Other factors, such as the availability in Nicaragua of renewable biomass resources—in Nicaragua the potential of biogas derived from organic residues is over three million cubic meters a year—and the fact that the struggle for survival today and development tomorrow will require increasing quantities of petroleum, has renewed Nicaragua's interest in the possibility of ethanol as a fuel substitute. Brazil is the country with the most experience in the production of cane alcohol. Some years ago, Nicaragua proposed to Brazil the acquisition of an alcohol-producing plant, but the proposal was shelved for a number of reasons.

For some time now, an important project has been underway with Swedish assistance, exploring the possibilities of obtaining fuel from cotton stubble. According to these studies, which are already quite advanced, there will be no effects on the cultivation of cotton by not leaving the stubble in the ground and either burning it or plowing it under as now occur. Even if all the stubble were used as solid fuel, the fertility of the soil would apparently not be affected.

A plant to process the cut and dried cotton stubble has already been built in Chinandega, in Nicaragua's northwest cotton-producing region. The final product of this machine is small, cylindrical briquettes, which are dry, lightweight and easily handled. This new source of fuel would reduce the consumption of firewood, which has contributed to dangerous deforestation levels in Nicaragua’s Pacific zones.
The machinery to be used to gather, cut and pack the cotton stubble, which was designed with technical assistance from Sweden, was tested in the last harvest, with positive results. It is expected that large-scale production of this alternative fuel will begin in 1988.

An energy conservation and savings project, particularly in the industrial sector, is also being undertaken with assistance from Sweden, a pioneer in energy conservation. Hotels, hospitals, service and industrial centers all consume great amounts of energy and studies are being done to see where important savings can be made. In some of them the recommendations of INE, including measures to avoid wasting energy and innovations such as using the hot steam that normally returns to the air to produce mechanical movements in industry, are beginning to be applied with positive results.

Swedish aid also financed the installation of a five-station network in the country to measure solar radiation levels. The goal is to draw up a solar map of Nicaragua and determine which areas most lend themselves to the use of solar power. Managua's Central American University (UCA), which is participating in this study, houses the principal station as well as storing and analyzing data from the other stations. Some concrete applications of solar power have already begun, in grain drying and salt production, with very positive results. Some grain silos in the country run with diesel or gasoline have already been replaced by solar-powered grain dryers.
The possibility of taking advantage of wind power, a project receiving Dutch assistance, is in the study and data-compilation phase.

And nuclear energy? "That's out of place in our country and also in Central America," according to INE Minister Rappaccioli. "Of what use to us is a reactor with a 400,000-kilowatt capacity, when the country's demand is 238,000? We have enough natural resources to meet the country's needs for the next 30 years."

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