Govts. Sign Accord to Finance US$200mn Pipeline Expansion

Argentina's President Néstor Kirchner signed a letter of intent on Wednesday with Brazil's government to finance the US$200mn expansion of local transporter TGS's San Martín pipeline in southern Argentina, the president's press office said in a statement.

The expansion is designed to add some 3 million cubic meters a day (mcm/d) of capacity to the gas transport system, which is badly in need of new infrastructure to meet higher demand.

Brazil's federal energy company Petrobras (NYSE: PBR) will carry out the expansion though its TGS unit, and Brazil's national development bank BNDES will finance some US$142mn of the project costs.

Construction of the pipeline is expected to start in January and commercial operations in July 2005.

The agreement was reached after intensive negotiations between the planning ministry, gas regulator Enargas, the secretary of public works and energy, federally owned bank Banco Nación and BNDES, Argentina's planning minister Julio de Vido said.

Argentina's government reportedly plans to create a surcharge on natural gas sales to large users to finance part of the costs. The surcharge would not affect end consumers since it would be levied on large gas users such as power generators, gas compressors and industrial clients.

The agreement with Brazil comes after Kirchner signed an accord with Bolivia's President Carlos Mesa in October to import some 20mcm/d of gas from 2006. With the two agreements taken together, "we are guaranteeing predictability in the Argentine energy equation, fundamentally in the production of gas which is one of our basic supplies, for the next 5-6 years," de Vido said.

Argentina's gas crisis stems from under investment in gas infrastructure and exploration during the last few years due to frozen wellhead prices, which are only gradually beginning to rise.

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