This summer promises to be hot and unforgiving for the people of Cuba. The island’s power sector is in a systemic collapse, decades in the making.
Blackouts have averaged between 12 and 20 hours a day for the past couple of years, and this has been exacerbated by the loss of Cuba’s oil imports from Venezuela against its need for 60,000 barrels per day.
The result of this most recent setback is a vicious cycle: blackouts leading to economic contraction, less revenue resulting in less fuel availability and maintenance to the existing infrastructure, worsening blackouts leading to mass migration (25% of the island’s population has left since 2020), less capital available for investment, and we repeat the cycle.
Turning up the heat on the Cuban government is the growing prospect of a U.S. intervention under the Trump Administration. However, whether the change on the island is internal or external, a political transition will not succeed unless the national power system is first stabilized.
We cannot rely on the hope that private investment will magically appear and solve the issues already at play. Mass migration to the U.S. (primarily South Florida) and economic chaos are the most likely outcomes of inaction on this issue.
Six solutions to improving the energy crisis
Credit: Handout
Credit: Handout
To that end, we are suggesting that the U.S. government take the following steps to ameliorate the situation before any engagement with Cuba:
- Begin the transition planning now, before the transition occurs. What we have learned in the past five months from our engagements in Venezuela and Iran is that we cannot wait to plan on the fly after the initial foray.
- Discuss with Congress ways in which to deal flexibly with the rigid strictures of the 1990s era Helms-Burton sanctions. The legal obstacles to the formal recognition of any type of government structure in Cuba are steep, and we must be willing to either change or work around the existing law if we want the transition to occur.
- Support Cuba’s accession to the International Monetary Fund, the World Bank, International Development Bank and the Interamerican Development Bank.
- Mobilize multilateral development bank guarantees (World Bank and IDB) for emergency power ships and power purchase agreements to provide energy resources during short- and medium-term engagement periods.
- The reality of this challenge is captured in this key number: the total cost for this work is $7.1 billion, according to our research using the U.S. Producer Price Index. We must organize a donor consultative group (U.S., Canada, European Union and Latin America) to secure grant financing for a $3 billion donor envelope. U.S. taxpayers cannot be saddled with the cost of work that must take place in Cuba to rescue the energy sector.
- Create a U.S. public/private consulting group comprising policy experts in energy, legal and finance, government relations and international development to guide engagement with Cuban government entities on the island.
U.S. can expand economic interests and keep the island stable
Credit: Handout
Credit: Handout
This serves U.S. interests by mitigating the risk of chaos that could fuel a mass migration crisis on the island.
U.S. liquefied natural gas (LNG) exporters would gain a new market 90 miles from Key West, and American oil and gas, nuclear, and renewable energy engineering, construction, and management firms will win contracts. Multilateral development banks will provide guarantees that will assuage concerns from private investment, also meaning that there will be no direct U.S. appropriations to finance the energy generation.
For Cuba, it addresses an immediate need to generate electricity to support the island’s livelihood and to stabilize its economy after a long period of distress and isolation.
Bringing Cuba into closer cooperation in the energy sector is a win-win proposition for both Cuba and the U.S.
Perhaps it portends a new kind of relationship between these hemispheric neighbors — one that is finally based on trust, mutual respect, and reciprocity.
Failing to address the immediacy of this challenge will almost certainly create further distress and higher human and financial costs, here and there.
Juan A.B. Belt is the president of International Finance and Economics LLC. Jonathan Benjamin-Alvarado (Ph.D., 1998, University of Georgia) is the president of Miramar Associates Consulting. Both have written extensively on Cuba and Latin American energy development over the past 25 years.
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