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Cablegate: Argentine Summer Electricity Shortages: Goa Rolls Out

VZCZCXYZ0007
RR RUEHWEB

DE RUEHBU #0019/01 0041658
ZNR UUUUU ZZH
R 041658Z JAN 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 0006
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE USD FAS WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000019

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: AR ECON ENRG
SUBJECT: Argentine Summer Electricity Shortages: GoA Rolls Out
Modest Conservation Program

Ref: (A) 2007 Buenos Aires 1892

(B) 2007 Buenos Aires 1819
(C) 2007 Buenos Aires 1726
(D) 2007 Buenos Aires 1456
(E) 2007 Buenos Aires 1415

This cable contains sensitive information - not for internet
distribution.

-------
Summary
-------

1. (SBU) The Greater Buenos Aires metropolitan area has begun to
experience electricity cuts as overloaded distribution systems
fail in the face of hot summer weather and high air conditioning
loads on the electricity distribution grid. Resulting
neighborhood protests have received wide media coverage. Summer
electricity shortages have been widely predicted due to GoA-
controlled electricity prices held at levels that have deterred
new private investment in electricity generation and
distribution infrastructure, including by U.S. energy major AES
which has substantial assets here. The GoA has rolled out a
modest energy conservation scheme that includes daylight savings
time changes, rationalizing energy usage in public buildings and
subsidies to encourage consumer use of energy efficient bulbs.
Local analysts agree that the GoA program will fall far short of
its goal of saving up to 1,000 MW/day, but they call it a
welcome GoA acknowledgement that steps must be taken to shore up
an inadequate and deteriorating national electricity
infrastructure. Public anger at recent energy disruptions may
grow as summer dog days set in. But, despite growing criticism
of the GoA's short-sighted approach to energy planning, the
Kirchner administration appears positioned to weather this
crisis: the still-booming economy trumps all, and energy
shortages are not expected to constrain industrial production
during the slack January/February summer vacation season.
End Summary

--------------------------------------------- -----
Predicted Shortfalls: Insufficient Infrastructure Investment
--------------------------------------------- -----

2. (SBU) With the advent of hot summer weather and high air
conditioning loads on the electricity system, the greater Buenos
Aires metropolitan area has begun to experience electricity and
water cuts as overloaded distribution systems fail. With many
government officials, including the President, on vacation in
the post new year period, political news is slack and television
and print media have devoted considerable coverage to popular
protests against electricity cuts in the streets of Buenos Aires
neighborhoods. These electricity shortages have been widely
predicted by energy analysts who emphasize that GoA-controlled
electricity prices are being held at levels that deter new
investment by private sector electricity generation and
distribution companies.

------------------------------------------
U.S. Company Perspective: AES in Argentina
------------------------------------------

3.(SBU) U.S. energy major AES operates 6 hydro and gas-fired
power plants in Argentina (12% of national installed capacity)
and also owns two electricity distribution companies in the
province of Buenos Aires which provide energy to more than
450,000 customers. In a January 3 meeting with Ambassador, AES
explained that, as a direct consequence of GoA price controls,
its Argentine generation activities earn only $30 per megawatt
hour (MwH), while generators in Brazil average $80 per MwH and
those in Chile average $100 MwH. AES complains that these low
rates paid to generators by GoA-controlled electricity wholesale
distributor CAMMESA cover only variable costs and provide no/no
incentive to invest in new capacity. Further, CAMMESA remains
6-9 months in arrears on its payments to generators. (The last
payment received covered March 2007.) AES also noted that
Argentine residential electricity end-users pay roughly one
third of rates consumers pay in Brazil and Chile. Wholesale
users, AES said, pay roughly half the electricity rates their
competitors in Brazil and Chile do. Resulting insufficient cash
flows, AES added, has prevented their distribution companies
from investment sufficient to maintain network quality.

4. (SBU) AES noted that, while the July/August 2007 winter
energy shortages (Ref E) were attributed to generation problems
(low water levels at hydro plants and insufficient domestic

natural gas supplies to meet demand), the current crisis is
largely due to inadequate electricity distribution capacity to
meet vastly expanded demand. Low government-mandated consumer
electricity rates and a consumption-led economic boom have
dramatically increased the number of air conditioners and white
goods (refrigerators, etc.) drawing power from the grid.

----------------------------------

Modest GoA Conservation Initiative
----------------------------------

5. (SBU) Last July 16, Planning Minister De Vido said in a radio
interview that he would not "insult the intelligence" of
sophisticated and socially responsible Argentine consumers by
asking them to conserve. But on December 21, in anticipation of
pressure on the electricity grid (and as outlined by De Vido in
a July 26 meeting with Ambassador - Ref D), the GoA finally
rolled out an energy conservation scheme. The modest plan
includes pushing the national clock ahead one hour for the three
month January - March period, modifying hours of civil servant
workdays, rationalizing energy usage in public buildings and
offering subsidy credits to consumers to incent use of energy
efficient bulbs. The stated goal is to save up to 1,000 MW/day.
Local analysts agree that GoA measures will fall far short of
this energy saving goal. They, nonetheless, applaud this
initiative and call it a welcome GoA acknowledgement that steps
must be taken to shore up an inadequate and deteriorating
national electricity infrastructure.

-------
Comment
-------

6. (SBU) After months of public denials by senior GoA officials,
including by Planning Minister De Vido ("there is no crisis"),
and efforts to lay the blame on energy sector under-investment
by profit-hungry private companies, the GoA has announced modest
conservation measures. Notably absent, however, has been any
significant move to limit consumption by adjusting domestic
electricity tariffs that remain far below market rates in
neighboring Chile and Brazil. To be fair, the GoA did allow
nominal increases in industrial electricity rates charged by
distributors over the past two years, including by U.S.
electricity distributor AES. But "comprehensive reviews" for
gas and electricity tariffs promised by the Planning Ministry
Energy Secretariat to electricity distribution companies have
been repeatedly deferred.

7. Public anger at recent energy disruptions may grow if high
temperatures continue, and this could exact a political cost.
But the Cristina Kirchner administration clearly believes that
cheap energy that helps expand consumer purchasing power remains
its best strategy. Despite growing criticism of the GoA's
short-sighted approach to energy planning, the Kirchner
administration appears positioned to weather this latest chapter
of the national energy crisis relatively unscathed: the still-
booming economy trumps all, and energy shortages are not
expected to constrain industrial production during the slack
January/February summer vacation season.

WAYNE

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