The First Meeting of the Council of Andean Community Ministers of Energy, Electricity, Hydrocarbons and Mines, held in Quito in January 2004, defined the bases for the Andean Energy Alliance (AEA), to be established through efforts in 5 areas:

1. Construction of energy (electricity and gas) markets integrated through harmonized physical systems and regulatory frameworks;

2. Positioning in international hydrocarbon markets in a strategic context of energy security;

3. Promotion in the Andean countries of entrepreneurial development of “energy clusters”;

4. Framework for the negotiation and classification of energy services in the WTO and other international organizations; and

5. Development of the renewable energy sources theme and its tie-in with the environmental theme and with the Integral Plan for Social Development (IPSD). 

Electric interconnection

Decision 536 “General framework for subregional interconnection of electric power systems and intra-Community exchange of electricity”, approved in December 2002, gave the Community a legal framework for promoting the development of the electricity theme among the Member Countries.   

As a result of this Decision, the Andean Committee of Electric Service Policy-Setting and Regulatory Agencies (CANREL) set to work with its Technical Groups: i) Working Group of Electric Service Regulatory Agencies (GTOR), formed in June 2003 to formulate proposals for advancing the harmonization of regulatory frameworks needed for full Subregional interconnection of electric power systems and intra-Community exchange of electricity; and ii) Working Group of Electric Service Policy-Setting Agencies (GOPLAN), created in January 2004 to draw up proposals, coordinate efforts with Andean energy and electric power institutions and reach agreements for fulfilling aspects of information access and coordinated project planning, with a view to the region’s integration. 

The electric systems of Colombia and Ecuador were interconnected in March 2003 pursuant to this Decision, and produced important benefits for both Member Countries. 

With the interconnection and full operation of the electric systems of Colombia and Ecuador, the interconnection of Colombian and Venezuelan electric lines, and the forthcoming electric interconnection of Peru and Ecuador --all as a result of Decision 536 , “General Framework for Subregional interconnection of electric power systems and intra-Community exchange of electricity,”-- the Andean electricity market has reached its first level of integration. It should be added here that Bolivia announced in July 2005 that it had decided to adhere to that Community Decision. 

Gas interconnection

The Action Plan of the Andean Council of Ministers of Energy, Electricity, Hydrocarbons and Mines gave special priority to develop the gas theme in the Subregion.  The Chairman of that Council of Ministers, in coordination with the General Secretariat of the Andean Community, accordingly called the First Meeting of the Ad Hoc Group for Gas Matters, which took place in Lima on November 13 and 14, 2003. International organizations directly concerned with gas, like OLADE, ECLAC, IDB and CAF, took special part in that meeting. 

As a result of the meeting, it was decided to advance the execution of a working plan drawn from the document especially prepared by ECLAC for the meeting, which contains the following recommendations:

a) With binational integration processes as a starting point, move ahead with criteria that are not only economic, but also have a strong social component and that are aimed at long-term integral development.  It is advisable to gradually build up an infrastructure system that will progressively improve the people’s quality of life and contribute to that development.  Therefore, these strategies should emphasize mechanisms that facilitate the access of poor sectors to clean and efficient energy sources like gas and electricity, in that way coinciding with the basic principles of sustainable development. 

b) Respect the natural role of regional international organizations with broad experience on the subject by reinforcing that role. 

c) Work on the orderly definition of an agenda of tentative efforts to induce the Member Countries to participate creatively in coordinating this long-term vision and its key objectives. 

