Piñón on Energy: Cuba re-organizing its energy sector

By Jorge Piñón

Among the many reforms the Cuban government currently considers is the reorganization of the Ministry of Basic Industries.

An analysis of Cuba’s 2009 trade data, as reported by the Oficina Nacional de Estadísticas (ONE), indicates that MINBAS and its affiliated business entities conducted over 32 percent of the island’s total international trade value. Just in the upstream and downstream hydrocarbon sector, MINBAS is estimated to be managing capital investments of more than $15 billion over the next five years.

MINBAS operates a vast number of economic sectors, along with their respective associated value-added, vertically integrated businesses:

•Hydrocarbons: exploration and production, refining, distribution, and marketing.

•Mining: exploration, production, processing, and marketing.

•Electric Power: generation, transmission, distribution, and sales. 

•Basic Petrochemicals: manufacturing and marketing of fertilizers, plastics, pesticides.

•Other: manufacturing and marketing of glass, paper, cement, paint and rubber.

The ministry also manages a number of important international and domestic joint ventures and operations in the above sectors.

The current industrial sectors covered by MINBAS are most probably going to be grouped in relation to their products and external customers. The aim is to align business strategy, process and structure in order to increase efficiency and transparency.

An Energy Ministry

A standalone Energy Ministry is being considered with possibly two business enterprises under its stewardship: Unión CubaPetróleo (CUPET), and Unión Eléctrica (UNE).

CUPET would be responsible for all upstream (exploration and production) and downstream (oil refining, liquefied natural gas and petrochemicals) value-added activities in the hydrocarbon sector, including liquefied natural gas and basic petrochemicals, such as methane, olefins or aromatics derived from natural gas or refinery naphtha. CUPET would most likely be also accountable for its own international activities, some of which currently might be conducted by other state enterprises such as CubaMetales.

It is still not clear whether the manufacturing and commercial activities of secondary petrochemical products — such as plastics (polyethylene, polypropylene, polystyrene), soaps and detergents, solvents, drugs, fertilizers, pesticides, explosives, synthetic fibers and rubbers, paints, and epoxies — would be spun off into a standalone independent business unit outside of CUPET, possibly under the umbrella of the Grupo Empresarial de la Industria Química (GEIQ).

Unión Eléctrica will continue to engage in the generation, transmission, distribution and sale of electricity as a standalone enterprise. 

Oficina Nacional de Recursos Naturales

The spinoff of the Oficina Nacional de Recursos Naturales (ONRN), presently under MINBAS, as a standalone regulatory organization is also being considered. This restructuring contemplates making the proposed Energy Ministry and its business enterprises more competitive, separating MINBAS’ current double role as regulating entity and petroleum company.

The Council of Ministers would most likely have direct supervision of the ONRN whose board could be composed of senior representatives from the Ministries of Auditing and Control; Economy and Planning; Finance and Prices; Science, Technology and Environment; the Central Bank; as well as representatives from knowledge-based academic and research organizations such as the Instituto de Geología y Paleontología or the Centro de Investigaciones del Petróleo.

In my opinion, the central government should assure that ONRN balances regulation and enforcement, and that it does not turn itself into a red-tape bureaucratic organization, which would hamper economic growth and development. The ONRN should be the authority responsible for promoting the optimal and sustainable development of the country’s energy resources, through an integral management approach that harmonizes the interests of society, the state, the environment and the various enterprises in the sector.

Jorge R. Piñón was president of Amoco Corporate Development Company Latin America from 1991 to 1994; in this role he was responsible for managing the business relationship between Amoco Corp. and regional state oil Companies, energy ministries and energy regulatory agencies.

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