Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS areas are not within the jurisdiction of the border crossing operating personnel. Honduras should consider enacting and enforcing a policy prohibiting parking on the shoulder of the roadways to eliminate the bottlenecks at the nation’s border crossings. 1) Electricity Deficie ncies in Honduras’s electricity sector present a major obstacle to improving the nation’s competitiveness. The country’s electricity network suffers from high costs associated with production, as well as from significant technical and non-technical losses in distribution. Honduras’s government-run electricity company, ENEE, has monopoly control over the nation’s transmission and distribution networks. In addition, ENEE is responsible for approximately 58 percent of the nation’s electricity production, with the balance provided by the private sector. Power generation is primarily by fossil fuel thermal generation plants, which provide 176 approximately 70 percent of the nation’s power generation capacity. A mix of geothermal and hydroelectric facilities make up the balance of the nation’s generation capacity. Honduras’s heavy reliance on fossil fuel generation facilities is a competitive disadvantage because of high market prices for fuel and seasonal variability. e. To facilitate trade, Honduras will require significant assistance to develop a competitive electricity system. The following improvements are recommended: ♦ Trade Facilitation Issues to Address Pursue and develop a low-cost power generation capacity. Honduras is currently highly dependent on fossil fuel power generation plants, resulting from emergency responses to production requirements over recent years. Consequently, the costs associated with power generation are comparatively high for the region. These costs are particularly high when viewed as a percentage of average incomes for the majority of the population. Going forward, Honduras should focus on developing power generation facilities that are based on renewable energy sources, as available. Technical assistance in analysis and implementation is required to realize these potential future cost savings. ♦ Reduce distribution losses to acceptable levels. Although Honduras has historically experienced some success in reducing distribution losses, the efforts have not been sustainable. Today, estimated distribution losses are at approximately 27 percent, representing approximately $35 million per year. 177 Along with the administrative costs associated with the government-run electric company, system inefficiency and illegal connections are responsible for these losses. These financial losses diminish the nation’s ability to invest in distribution infrastructure improvements to reduce technical losses. Technical assistance will be required to help provide a full breakdown of non-technical and technical losses. After the causes of the losses are identified, a formal strategic loss reduction plan can be formulated and implemented. ♦ Seek opportunities to privatize segments of the nation’s electric company. As noted above, ENEE is responsible for the majority of the nation’s power generation and has monopoly control over transmission and distribution. Honduras is considering further 176 Based 177 Based upon interviews with the ENEE, and the Comision Presidencial de Modernizacion del Estado. upon interviews with the Comision Presidencial de Modernizacion del Estado. XV-13
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS f. privatization of power generation, as well as privatization of the nation’s distribution network. This effort is currently being studied by the Presidential Commission on Modernization and should be supported. As with many of the nation’s government-run implementing institutions, ENEE experiences high labor turnover rates following changes in government leadership. Consequently, the company suffers from loss of technical leadership and skilled labor. Successful privatization will enable Honduras’s electricity infrastructure to achieve consistency in talent despite administration changes and enable focused investment in infrastructure improvement. ♦ Continue to eliminate complicated subsidy programs. Honduras’s electricity sector places significant emphasis on providing low-cost electricity to low-income, low-volume users. To meet this objective, the nation employs a complex subsidy program that places higher user costs on commercial users and requires government subsidies from the general fund. Before privatization, efforts will be required to simplify electricity cost structures. Technical support will be required to achieve this goal. ♦ Vigorously support ongoing upgrades in regional transmission capacity. An important regional project, “SIEPAC,” currently supported by the Inter-American Development Bank, involves establishing inter-country connectivity and improvement of transmission capability within the region. On an annual basis, Honduras requires importation of electricity to meet its peak operating requirements. However, more important, Honduras lacks the transmission capacity to tap into lower-cost sources of electricity, necessitating dependence on its fossil fuel power generation capacity. Going forward, Honduras would benefit greatly from increased access to lower cost electricity generated within the borders of its neighboring countries. Consequently, continued support in this area is highly recommended. Telecommunications and the Internet Fixed-line telecommunications services are currently provided by Hondutel, the nation’ s publicly owned telecommunications service provider. Hondutel currently maintains monopoly power over fixed-line services, as well as both fixed-line and mobile services for international calls. Hondut el’s exclusivity provisions expired in December 2005, providing opportunities for an open and competitive marketplace for these services. Initiatives are currently under way to expand the nation’s teledensity, currently estimated at 3–4 percent for fixed lines, through partnerships with private sector telecommunications companies operating under contract to Hondutel. After expiration of Hondutel’s exclusivity provisions, these companies will have the opportunity to compete in an open market or to continue operating under contract to Hondutel. Two private sector companies currently provide mobile services, and Hondutel will enter this market in the near future. Telecommunications services within Honduras contrast sharply with those of other regional countries in terms of cost. Currently, costs for local and national calls are considered the lowest in the region, whereas costs for international calls are the highest. This is the result of the nation’ s low fixed-line teledensity, which places increasing pressure on international calls to subsidize local and national calls. Even more than the telecommunications service providers interviewed in neighboring countries, providers in Honduras fear downward pressure on international call pricing, forcing a rebalancing of local and national call subsidies. In addition, it XV-14
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