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22 | THOMAS ANDREW O’KEEFE THE CRISIS IN THE ARGENTINE ENERGY SECTOR AND ITS REGIONAL IMPACT | 232 paying down the massive debt it incurred in purchasing YPF rather than invest- ing in the exploration of new fields or in increasing yields from existing reserves through the use of expensive new technology. In addition, the company owned cheaper-to-operate gas fields in neighboring Bolivia. It was only after polls indi- cated that Evo Morales was likely to become President of Bolivia in the December 2005 elections and he threatened to re-nationalize the Bolivian hydrocarbons sector if elected (coupled with concurrent Argentine threats to revoke underinvested concessions) that REPSOL-YPF was finally pushed to announce new investments in Argentina in late 2005. Little of this investment, however, actually materialized. ELECTRICITY In December 1991, the Argentine Congress ratified Law 24.065, which split the Argentine electricity sector into three separate components: (1) generation; (2) transmission; and (3) distribution. This law authorized the Secretariat of Energy to set overall electricity policy and establish rules on investment and net- work access. Approval of rate changes and the issuance and enforcement of reg- ulations governing the transmission and distribution of electricity was the responsibility of the newly created Ente Nacional Regulador de la Electricidad (ENRE). Law 24.065 also established a not-for-profit entity, which later became the Compañía Administradora del Mercado Mayorista Eléctrico (CAMMESA), to oversee administration of a wholesale spot market for electricity sold to distrib- utors or directly to large users. Under the 1991 Argentine electricity legislation, generation (which involves the actual production of electricity from different energy sources) was complete- ly deregulated and prices were based on actual production costs. Electricity was generally sold through a competitive wholesale spot market administered by CAMMESA. The law, however, also recognized the right of large users to enter into fixed-rate contracts directly with the owners of generators and to have nondiscriminatory access to the transmission networks. Transmission and distri- bution companies were given monopolies within designated territories and their prices were regulated by ENRE. Before January 2002, end-user rates for the transmission and distribution of electricity were based on ENRE-approved five-year tariff schedules in U.S. dol- lars. Within the five-year period, transmission and distribution rates were sub- ject to automatic twice-a-year adjustments for inflation (based on the U.S. Consumer Price Index) as well as any increases in federal, provincial, and municipal government taxes. In addition, unforeseen costs could also lead to higher end-user rates if authorized by ENRE following a public hearing. When the distributor bought electricity on the spot market, buyers were sheltered from seasonal price gyrations by a CAMMESA Stabilization Fund. The basic concept behind this fund was that distributors would deposit the excess collected from end-users when wholesale spot market charges fell below the tariff rate on file with ENRE. Conversely, distributors would be compensated for unexpected increases due to seasonal factors that could not be passed on to users by taking money out of the Stabilization Fund. As occurred with the natural gas sector, the Argentine government used the economic emergency law passed by Congress in January 2002 to convert end- user charges for electricity into Argentine pesos at a one-to-one parity that did not reflect the actual market rate of exchange of at least three pesos to one U.S. dollar. The same legislation also froze rates that transmission and distribution companies could charge consumers at 2001 levels. Owners of generators were technically still allowed to charge market prices for producing electricity, albeit tempered by various formulas for calculating “real” costs. Rather than pass on any increases to consumers, however, the federal government forced the CAMMESA Stabilization Fund to pay for them. Given its grossly expanded new mandate, the Stabilization Fund ran out of cash by mid-2003. After this point, CAMMESA began “paying” the privately owned generators with Argentine government bonds. In mid-2004, the federal government authorized a partial pass-through of higher generation costs to larger industrial and commercial users. As was the case for natural gas rates, however, tariff hikes for transmission and distribution services were delayed by the Kirchner administration’s insistence that the private firms first drop their international arbitration claims. These claims are based on alleged breaches by the Argentine government of bilateral investment treaties when it forcibly converted utility tariffs into pesos and froze them in 2002. Meanwhile, electricity rates for all residential users—albeit not the taxes in their bills—remain frozen. The Kirchner administration initially claimed in mid-2004 that increased revenue collected from higher electricity generation prices paid by larger indus- trial and commercial users would replenish the CAMMESA Stabilization Fund and allow redemption of the bonds issued to generator owners. Despite this promise, the private generator owners have yet to see their outstanding bonds redeemed. Instead, the Secretariat of Energy in July 2004 came up with a newPDF Image | Energy and Development in South America
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