Government Stunts Investment In Argentina Power Sector - Fitch
March 07 2012 - 4:58PM
Dow Jones News
Argentina's electricity sector is limping along with very low
private investment and there is a risk to its long-term
sustainability due to heavy-handed government policies, according
to Fitch Ratings company.
"The primary market considerations for the Argentine electricity
sector are the high degree of government intervention, the lack of
interest from private investors, as well as the shrinking reserve
margins," Fitch said in a report Wednesday.
Those shortcomings are most apparent during the hottest summer
months when residents crank up air conditioners and power outages
are common.
In December, the government said it would slap the country's
three top power distributors with multi-million-dollar fines due to
a series of blackouts. The penalties were levied against
electricity distributors Edenor (EDN, EDN.BA), Endesa SA (ELE.MC,
ELEZY) controlled Edesur, and AES Corp.'s (AES) Edelap. Edenor is
majority-owned by holding company Pampa Energia SA (PAMP.BA), which
also controls power transmitter Transener (TRAN.BA).
Argentina has kept electricity tariffs largely frozen since the
2001-2002 economic crisis, which has stifled investment and led to
a high dependence on government subsidies to cover tariff deficits,
according to Fitch. Although the government recently disclosed some
cuts to those subsidies, they are expected to remain substantial
over the medium term and keep rates basically unchanged, Fitch
said.
The limited tariff increases haven't been enough to support
power-transmission expansion and the companies are suffering due to
high inflation, Fitch said.
Electricity generators continue to rely on imported natural gas
and fuel oil, and long-term prospects hinge on new unconventional
gas reservoirs and new sources such as nuclear, solar, wind, and
biomass, Fitch said. According to the ratings company, Argentina
will require approximately 500 megawatts of new installed capacity
per year and associated transmission infrastructure to balance
supply and demand.
But "given the scarce interest from private investment in the
sector, most [capacity investment] is being done by the Argentine
government," Fitch said.
State-run Energia Argentina, or Enarsa, and Nucleoelectrica
Argentina, or NASA, are investing in thermoelectric and
nuclear-generation capacity.
The private sector is just making modest investments based on
long-term power-purchase agreements with state-run Enarsa and
Cammesa at prices above the spot market, Fitch said.
Currently, steam turbine and natural-gas thermoelectric plants
produce 59% of the country's electricity, while 22% is
hydroelectric and 6% is nuclear.
Demand has surged in recent years, growing an average of 4% in
each of the last 10 years, in line with the country's brisk
economic growth, according to Fitch. A similar gain in demand is
expected this year.
-By Shane Romig, Dow Jones Newswires; 54-11-4103-6738;
shane.romig@dowjones.com