ARGENTINA: Gov’t Attempts to Ease Impact of Energy Crisis on Consumers

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 29 2004 (IPS) - The Argentine government barely had time to celebrate last year’s 8.7 percent rise in Gross Domestic Product (GDP) before it came up hard against an energy crisis that threatens to curb growth this year, and could even hurt President Néstor Kirchner’s popularity.

After several years of recession and an all-out collapse, the Argentine economy is rallying, and the growth in economic activity has driven up demand for natural gas, which has in turn led to shortages in the past few weeks.

Around 45 percent of the country’s energy needs are supplied by gas-fired plants.

Last Friday, the government announced that there would be no power-cuts, a prospect that the Argentine population was increasingly worried about.

Officials added, however, that ”excess” natural gas exports to Chile, Brazil and Uruguay would be cut, in order to guarantee domestic supplies.

The decision triggered a conflict between the Kirchner administration and the private companies that won the concessions to supply fuel for residential areas, power plants, and cars that run on compressed natural gas, and to export gas.

The economy is expected to grow this year by up to nine percent. But that will further increase demand on an already overburdened energy system.

In 2003, internal demand for natural gas grew eight percent in residential areas and 11 percent in industry, while demand for compressed natural gas soared by 70 percent.

The centre-left government says the problem is that the privatised utilities have not made the essential investments in the energy industry needed to keep up with growing demand.

But the companies complain that they have not been allowed to raise rates which, they argue, has made it impossible for them to make the investments to which they committed themselves when the utilities were privatised in the early 1990s, and which would have prevented the current shortfall.

However, the government points out that the companies had failed to meet their commitments to invest in infrastructure since 1996 – a full six years before the crash of the Argentine peso led the utilities to demand the right to raise the rates charged to consumers.

Authorities also argue that the investments should be financed with risk capital, and not by consumers.

The government has kept the utilities from raising rates in order to prevent a rise in internal prices.

The problems have been compounded by a drought that led to a drop in output by hydropower plants, which meet another 45 percent of domestic demand.

Energy expert Gustavo Callejas, former director of the government’s office on fuels, told IPS that the underlying dispute is over the price of natural gas.

”The big producers want to raise the domestic price of gas to international levels, which would mean raising it from 0.40 to 1.50 dollars per BTU (British Thermal Unit),” said Callejas.

Thus, the providers had been sending less gas to the national power grid, while maintaining the level of exports – even excess exports – through the pipelines connecting Argentina and Chile, which absorbs 70 percent of this country’s natural gas exports.

Callejas forms part of the Movement for the Recovery of Directed Energy (MORENO), founded in 2001 by ex-employees of YPF (the former state oil company), energy experts, and activists like local filmmaker Fernando ”Pino” Solanas.

The group is demanding that the state reassert control over the power industry.

”Countries with a level of development similar to Argentina’s not only have not privatised their electricity companies, but also maintain a different price for exports and internal consumption. But here that hasn’t been the case with petrol, for example, and now the companies want to bring the local cost of natural gas” into line with international prices, said Callejas.

The energy shortages began to be felt several weeks ago. The government decided on a price hike for large consumers, offering companies the option of lower rates if they agreed to occasional power cuts. The proposal was designed to compensate for the drop in supplies caused by the growth in economic activity.

But the idea failed to take off, because a majority of large factories preferred to continue paying the normal rate to receive steady supplies, according to business sources quoted by the Buenos Aires newspaper Página 12.

Last week, the power companies warned that they would have to carry out power cuts over the next few days, due to fuel shortages. But the government said ‘no’ to outages for consumers, deciding instead to enforce the clause in the export contracts which states that priority must be put on meeting internal demand.

Interior Minister Aníbal Fernández said last Friday that the measure was taken in order to avoid blackouts, and blamed the shortages on the private utility companies.

The Economy Ministry’s director of coordination of macroeconomic policy, José Maia, admitted that the energy crisis is creating ”a bottleneck” for GDP growth.

Economists Carlos Melconián, an adviser to former president Carlos Menem (1989-1999), and the more centrist Miguel Bein concurred that industry and employment will be affected by the energy crisis if it is not resolved shortly.

Economy Minister Roberto Lavagna said it would be regrettable if an energy shortage slowed economic growth. He added that ”an adjustment” was needed in the electricity rates – a recommendation that is rejected by the rest of the cabinet and by the president himself.

The government is aware that any curb on growth, and any plan involving electricity rationing based on power cuts in residential areas, would have a negative impact on millions of people – as well as on the president’s approval ratings, which stand at a strong 60 percent.

To avoid blackouts, the Kirchner administration has also proposed putting off the scheduled shut-down of a nuclear power plant in need of servicing.