Economy & Trade, Headlines, Latin America & the Caribbean

CHILE-ARGENTINA: Relations Strained by Gas Dispute

Gustavo González*

SANTIAGO, May 5 2004 (IPS) - Argentina’s energy crisis and the reduction in natural gas exports to Chile have strained relations between the two neighbours, which had been strengthened by a dynamic integration process that began in the 1990s.

But above and beyond the political, economic and diplomatic implications, the problems arising from the cut in gas supplies to Chile have thrown into question the over-dependence on that source of energy, say environmentalists and lawmakers in the region, who complain that the current energy policies were imposed by business interests.

Since Apr. 1, the Argentine government of Néstor Kirchner has slashed exports to Chile by around 20 percent, from an original 3.3 million cubic metres a day.

The Chilean government of President Ricardo Lagos complains that by unilaterally deciding to cut gas supplies to Chile, Argentina has failed to live up to the energy integration and gas export agreements signed by the two countries in 1995.

Lagos toned down his remarks Tuesday, saying on his return from a tour in Africa and Asia that relations should not be ”gasified”, but seen in their entirety, and that he hoped a bilateral agreement would be reached to solve the problem.

But Santiago has not retracted its threat to file a complaint with the World Trade Organisation (WTO).

The Kirchner administration argues, however, that the energy and gas agreements with Chile were never actually ratified by the Argentine parliament because they contravene national laws which stipulate that domestic needs must be met before surplus fuel is exported.

Argentina began to suffer a shortfall in energy last year as demand climbed due to the country’s recovery from a dire economic crisis.

”Argentina’s domestic gas supplies take priority,” Argentine Interior Minister Aníbal Fernández said on Apr. 30. ”Companies cannot sign export contracts that run counter to national legislation.”

But Osvaldo Rosales, the head of international economic relations in Chile’s Foreign Ministry, said the same day that ”In Chile’s view, (international) treaties must be complied with, and take priority over common laws.”

Buenos Aires says Santiago should directly negotiate with the companies that produce and distribute energy in Argentina since the privatisation process of the 1990s.

The Kirchner administration holds the private companies responsible for the crisis, complaining that they failed to live up to the terms of their contracts, which obligate them to make the investments needed to increase production and meet internal demand while fulfilling export agreements.

But Rosales and other Chilean officials say Argentina’s economic policy is to blame for the crisis.

They argue that by freezing public utility rates two years ago despite the devaluation of the Argentine peso, the Kirchner government has fomented a lack of investment in exploration, pumping and distribution of natural gas.

The private companies that distribute and sell natural gas in Argentina have been fighting with the government for months to be allowed to increase domestic prices, which currently stand at one-third of what Chile is paying for natural gas imports from Argentina.

The Chilean market absorbs more than 70 percent of Argentina’s exports of natural gas.

Natural gas accounts for 37 percent of the electricity generated in Chile, where it has also become the main household fuel since the late-1990s, replacing butane gas.

Winter is approaching in the southern hemisphere, but Chilean authorities say there will be no shortages or rationing of the gas used for cooking and heating purposes in residential areas. ”Señora Juanita (the generic name used to refer to homemakers in Chile) does not have to worry,” said Luis Sánchez Castellón, secretary of the National Energy Commission.

Chile will have to increasingly seek out more expensive sources of energy like coal or oil to fire its thermal power plants, which will drive up the cost of producing electricity, the rates of which will increase by around three percent this month, and could rise by a total of 11 percent this year.

Sánchez Castellón, lawmakers, and Juan Claro, the head of the Confederation of Production and Trade business association, are among the many Chilean emissaries who have travelled to Argentina since the natural gas dispute broke out a month ago, to meet with government officials and fuel company executives in search of a solution.

Even Chilean Foreign Minister Soledad Alvear flew to Buenos Aires after her Argentine counterpart, Rafael Bielsa, annoyed the Lagos administration by twice postponing a visit to Santiago, which never took place.

