Chile's Colbun eyes volatility

SANTIAGO (Reuters) - Colbun, one of Chile's biggest electricity generators, said on Thursday it had an unfavorable first quarter, and that it expects volatile times ahead in 2008 and 2009 as it deals with issues ranging from climate to gas shortages and high diesel prices.

Colbun COL.SN Chief Executive Bernardo Larrain told the Reuters Latin America Investment Summit in Chile that conditions would improve from 2010.

Like other Chilean electric companies, Colbun's generating costs are rising as it faces a shortage of natural gas, which is used to fire plants, higher diesel prices, and lower hydro dam levels during one of the worst droughts in decades.

The company said plans were on track to bring its Nehuenco 1 gas plant back on line in June after a fire closed it in December.

Chile's thermoelectric generators have seen increased maintenance problems on higher demand and because they have had to switch from natural gas to dirtier fuels such as diesel.

At the same time prices for diesel have climbed in Chile with rising demand.

"On the heels of the dry year last year and despite having more gas in small quantities and with the swap (with Argentina), the financial situation remains unfavorable," Larrain told Reuters.

Colbun reported a loss of some $93 million in 2007, hurt by skyrocketing costs for fuel to replace scarce natural gas supplies.

"In 2008 and 2009 Colbun will be exposed to natural gas supplies, a dry year (last year) and volatility in diesel prices, and those elements will remain unfavorable and Colbun could have results that are similar, worse or marginally better than in 2007," Larrain said.  Continued...