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ARGENTINA: Energy Crisis – Gov’t Upbeat, Experts Still Worried

Marcela Valente

BUENOS AIRES, Jun 10 2004 (IPS) - While the Argentine government is optimistic that its measures aimed at tackling the country’s severe energy crisis have largely brought the situation under control, experts who talked to IPS warn that the system is operating at the limit of its capacity, and without any margin for unforeseen problems.

Minister of Federal Planning, Investment and Public Works Julio De Vido said this week that electricity supplies are 10 percent higher than in June 2003, and that fortunately gas consumption is not increasing as fast as expected at the start of the southern hemisphere winter because gas has been partly replaced by other sources of energy.

”We are moving towards a normalisation of supplies,” said De Vido at a ceremony held to announce that the Embalse nuclear power plant was once again operating after a six-week planned closure for maintenance work.

Argentina’s energy crisis broke out in March, when the government of President Néstor Kirchner admitted that there were difficulties in ensuring energy supplies to industry due to a 28 percent drop in water levels in the rivers with respect to 2003, which affected hydropower supplies, and a rise in energy demand generated by the economic recovery that began last year.

Economic activity grew 8.7 percent in 2003, leading to increased energy needs.

Meanwhile, over the past two years, the privatised firms producing natural gas in Argentina gave top priority to exporting fuel to neighbouring Chile, their main client, while limiting their investment in projects aimed at increasing domestic supplies for industry and thermal power plants.

Many factories stepped up their activity in the first few months of the year, to get ahead before possible gas supply cutoffs in the coldest months of the winter, June through August, when demand for energy peaks.

In consequence, the system collapsed, and the gas supply cutoffs to factories began to occur much earlier than expected.

Most companies in Argentina have interruptible gas service contracts, because they are significantly cheaper than contracts for non-interruptible gas supplies, and normally, when cutoffs occur at all, they generally take place for only one week in July, the coldest month of the year, when demand for natural gas for heating peaks.

As a result of the crisis, the government reduced gas exports to Chile; allowed the energy companies to increase rates on natural gas for large consumers; and launched an energy programme on May 12 that included plans for public and private sector investment, taxes on fuel exports, and measures to encourage households to keep down consumption of heating gas and electricity.

In addition, the government decided to purchase fuel oil from Venezuela, electricity from Brazil, and gas from Bolivia, while promising to expand the country’s natural gas distribution network.

In a confidential report to which the newspaper Página 12 gained access in late May, the Economy Ministry – more cautious than Minister De Vido – admitted the possibility of bottlenecks in the transportation of energy this winter.

Nor did it rule out future cutoffs of supplies to gas-fired factories and power plants at times of peak demand.

Independent experts say a possible deficit of domestic supplies is a serious problem that could hurt economic growth, which rallied in 2003 after four years of recession including the late 2001 economic collapse.

Former energy secretary Daniel Montamat warned this month that the rise in demand for energy in the winter months could cut Gross Domestic Product (GDP) growth by one percent this year.

Alberto Muller, the coordinator of the ‘Plan Fénix’, which was drafted by economists at the public University of Buenos Aires to suggest alternatives to neo-liberal, free-market economic policies, told IPS that if gas consumption continues to rise at the same rate that it did in the first months of the year, the country will run into energy distribution problems.

”I really don’t know how much the government has prepared for the projected rise in demand, but the system is currently operating at capacity,” said the economist.

He recommended that the authorities begin to consider expanding installed capacity, which would involve long-term investments that he said the private oil companies are not prepared to make.

”What we need is a serious plan, and so far I just don’t see one. The government may see replacing natural gas with fuel oil from Venezuela as a solution, but while it has solved the problem in the short-term, it has a cost, because fuel oil is six times more expensive than gas,” he added.

Meanwhile, Carlos Andrés Ortiz, an economy professor at the National University of Misiones who specialises in research on energy and the environment, told IPS that ”The government’s measures look like a bunch of bandaid solutions that focus only on the short-term” and are mainly the result of ”improvisation”.

A study by Ortiz was published in the latest bulletin of the Movement for the Recovery of Directed Energy (MORENO), which represents energy industry workers and experts who opposed the mid-1990s privatisation of the industry.

”Unless effective measures are adopted quickly,” it is possible ”to affirm that between 2006 and 2008, Argentina will face an energy crisis of major proportions, the cause of which will be a marked shortfall in installed capacity and the inability to cover predictable energy demand,” says Ortiz’s report.

Real installed capacity – the energy available without taking into account normal margins for repairs or periods of low water levels – stands at around 15,500 megawatts, according to Ortiz.

Last year, demand amounted to 14,359 megawatts, and it is projected to climb to between 15,350 and 16,600 megawatts this year.

That estimate is based on ”moderate” GDP growth, near the Economy Ministry’s projection of five percent. But Central Bank president Alfonso Prat said this week that this year’s GDP growth could reach eight percent.

Unless there is urgent investment in building new power plants and expanding the distribution networks, the power grid ”will enter into a profound structural crisis in as short a term as two to four years from now,” says Ortiz.

In his view, the system is operating ”at the limit” of capacity, ”with very little margin for unexpected developments.”

Ortiz also predicts that if new power plants are not built quickly, the country will experience ”a severe crisis of installed power generating capacity that will lead to cuts and restrictions of supplies for major consumers, many of whom will have to opt for self-generation of electricity, which would drive up the operating costs of industry.”

Perhaps the problems faced right now are on their way to being solved, but ”at a high general cost,” including ”a curb on growth, an enormous transfer of income to foreign energy companies – through utility rate hikes – and serious inconveniences for industry,” says Ortiz.