It was agreed at the First Meeting of the Council of Andean Community Ministers of Energy, Electricity, Hydrocarbons and Mines to create the Permanent Group of National Experts on Gas, whose main responsibilities are: 

a) Conduct studies of the potential demand for gas up to the year 2030, with realistic hypotheses and contrasting scenarios. Integral methodologies would be employed to consider demand within each country by regions and by homogeneous consumption or user groups, in order to determine foreseeable penetrations and the relative price conditions that would tend to ensure forecast fulfillment.  Emphasis would be placed on the access of the poor and a territorial and industrial vision of development would be used to facilitate the global integration of markets and centers of population in order to stem the spread of poverty in major cities. 

b) Based on the findings of these studies, analyze the range of feasible, necessary and advisable interconnections, determining the entry dates and the investments required.

c) Make audits of each country’s reserves, establishing the foreseeable supply and demand balances and estimating the reserves each country needs to discover, in order to evaluate the cost/benefits and balances among them and the supply security, vis-à-vis the advantages of integration. 

d) Outline and move ahead with agreements on financing mechanisms, price policies and trust fund management, in order to ensure upstream and downstream investments.  State-owned corporations can contribute to this objective by using oil revenues rationally.  

e) Establish administrative mechanisms and the responsibilities of the future regional supranational regulating agency or equivalent body.

f) Analyze methodologies for rate-setting and rules for the open access, supply security, competition, and protection of investments of users, in order to establish in the mid term the initial drafts of the common regulatory frameworks to be studied in depth and negotiated by the different countries and actors in the system. 

“Energy clusters”

Unlike trade in primary and secondary forms of energy --a typical commodities trade-- , whose prices have followed a downward trend of long standing, trade in energy services and in the capital goods required for the industry enjoy larger profit margins.  These are high value added goods and services.

Therein lies the importance of devising strategies for energy-based participation in the world economy that go beyond taking advantage of primary and secondary energy trade opportunities to assume an energy cluster approach. 

No systematic information is available today in the Andean countries that breaks down energy cluster activities sufficiently and at the same time makes their interrelationship possible.   

It was for that reason that the First Meeting of the Council of Andean Community Ministers of Energy, Electricity, Hydrocarbons and Mines, held in Quito in January 2004 gave priority to this area of work and agreed that UNCTAD would provide technical assistance for its development. 

Renewable energy sources and their tie-in with the Environmental theme and with the Integral Plan for Social Development (IPSD)

The First Meeting of the Council of Andean Community Ministers of Energy, Electricity, Hydrocarbons and Mines underscored the importance of linking up renewable energy sources with the implementation of the Andean Community’s Integral Plan for Social Development (IPSD).  The launching of studies was proposed to give special priority to the use of renewable energy sources in antipoverty programs and to foster access to basic services and their intensive use for meeting energy requirements in border, isolated and rural areas and, in general, of the population lacking energy sources. 

The First Meeting of energy and environment experts on the topic of renewable energy sources, held in Lima in May 2004, for its part, identified the following criteria for deepening the analysis of renewable energy sources in the Subregion: 

a. The Subregion’s renewable energy potential can play a key role in the world energy system by guaranteeing sustainable development and its ability to create new forms of cooperation among developing countries and between these and developed countries within the context of international environmental conservation commitments.

b. New strategies and policies must be put into play that will allow for rational use of endogenous energy sources and enable new and renewable sources to contribute to the security of the energy supply, while considering the particular needs of the individual Member Countries.  

c. Renewable energy sources constitute an asset for negotiation and their development can open up new opportunities for investment in local and regional development. 

d. Despite the advances made in electricity coverage in the Andean Subregion, nearly 22 million people continue to live in isolated communities without electrical services.  Renewable energy sources can help enormously to provide those communities with sustainable of electric power and other forms of energy.

e. Inasmuch as access to energy sources helps improve the living conditions of people in the Subregion, it is essential to link up this theme with the formulation and implementation of the Integral Plan for Social Development (IPSD / Decision 553), in keeping with the United Nations Millennium Development goals. 

f. It is important to evaluate the role renewable energy sources can play in the provision of energy by and the productive development of the integration hubs in which the Andean Community is involved within the framework of the South American Regional Infrastructure Integration Initiative (IIRSA).

g. The Andean Community should play an active role within the Johannesburg Renewable Energy Coalition.

The meeting concluded by identifying the need to lay the groundwork for a future Andean Renewable Energy Strategy to be considered at the next meeting of the Council of Andean Ministers of Energy, Electricity, Hydrocarbons and Mines and of the Andean Committee of Environmental Authorities.