Although imported oil is the main source of commercial energy in those six countries, their markets are relatively small and fragmented. Early in the 1990s, several Central American governments started to liberalize their oil industries, which usually were controlled by the state and subject to fixed prices and margins. Nevertheless, three multinational firms dominate the sector, except in Costa Rica, where a state monopoly still exists. While demand for oil grew at a vigorous average of 11 percent a year during the first half of this decade, infrastructure constraints and weak regulatory frameworks still thwart efficiency and competition.

The Bank's Multilateral Investment Fund (MIF) in August approved a $1.1 million grant to support the Central American hydrocarbons market harmonization program, which dovetails with other initiatives designed to integrate the transportation and electricity systems of the isthmus.

The chief goal of the new project is to establish conditions that will foster an efficient and competitive market for oil and natural gas products and spur further investments in Central America.

The countries hope that a regional market with harmonized policies and regulations will attract larger investments and encourage new private sector enterprises.

A parallel project financed by the German Technical Cooperation Agency and supported by the un Economic Commission for Latin America and the Caribbean (CEPAL), will promote the rational use of fossil fuels and stronger environmental protection in Central America.

At the same time, the governments of the isthmus are looking into the possibility of piping in natural gas from Mexico for power generation and other uses.