Argentina's Kirchner Unveils US$3.83bn Energy Plan

Argentina's President Néstor Kirchner announced Tuesday night an 11.1bn-peso (US$3.83bn) spending plan and the creation of a new state-controlled energy company, Energía Argentina (Enarsa), through which he aims to resolve the country's energy crisis.

The federal government will own 53% of Enarsa, provincial governments 12%, with the remaining 35% listed on the stock market.


The government will make an international call for bids for the supply of 500MW from Brazil, representing the equivalent of 2.5 million cubic meters a day (mcm/d) of natural gas. It has already started an energy savings plan which aims to make surpluses available for the industrial sector.

Kirchner outlined a number of specific projects:

Investment of 6.7mn pesos in repairing a transformer at the Rio Grande Cordoba hydro plant, saving 3mn pesos a year in liquid fuels consumption and providing 370MW reserve power in the short term. The project is scheduled for completion by the first quarter 2005.

Investment of 40.6mn pesos in increasing Comahue-Buenos Aires transmission capacity by expanding capacitors on the Choele Choel-Olavarría line, with operations starting by end-2004. Raising the water level of the Yacyretá hydro plant to 78m by April 2005 from 76m at present. By end-2004, the level is expected to be 77m, generating an extra 180MW. Increasing the level from 77 to 78m would provide another 180MW.

Investment in reaching 78m is 87.6mn pesos, but from 2005 to 2008 the government plans to reach the final 83m level in return for a further 1.64bn pesos.

At 83m, Yacyretá would have 3,100MW capacity instead of today's 1,700MW and would generate 18,500GWh/year, up from 11,450GWh/year at present. Investment of 58.1mn pesos in improving the security of Argentina's grid (Sadi). Work would start in June 2004 and run through February 2005.

Interconnecting the wholesale market (MEM) with the Patagonian wholesale market (MEMSP) through the 232mn-peso Choele Choel-Puerto Madryn transmission line scheduled for completion by 4Q05. Work has already started.

Increasing capacity to 2,300MW on the Rincón de Santa María-Salto Grande transmission line by 2006, with investment of 20.3mn pesos.

A number of expansions to the Sadi grid: 302mn pesos for transmission from Yacyretá, a 500kV fifth line from Comahue to San Juan (507mn pesos), interconnection of the northwestern and northeastern grids (NOA-NEA) for 684mn pesos, and 754mn pesos for a 500kV line between Puerto Madryn and Río Gallegos.

Completing the 692MW Atucha II nuclear plant. Work would run from 2005 through 2009 and cost a total of 1.42bn pesos. Selecting three or four of the most profitable hydroelectric projects of over 400MW each after revising project plans. Projects that will be reviewed include Garabí (which lies on the border with Brazil) and Corpus Christi (on the Paraguayan border).

The government will also restructure the MEM from May 2004 through December 2006 in aiming to reach what it calls the "sustainable functioning" of the market.

It will also work from June 2004 through December 2006 on restructuring concession licenses for both the electric power and natural gas sectors. NATURAL GAS Measures include putting an end to the market distortions which have sent energy demand spiraling to unsustainable growth rates because of low prices.

Industrial gas clients - defined as factories, power generators and vehicular natural gas (VNG) - will see wellhead gas tariffs increase 35% immediately and a further 16% in October 2004, May 2005 and July 2005, by which date they will be paying 110% more than present rates. Industrial clients represent some 80% of the country's gas demand and have taken full advantage of the country's incredibly cheap rates (US$0.98/thousand cubic feet in the 1Q04), resulting in a 26% jump in demand in 1Q04 compared to 1Q03.

Gas tariffs for residential sector clients, who account for 60% of total clients, will increase to market rates by December 2006. The government will create the electronic market for gas (MEG), which will give transparency through real-time information on gas dispatches and information on contracts that have been signed.

All wellhead spot market deals and transport capacity sales will have to go through the MEG, and if companies wish, they may close private deals through the MEG. Imports from Bolivia of up to 4mcm/d through the Pocitos-Campo Durán pipeline will start either this month or next. The only exports that will receive authorization are those that do not compromise supplies to the domestic market.

Investment of 1.3bn pesos to increase capacity of the gas transport system. The spending plans include the northern system (TGN), the southern system (TGS) and the Patagonian system. Investment of 4.1bn pesos in two new pipelines: Noreste Argentino, which will have an initial 20mcm/d capacity in May 2006 and can be expanded to 30mcm/d; and San Martín II, which will have 16mcm/d capacity in two stages of equal size.


The already-announced supplies of fuel oil from Venezuela will be for up to 8 million barrels between May and October this year. Spending is budgeted at up to 730mn pesos. Venezuela's state oil company PDVSA will soon open an Argentine office.


To finance the scheme, Kirchner raised the export tariff on crude oil to 25% from 20%, raised the tariff on exports of liquefied petroleum gas (LPG) to 20% from 5% and imposed a 5% tariff on gasoline exports. He showed scant sympathy for the companies affected and laid the blame for the whole crisis at their door, saying the situation has arisen because companies have not invested since 1998. "You have to invest, you have to work and you have to stop speculating," he said in his speech Tuesday, quoted by the presidential news service.

"If today we have decided to raise tariffs, it's because in Argentina punishing the little guy has come to an end, as has Argentines having to pay for what was not done and what was not invested."

Through the plan, Kirchner said he aims for an end to the crisis in 2004, stability in 2005 and a "strategic horizon for the energy equation" in 2006.

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