Argentina's power troubles
Cecilia Laclau
http://www.bnamericas.com...estado=3§or_pag=0Director/Fundelec
Consultancy Fundelec knows Argentina's power business like no other. The power consultancy's monthly report on the country's energy sector is hotly anticipated in the industry, especially now Argentina is suffering an energy crisis.
The latest issue showed the country saw new record power demand in the month of June. The news came as Argentina's government said it was ready to increase regulated rates 20%. Local press has also reported the country will spend 2% of its GDP to subsidize cheap energy in the country.
BNamericas interviewed Fundelec director Cecilia Laclau about Argentina's power situation, including record demand growth, the country's relationship with Chile, the possibility for new regional integration and the development of renewable power sources.
BNamericas: Fundelec's latest report showed power demand hit new record levels in June. Is this usual or something the country should be concerned about?
Laclau: It's usual for demand to grow. Every winter and every summer, new records are hit. It's a logical tendency. National industries are growing and consumers are also bringing more appliances into their households. It's obvious that demand should be growing.
BNamericas: How have demand increases been in comparison to other years?
Laclau: This year, demand growth has been less than in previous years. We've seen an increase of 3% so far for the first six months of the year compared to the same period last year. In other years, the rate hit 6%.
BNamericas: So this winter has been easier compared to other years?
Laclau: Well, the last six months have been easier. But June was a very cold month and demand rose. Demand increases when it's very cold or very hot, even with efficiency or conservation programs in place.
BNamericas: Is power still being rationed to industrial clients?
Laclau: Yes, there has been some rationing. There isn't any at the moment, but there was in June. The weather has improved and Argentina has been selling some power to Brazil. When the weather improves, the country has room to export a bit of power.
BNamericas: Is power supply growing to meet increasing demand?
Laclau: It's growing, but not at the same rate as demand. That's the problem.
BNamericas: What's leading the growth, the government or private sector?
Laclau: There has been some public investment in two new thermo plants that came online this year and they are finishing a nuclear plant.
There have been some small investments from the private sector in the reconditioning of existing plants. There are also some new small plants in the southern Patagonia region and people are starting to look at wind power. But it doesn't look like there will be a large amount of capacity growth in the next few years.
BNamericas: What fuels are being used to expand capacity? Coal, gas or renewables?
Laclau: It's mostly gas.
BNamericas: You mentioned wind power. Is there a lot of room for the industry to grow in Argentina?
Laclau: The first investments in wind power are beginning to take shape. Some projects have been announced, but there hasn't been a lot of concrete growth. People are also starting to study solar power along the Andes mountains in the northern part of the country. There are also some small hydro projects being studied. There are designs and locations, but there have not been decisions on financing.
BNamericas: What would have to happen to spur new investment and advance projects that have already been planned?
Laclau: The industry needs greater security. There is a certain degree of uncertainty in the industry regarding the legal framework and the rates.
BNamericas: Do you see rates rising in the short term?
Laclau: The government has just announced a 20% increase after not having touched the rates in seven years. It's still not certain though, because nothing has been officially approved.
BNamericas: There have been reports Argentina will spend nearly 2% of its GDP this year to subsidize cheap energy in the country through power regulator Cammesa. Is this true?
Laclau: Yes, that's what the government has been spending across the entire energy sector for gas, LNG and imported electric power. It includes what Cammesa is spending, but also the amounts the government is paying to import gas from Bolivia, LNG from Trinidad & Tobago and power from Brazil.
BNamericas: Is this sustainable? How much longer can this go on?
Laclau: No. But that's a very complicated question. These are political questions. The government should not be covering such a large deficit, but what can you say? These are the remedies the government is choosing to address the current problems.
BNamericas: How's the relationship with Chile? The natural gas cuts are persistent and the price Argentina charges Chile was recently doubled. There have also been disputes about the central Salta in the north of Argentina that usually sends power to Chile.
Laclau: The problem with Chile is Argentina doesn't have the gas. There is just not enough gas to meet domestic demand in Argentina and the amount required by Chile. It's a regional issue. There is, however, probably some room to increase power exports from Argentina to Chile.
The NOA-NEA transmission line has been tendered and will be very important for the connection with Chile in the future. Argentina already has one connection with Chile for the Salta plant owned by AES Gener, but the NOA-NEA line will create new opportunities for power trading between Chile and Argentina.
The line will connect the north of Argentina with the rest of the country and the interconnections with Brazil. So once this line is completed, Argentina could send more power to Chile if needed. Power from Brazil could also pass through Argentina and be sold to Chile.
BNamericas: So there are opportunities for more regional connections? It's always a popular topic, but little seems to actually happen.
Laclau: Well, the line will be one of the first small steps. It could to lead some interesting relationships. Argentina is connected to Brazil and the new line will end up connecting Chile with Argentina's national grid.
BNamericas: When is this line going to be ready?
Laclau: According to the government, it's supposed to begin operations by the end of the next year.
BNamericas: So are you optimistic about the country's power sector?
Laclau: Well, the main problem has remained the same for the past few years. Supply growth is not meeting demand growth. What Argentina needs now is to
recuperate a little bit. We need to recover natural gas and electric power production so we are not always flirting with the limit.
Poster's Note: I've got a special focus on southern South America because I've spent 3 of the last 5 winters in Argentina and Uruguay but I
do think its a harbinger for up north as well. I think folks would be surprised on how much distillate is shipped from the U.S. Gulf to Latin America. Its
part of the reason our diesel economics are so high. As I've mentioned b4, I was surprised the little country of Uruguay gets +97% of their power from
oil burners.
I've also spent some time in that Salta region up north, mentioned in this article because of the power plant there and trade with Chile. The further
north you go in Argentina the more CNG cars you'll see.
In '04 I went there with an older wealthy buddy of mine to evaluate a 600,000 acre ranch for sale right next to a Hess winery (hghest altitude winery in
the world) and this http://www.welcomeargenti...cosecha_1831/index_i.html
The ranch was up over an 11k foot Andean pass on an old Incan road. I've never been so far back in the boonies. Asking price? $2.6 mil. Ha! It was high
plains desolate cattle country. But how ya gonna beat that price? My buddy ended up having subsequent health probs and didnt buy it but I think part of Bill
Bonner's crew at Daily Reckoning/International Living did.
Incidently, I'm organizing a little Uruguay/Argentina tour for Jan of '09. If you have any interest in tagging along, drop me a note.



