OREANDA-NEWS.  Cuba's state-run utility UNE and Russian state-run power company Inter Rao pledged to start development of 800MW in new thermal generating capacity at two Soviet-era complexes in first quarter 2016, Cuban officials told Argus today.

The $1.6bn project has received a $1.36bn loan from the Russian government, and Cuba will provide the remaining funds, the officials said. The venture was agreed during a July 2014 visit to Cuba by Russian president Vladimir Putin.

The project involves three 200MW plants at the East Havana complex in the capital Havana, and a 200MW unit at the Maximo Gomez complex in Mariel, 40km west of Havana.

A date for commissioning of the plants "will be determined when construction begins," one official said. "These facilities will be designed to burn diesel and natural gas, allowing flexibility that will take advantage of variations in the availability and prices of the fuels."

The fuel source "will be subject to discussion by the parties, but we hope eventually that all the oil and natural gas for power generation will be produced locally."

Cuba produces around 50,000 b/d of liquids and 20,000 boe/d of gas from onshore and shallow water reservoirs. The island imports around 80,000 b/d of oil from Venezuela on preferential terms.

The domestic gas is used for power generation by the Energas consortium that is jointly owned by UNE, state-run oil company Cupet and Canada's Sherritt International. Energas has 506MW of Cuba's total operational generating capacity that UNE puts at 3,680MW. Sherritt International is the only foreign investor in Cuba's power sector.

In past years, Cupet has floated a proposal to import LNG for power generation through Cuvanpetrol, a Cuban-Venezuelan energy joint venture, at Cienfuegos on the southern coast, but the concept has not gained traction.

Cuba hopes to restart its stalled search for oil and gas in its waters in the Gulf of Mexico, Cupet said.

Spain's Repsol, Venezuela's PdV, Malaysia's Petronas and Russia's Gazpromneft were among foreign companies that failed to find commercial quantities of oil under a Cuban exploration campaign that ended in 2012 when the firms encountered dry holes.

The Maximo Gomez power complex was built by the Soviet Union and inaugurated in 1963. It was expanded in 1982 to rated capacity of 600MW, but has been subject to frequent breakdowns. Its capacity is now 320MW.

The East Havana plant was also built by the Soviet Union, and was planned with capacity of 1,200MW, but only three 100MW units were installed, and the facility's operating capacity is now 170MW.

This is the second agreement between Inter RAO and UNE to expand the Maximo Gomez complex. The companies created the Generaci?n Mariel joint venture in 2009 that was to upgrade 400MW of the station's generators and add 200MW of new capacity. The project was never started.