Construction of Thermoelectric Power Plants
The problem with aging infrastructure in Cuba
The process of replacing the existing generation units should have started five years before the end of each block's useful life. Currently, there is no strategy to construct new energy blocks. This issue was not even discussed during the National Assembly sessions held at the end of December this year.
In the most optimistic scenario, between 200 and 400 MW could be constructed in the next 15 to 20 years. However, at least 5,000 MW of installed capacity is needed to prevent blackouts and ensure energy supply for the industry.
Constructing a single generation block requires six to eight years. This process includes approximately four to five years for preparing documentation, construction, and environmental permits, as well as contracts for fuel supply and other essential inputs. It is also necessary to prepare the report on the new block's impact on the electrical grid and define the interconnection conditions. Project specifications must be drafted, suppliers and construction companies must be sought, and contracts must be negotiated with the government, banks, consulting firms, the Electric Union, and thousands of suppliers and contractors. Additionally, initial payments and payment guarantees must be made, and the road infrastructure and energy output networks must be prepared.
The plant's construction itself requires about two years, with an additional year needed to correct defects and finalize non-essential tasks. This applies to countries with normal structures. This type of investment employs thousands of small contractors who carry out various tasks.
In Cuba, there are no design companies, consulting firms to oversee construction, equipment suppliers, complex automatic control managers, construction companies, transportation firms, or qualified personnel on a scale that allows for the smooth execution of these projects.
From a financial standpoint, an indeterminate amount of billions of dollars is required to construct the plant. It is also essential to modernize the electrical grid and pay all the companies involved. Even if there were an intergovernmental agreement, such as the one with Russia that included $1.4 billion in financing, banks will not disburse the money without payment guarantees backed by a good credit history or assets worth more than the loan amount. In Cuba, there are no assets to back this investment.
In theory, the investment could be backed by natural resource reserves, offering future supplies of these resources. For example, China lent Venezuela $60 billion under similar conditions, though it is still attempting to recover that amount (Reuters, 2020). However, Cuba’s future production of nickel and cobalt is already committed to Sherritt to pay off current debts (Sherritt, 2022). A similar agreement with China was canceled due to Cuba’s failure to deliver the agreed-upon sugar supplies (Fundación Andrés Bello, 2022).
In Cuba's case, it is not only necessary to finance the investment but also consumption. According to the National Employment Survey conducted by ONEI in 2022, that year, there were four million people without income, 1.6 million retirees, 3.4 million workers in state-owned enterprises, and 1.4 million in non-state enterprises (ONEI, 2022). The average monthly salary in state-owned and mixed enterprises in 2023 was 4,648 CUP, and the average retirement pension was 2,075 CUP. Assuming an exchange rate of 300 CUP per dollar, this amounts to $15.5 USD and $6.9 USD per month, respectively, less than 50 cents per day per person.
The budget allocated to health, education, social security and welfare, sports, and culture for 2024 was 302 billion pesos, equivalent to $0.27 USD per person per day for all these categories combined. Additionally, the State allocated 87 billion pesos (18% of the 2024 budget) to subsidize essential products (Presidencia de la República de Cuba, 2024).
The construction of new power plants will not begin until structural changes in the economy start yielding results. However, there is no indication that the government plans to implement such changes, as it has yet to resolve the dual currency problem, a process initiated in 2013 (CNN en Español, 2013).
References
CNN en Español. (2013, October 22). Gobierno de Cuba anuncia la eliminación del sistema de doble moneda. [Cuban government announces the elimination of the dual currency system]. https://cnnespanol.cnn.com/2013/10/22/gobierno-de-cuba-anuncia-la-eliminacion-del-sistema-de-doble-moneda
Fundación Andrés Bello. (2022). China cancels trade agreements with Cuba due to lack of market reforms and unpaid debts. https://fundacionandresbello.org/en/news/cuba-%F0%9F%87%A8%F0%9F%87%BA-news/china-cancels-trade-agreements-with-cuba-due-to-lack-of-market-reforms-and-unpaid-debts/
ONEI. (2022). Encuesta Nacional de Ocupación 2022: Edición 2023.https://www.genero.onei.gob.cu/webapp/static/documents/informes/19_eno_2022_edic_2023_0.pdf
Presidencia de la República de Cuba. (2024). El presupuesto es la vida de la nación.https://www.presidencia.gob.cu/es/noticias/el-presupuesto-es-la-vida-de-la-nacion/
Reuters. (2020). Exclusiva: Venezuela recibe otro período de gracia de China para postergar pagos. [Exclusive: Venezuela receives another grace period from China to delay payments]. https://www.reuters.com/article/world/americas/exclusiva-venezuela-recibe-otro-perodo-de-gracia-de-china-para-postergar-pagos-idUSKCN2581W6/
Sherritt. (2022). Sherritt finalizes transformative five-year payment agreements with its Cuban partners to settle $362 million of outstanding receivables. https://www.sherritt.com/English/Investor-Relations/News-Releases/News-Release-Details/2022/Sherritt-Finalizes-Transformative-Five-Year-Payment-Agreements-with-its-Cuban-Partners-to-Settle-362-million-of-Outstanding-Receivables/default.aspx
Original article in Spanish: ForesightCuba