Electricity Crisis in Cuba: The Economy Takes a Beating

By Anonymous (El Toque)

HAVANA TIMES – Between 2018 and 2022 the Cuban government appealed to “scheduled service interruptions” to cut domestic consumption by 10.6%. However, this saving wasn’t enough to compensate the electricity generation deficit, which was the result of fuel shortages and the deterioration of old power plants. For that reason, the state-led sector had to also shrink its demand by 19.9%, partially paralyzing production. The harshest cuts affected agriculture (which had 45.3% less energy), industry (31.9% less) and construction (19.4% less).

The current year was looking brighter with electricity supply growing 37%, according to an annuoncement from the minister of Energy of Mines Vicente La O Levy, that was up until longer blackouts began again in September.

In May 2023,the Government proved its “energy optimism” with two acts. The reinauguration  of the Antillana de Acero electric steel mill and Deputy Prime Minister Alejandro Gil Fernandez’s announcement  of an order from President Miguel Diaz-Canel: “prioritize agriculture as soon as we have a better fuel situation.”

Both decisions were meant to send a message of hope about production possibly recovering in the national economy, but they still remain just words five months later.

With electricity shortages in recent weeks, and only two-thirds of national demand being supplied, it seems unthinkable to get the steel mill working in the capital or to allocate resources to barely “guarantee harvests,” as Gil Fernandez said during the Mesa Redonda TV show in which he announced the current electricity crisis.

Vicious cycle

The more than 220,000 tons of “liquid steel” the Antilla steel mill could produce per year would give an important push to construction and other industries. Steel just so happens to be one of the scarcest products in the country, and programs such as the local manufacture of building materials can’t replace it.

Investments in Antillana de Acero came from a Russian credit worth 95 million USD that has to be paid back with revenue from the steel work’s production. However, problems that stand in the way of it working at full capacity will force the Government to get this money by other means or most likely to negotiate late payments under unfavorable conditions.

Something similar is happening in the agricultural sector. Diverting fuel towards electricity generation has had a bearing on the failure to meet the latest cultivation and harvest plans. Likewise, plans for irrigation that use electricity are on standby. Both the lack of foreign currency to buy equipment as well as foreseeable problems with its use exist, even late in the night when domestic energy use drops.

Alarm bells about Cuba’s energy crisis began ringing when drastic measures were announced by the provincial governments of Villa Clara and Cienfuegos to reduce electricity consumption, to paralyze non-essential services, changing working hours, adjusting water pumping times and even disconnecting refrigeration and cold rooms when produce won’t be affected. These extreme measures reveal just how serious the electricity crisis is in Cuba.

The landscape has ended up becoming a vicious cycle. The island needs to increase industrial and agricultural production to reduce imports, but in order to do this, it needs a steady and cheap supply of electricity which it can’t guarantee, because it is spending the foreign currency it needs to do this on buying products it could be producing.

Five to ten years of investment

“In Cuba, the residential sector consumes 60% of electricity generated, compared to 42% that is the Caribbean average. Between 2000 and 2023, the residencial sector more than doubled its total consumption,” economists Jorge Piñon and Ricardo Torres explain in an article published by the Cuba Capacity Building Project, from Columbia University in the US, in December 2022.

In contrast, ever since 1990, electricity generation on the island grew at an annual rate of 1.1%, just a third of the global average. Seeking to overcome this “underdevelopment”, the Energy Revolution in the 2000s took a chance on generators to compliment power plants, with the older units already over the 30 years operational lifetime recommended by most manufacturers. The system worked while sufficient Venezuelan oil was available. But ever since “2016, it became clear that the island couldn’t count on such an abundant supply […]. The Government was forced to introduce rationed electricity consumption for public clients so it could minimize blackouts in the residential sector,” Piñón and Torres recall.

For a couple of years, the State’s “self-blackouts” were enough to prevent blackouts in homes. The situation changed in 2018, when problems importing fuel forced the return of residential blackouts, which have marked national everyday life ever since; sometimes, dramatically.

Protests on July 11, 2021 and in the summer/autumn of 2022 were triggered by long blackouts. After Hurricane Ian swept through the island in September 2022, civil unrest had Vedado as its famous epicenter, a neighborhood that barely supported protests in other areas of Havana back in 2021. The difference between these two moments was the almost week-long blackout across the capital, even in the central neighborhood. This experience proved to the Government that blackouts in Havana are a last resource, which they shouldn’t turn to for the sake of social stability. PCC First Secretary Luis Antonio Torres Iribar confirmed this in “unfortunate statements” calling them “solidarity blackouts” so the rest of the country could “suffer less” from blackouts.

With the private sector’s energy consumption growing – it increased 33.8% between 2021 and 2022 – and the residential sector’s demand not being met, but also clearly growing, blackouts in the productive economy seem to have reached their limit. The only solution is to renovate Cuba’s electricity industry from top to bottom.

They would need an investment of up to 10 billion USD and five to ten years worth of work to do this, economists Jorge Piñon and Ricardo Torres calculate. Given the magnitude of the project, the island would only be able to do this with the investment of foreign capital, which would demand a shift in mindset and the legal system. “Within a decentralized economic system, the use of Public/Private Associations should be considered […] that will attract private and multilateral funding,” they explain.

Their proposal focuses on its economic viability. Even if the island were to find a way to finance investments in electricity infrastructure, it would have the problem of dealing with the population’s low purchasing power, which forces them to subsidize 89% of residential customers. Growth of demand would mean increased expenditure without being able to recover it, like now. “Unfortunately, we don’t have the answer to the question “who’s going to pay?”, the experts admit.

Under these circumstances, prospects for the Antillana de Acero aren’t looking too promising. Nor are they promising for other productive projects that require a great deal of energy. The foreseeable fate of all of them will probably be that of the Sagua La Grande Electrochemistry complex, an industry producing different types of chlorine and hydrogen products as well as other industrial and home cleaning products that was upgraded just before the pandemic and was decisive in tackling COVID-19.

After the pandemic, it also received the order to “tighten its belt”, despite there being a foolproof market for productions of alcohol gel and caustic soda both in and outside Cuba. This happened in 2022 and in the first few months of 2023 – it could only resume operations in May. Today, there isn’t enough electricity for it to keep running. It’s as simple as that.

Read more from Cuba here on Havana Times.