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In May 2010, by officially joining the Organisation for Economic Co-operation and Development (OECD), Chile successfully fulfilled the first and foremost requirement to apply for membership in the International Energy Agency (IEA).

Chile is one of only six OECD members – the others are Iceland, Mexico, Estonia, Israel and Slovenia – that have not yet joined. But in October last year the IEA’s governing board approved the start of negotiations for Chile to join this group of 28 nations. Since then, both parties have carried out a series of cooperation activities including training and capacity building workshops for Chilean officials at the Agency headquarters in Paris, joint research and exchange of energy statistics. 

Founded in response to the 1973/74 oil crisis, the IEA’s initial role was to help countries coordinate a collective response to major disruptions in oil supply through the release of emergency oil stocks to the markets. While this continues to be a key aspect of its work, the IEA has evolved and expanded. It is at the heart of global dialogue on energy, providing authoritative and unbiased research, statistics, analysis and recommendations.

The relationship between Chile and the IEA was forged during the country’s OECD accession process when it asked the Agency to conduct a first-ever Energy Policy Review. Published in 2009, the document took a comprehensive look at Chile’s energy sector including its institutional framework, energy security strategy, environmental sustainability efforts and energy efficiency programs as well as recent developments in fossil fuels, electricity, renewables, biomass, transport, access to energy in rural areas, and research and development (see Box).

According to Carlos Piña, head of the Energy Ministry’s International Department and Chile’s contact person for the negotiations, there are several benefits in being a fully-fledged member of the IEA: “Perhaps the most important one is to belong to a network of countries that are at the forefront of energy policy, with the corresponding access to information, knowledge, technology and world renowned experts. In addition, member nations can rely on an energy security response system in case of natural disasters and participate in the Agency’s cooperation activities, technical workshops and capacity-building events.”

The real test of Chile’s commitment to successfully completing the requirements established by the IEA will be whether the country is willing and able to adhere to the provisions obliging members to hold oil stocks equivalent to at least 90 days of net imports and – in the event of a major oil supply disruption – to release stocks, restrict demand, switch to other fuels or share available oil, if necessary.

Currently, Chilean law establishes that each producer or importer of oil-based liquid fuels is obliged to maintain a stock equivalent to only 25 days of its average sales or imports of the last six months. Thus, to comply with the IEA requirements, both the Chilean State and private companies operating in the country will have to invest in building new storage and distribution facilities, increasing capacity and upgrading logistics. In addition, they will have to bear the financial and physical costs of managing oil inventories that will be almost four times larger than they are today. 

In any case, these changes do not have to occur anytime soon since the IEA accession process usually takes several years, which gives candidate countries plenty of time to make the necessary adjustments to their regulatory system and upgrade their infrastructure. 

Karen Poniachik is a former Energy Minister, a member of the board of E.CL and Terpel-Chile, an AmCham director, and a vice chair of bUSiness CHILE’s Editorial Committee.

Key Policy Recommendations by the IEA (2009)

• Continue to pursue diversification of energy sources and suppliers to enhance energy security, in particular the active development of indigenous sources such as renewable energy and energy efficiency.

• While investment decisions should continue to be made by the private sector, the government needs to take a more proactive position with regard to monitoring energy developments and systematic risk assessment.

• Given the strategic importance of some of the energy projects currently under consideration in Chile, the government should address all the issues at stake in a national public debate with the aim of fostering support for such decisions across the political spectrum.

• The government should consider transforming the Dispatch Centers (CDECs) in the country’s two main electricity grids – the SIC and the SING – into wholly independent entities, along the lines of the independent system operator model found in the United States, Canada, Europe and Australia, where the boards of grid operators do not have financial interests or ties to any company doing business in the wholesale electricity markets they administer. This would ensure that the decisions of the two system operators are impartial and represent the interests of all users, including consumers.

• The government should consider formulating a national greenhouse gas emissions mitigation strategy with national and sector-level objectives to prepare Chile’s economy for a possible post-Kyoto international climate agreement. This would avoid the risk of “locking-in” future CO² emissions in the electricity sector. This recommendation also applies to other sectors such as transport. The application of fully cost-reflective pricing of transport fuels, roads and transport modes will facilitate the transition to a more sustainable energy system.

The complete document is available at:  http://www.iea.org/textbase/nppdf/free/2009/chile2009.pdf