The Chilean government became even more irritated on Apr. 21, when Kirchner and Bolivian President Carlos Mesa signed an agreement under which Argentina will import four million cubic metres of natural gas a day to help ease Argentina’s shortage of domestic supplies.

Lagos criticised Kirchner for accepting a clause in the agreement that expressly prohibits Argentina from re-selling Bolivian gas imports to a third country.

Analysts say the clause was clearly written with Chile in mind. Since landlocked Bolivia lost its Pacific shoreline to Chile in the War of the Pacific (1879-1883), it has been demanding an outlet to the sea, and relations between the two countries have been tense.

To the Bolivian slogan of ”Not one molecule of gas for Chile”, Santiago Mayor Joaquín Lavín, the right-wing opposition’s likely presidential contender for the December 2005 elections, retorted ”Not one drop of sea for Bolivia”.

But some officials have called for calm. Chilean Economy Minister Jorge Rodríguez said an ”escalation of a war of words that will get us nowhere” should be avoided, while Argentine Economy Minister Roberto Lavagna urged officials ”not to make a big drama out of this situation.”

Lavagna and Sánchez Castellón are among the optimists who believe the measures announced by Kirchner on Apr. 27 aimed at encouraging Argentines to save energy will help contribute to a solution.

The campaign will reward households and businesses that consume 95 percent or less gas and electricity than during the same period last year, while penalising those that consume 95 percent or more, with higher prices.

In addition, energy and fuel companies have pledged to increase production in the southern Argentine province of Neuquén, the starting-point of the gas pipelines that run to Chile.

Chilean business leader Claro called Apr. 30 in Buenos Aires for a solution based on classic free-market measures: an end to what he described as ”subsidised” fuel and energy prices in Argentina, and deregulation to bring utility rates to ”normal” levels and foment private investment.

But that vision is not shared by Argentine society. The new system of incentives and penalties to encourage energy savings in Argentina has been criticised by consumer defence groups, which see it as a disguised price hike.

Ordinary citizens, meanwhile, complain that they are being made to pay for the privatised companies’ failure to live up to their contractual obligations to make the investments needed to ensure domestic fuel and electricity supplies.

Gustavo Callejas, a former secretary of fuel in Argentina and a member of the Movement for the Recovery of Directed Energy (MORENO), told IPS it makes no sense to continue exporting gas when 50 percent of the population has no access to that fuel.

”If, according to the official rhetoric, the companies are responsible for the situation, then the (Kirchner) government should punish them instead of consumers,” said the expert.

Callejas argued that Argentina should not export natural gas when the estimates of the country’s gas reserves have been corrected downwards from 40 to just nine years.

The scenario has become even more complex due to the recovery of the Chilean and Argentine economies.

Consumption of natural gas in Chile in the first quarter of the year totalled 20 million cubic metres a day, 17 percent up from last year’s consumption level.

In Argentina, meanwhile, according to a letter sent to Energy Secretary Daniel Cameron by six electricity distribution companies, the gas shortage could amount to 10 million cubic metres a day this winter, instead of the initial projection of seven million.

Environmentalists in Chile complain that natural gas is a non-renewable source of energy whose large-scale use has been imposed by business interests, because it is a cheap source of energy that generates short-term profits.

The energy crisis in this region ”is a consequence of the policies implemented by the governments, which have given rise to over-dependence on fossil fuels and mega-hydropower dams,” said a statement issued by citizen groups meeting in Santiago with the Latin American Parliament on Apr. 29-30.

In a simultaneous declaration, the parliamentarians said that by 2010 the region should obtain at least 10 percent of its energy from renewable sources like wind, solar, geothermal, biomass, biogas, wave, tidal and small dams.

Although an estimated 20 percent of energy in Latin America is currently generated by renewable sources, large hydropower dams account for most of that estimate.

* Marcela Valente in Argentina contributed to this report.

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