Cold snap prompts Chile to seek gas deal with old foe Bolivia

A South American cold snap is causing Chileans to pay up to four times more for heat and electricity, and could spur the government to speed reconciliation with its bitter – but gas-rich – foe, Bolivia, observers say.

As temperatures dropped to near-record lows in recent weeks, neighboring Argentina has had to cut off some gas shipments to Chile in order to meet its own domestic demand.

Now, an increasingly disgruntled Chilean public is pressing the government to seek gas deals with other countries, including Bolivia.

"I believe that we need to leave behind these historic feuds once and for all and start an open and frank dialogue with Bolivia," said Chilean senator Nelson Ávila after the latest round of gas cuts last month. "Bolivia has some of the largest natural-gas reserves on the planet, and we could easily benefit from them."

In 1995, Argentina promised a cheap, steady supply of natural gas to satisfy Chile's residential, industrial, and electricity-generating needs.

Still, what was then perceived to be the cure-all to Chile's energy woes has since morphed into one of the country's biggest problems. Today, Chile imports nearly 100 percent of the commodity from its Andean neighbor. This winter's cold temperatures have exposed this dependency.

"Depending on Argentina is wishful thinking; they do not even have enough gas to meet their internal demands," Eduardo Frei, president of the Chilean Senate, told reporters recently.

In response to the shortages, many Chilean businesses, particularly electricity-generating companies, have reluctantly switched to diesel fuel. The situation reached a low point in June, the first month since the 1995 agreement that Chile used no natural gas to generate electricity. Diesel costs up to four times as much as natural gas and pollutes far more.

The consequences have been disastrous: electricity bills have risen sharply. Some industry analysts expect them to rise by as much as another 13 percent by winter's end.

Additionally, Santiago, the country's capital and largest city, has experienced a sharp spike in air pollution, including its smoggiest day since 1999.

New solution with an old foe?

In light of the increased pressure to find new energy sources, the Chilean government has begun to explore purchasing natural gas from neighboring Bolivia.

On the surface, this partnership seems like an ideal match. Chile needs natural gas to satisfy internal demands.

Bolivia, which has South America's second-largest natural-gas reserves, also stands to benefit from better ties: The country is seeking more potential gas customers as well as foreign investment to help modernize its gas-industry infrastructure.

But the two countries have a long legacy of diplomatic feuds.

Chile and Bolivia have had icy relations since the War of the Pacific in 1883. At that time, Chile took Bolivia's access to the Pacific Ocean, a loss that soured relations. Diplomatic ties were eventually broken off in 1978 over Bolivia's insistence on regaining access to the sea.

'First step toward reconciliation'

In spite of this sensitive history, relations between the two nations have thawed in the last year. Since Chilean President Michelle Bachelet and her Bolivian counterpart, Evo Morales, assumed their respective positions in 2006, officials from both countries have tried to boost dialogue and reconciliation.

The latest sign of rapprochement came last week, when Chilean Energy Minister Marcelo Tokman and Bolivian Hydrocarbon Minister Carlos Villegas met in Bolivia's capital, La Paz, to discuss energy integration.

The two ministers discussed cooperation on geothermal energy at length. But they decided to put off detailed discussions about gas until a later date, which has not yet been set.

Chilean politicians and officials have spoken out in favor of the renewed dialogue.

"I think that last Monday's meeting was a very important first step toward reconciliation," says Paula Vasconi, an official at Terram, a Chilean think tank that promotes environmental protection and sustainable development.

Still, Ms. Vasconi went on to vocalize Chilean concerns over the talks' most serious sticking point: Bolivia's territorial demands. Chile has tried to keep its energy discussions separate from landlocked Bolivia's desires for sea access, and this could represent a point of contention in future negotiations.

"I think that these talks could lead Chile and Bolivia to establish diplomatic relations once again," says Vasconi. "But it all depends on how Bolivia deals with the sea access issue. If things with that issue do not get too complicated, then there could be very positive results."

Temperatures go down, prices go up

This winter, Santiago's Meteorological Association has recorded some of the coldest temperatures since 1984. In early July, temperatures dropped to as low as 23 degrees F. in Santiago's outlying Pudahuel neighborhood.

The Nation Energy Commission (CNE) warned Chilean consumers in late July that their electricity bills will rise another 6 to 7 percent in August.

Also, some industry sources say higher generation costs could translate to higher electricity bills through October.

Chilean Finance Minister Andrés Velasco announced that the government will distribute funds to the poorest 40 percent of the Chilean population in order to defray the higher costs. Each family will receive 800 pesos ($1.40) in two installments. According to Mr. Velasco, this plan will cost the government more than 800 million pesos ($1.55 million).

But these payments only go so far; for 140 kilowatts of electricity, monthly electricity bills can easily reach as high as 20,000 pesos ($39) in parts of southern Chile.

For most Chileans, it is becoming more clear that maintaining the status quo is not viable.

"It is horrible. Electricity prices have been going up for a while," says Santiago resident Hugo Velasquez.

"If you look at my past few energy bills, they have gone up considerably for the past two or three months … and now I have to reach a special agreement with the company on how to pay because, if you are late on making your payments, they charge you even more," says resident Carlos Larrain.

"The government is getting used to making decisions in its technocratic circle without taking into account the problems which affect normal people," said Senator Ávila.

But that could be changing.

"The pressure put on the government has undoubtably pushed it to look to Bolivia as a source [for gas]," says Vasconi. "The faster Chile reaches an agreement with Bolivia, the faster Chile can opt for this new energy source for the country."