Argentina’s government has condemned Enel and warned it could revoke its electricity company’s concession in Buenos Aires.

A heat wave that set temperature records in Argentina, days before the start of autumn, caused massive power outages in the city of Buenos Aires and 32 municipalities in the metropolis, which together have a population of 14 million. According to the regulator ENRE, up to 160,000 homes were without electricity at one time, and tens of thousands remained in this state for a week or more.

Argentina is coming off its hottest summer on record, and March in particular set several daily records. The crisis has once again hit Edesuri, the electricity distributor in the southern district of Buenos Aires and the suburbs, controlled by Endesa since 1999 and therefore by Enel since 2009, when the Italian state company acquired the main capital. Company Spanish Electric. Electricity distribution service in the Buenos Aires area is divided between Edessur, with 2.5 million subscribers, including homes, businesses and industry, and Edenor, with 3.2 million. But it is the first that concentrates the biggest claims.

During its three-decade run, Edessa backpacked a wave of protests as a result of a long blackout. He is responsible for what is still the most widespread massive power outage in history, in February 1999, when some 600,000 residents of Buenos Aires were left without electricity for 11 days, a crisis that led to a restructuring of management and shareholders. of a firm that already had an Endesa shareholder.

The Enel utility works against the fact that the number of cuts and their duration are substantially less in the Edenore area, even though both companies operate under the same regulatory framework and charge similar tariffs.

Crisis drift is complex and goes beyond state sanctions or fireworks warnings. Edessa also has cards in hand. One of his main arguments is that over the past two decades its revenue has remained stagnant or grown behind inflation for seventeen years (all but 2016-2018) and that, nevertheless, there has been a downward trend since 2010-2012. peak years.

Allegation of fraud and waiver of waiver

The government of Peronist Alberto Fernández has reactivated the resource, which usually increases every time there is a supply crisis: the supposed withdrawal of a concession granted in 1992 for 95 years. The Energy Secretary, who reports to Economy Minister Sergio Massa – one of the Peronist coalition’s presumptive presidential candidates – on Wednesday ordered the filing of criminal charges against Edesuri’s management for fraud, neglect and human abandonment. In the case of embezzlement, at the same time, procedures were initiated that could end in expulsion from the leadership of Enel. The judicial appeal was given this Friday to the Federal Court of Julian Ercolin, the magistrate who investigated the case for which Cristina Fernandez de Kirchner was convicted of corruption.

Enel announced months ago that it wanted to dispose of assets in various Latin American countries, but some Argentine media quoted the Italian firm’s CEO, Francesco Starace, as saying last January that Argentina had said. “The strangest regulation in the world”. The Italian giant has begun selling its assets in the South American country, such as the former Central Costanera thermal generator, but is struggling to find a buyer for distributor Edesur.

Four economic cycles, same concession

After the privatization of electricity in 1992, the history of household tariffs is divided into four periods. Until 2001, when convertibility between the peso and the dollar was in effect, consumers paid high rates and hard currency, with high business profitability, which led to investor interest and asset appreciation.

When the conservative Peronist Carlos Menem ushered in the era of privatization in 1989, European companies, led by Spanish companies, invaded all sensitive areas of public services. So, Aerolíneas Argentinas (first in Iberia, then in Marsans), Entel (50% Telefónica), Segba (Endesa), Gas del Estado (in part, Gas Natural BAN), YPF (Repsol) passed into Spanish hands. A long list that includes water, tolls, casinos, transportation and other services.

The collapse of convertibility and a devastating social crisis in 2001 and 2002 put these contracts at risk. Some concessionaires abandoned their assets and sued Argentina before the International Center for Settlement of Investment Disputes (ICSID), a World Bank jurisdiction. Others, like most Spaniards, chose to stay for strategic reasons or because they achieved profitability in side businesses.

The second cycle began with the center-left Peronist Nestor Kirchner. Some companies will eventually become state-owned, while others will remain in private hands, with their earnings denominated in pesos. In the case of electricity distribution, tariffs will also remain frozen or with low growth until 2015 in a country where annual inflation has been more than 20 percent since 2010. This affected the business of Edenor and Edessa. Instead, they slowed down investment and coexisted with the Kirchner government, which administered massive subsidies to cover the deficit.

The flip side of the hypothetical benefit to households from the rate freeze was that the electricity system reached its limit when the economy grew at a rate of more than five percent a year for several years in a row. In addition to the loss of energy capacity, the state was accumulating large deficits as a result of indiscriminate subsidies.

It got to the point where upper and middle class families in Buenos Aires were paying the lowest rates in Latin America. Thus, a luxury apartment in areas of Buenos Aires such as Recoleta, Palermo, Belgrano, or a mansion in San Isidro or Adrogue can pay a monthly electricity and gas rate of ten or fifteen euros.

Immediately after assuming the presidency, Mauricio Macri gave way to the third cycle. The conservative president thought he saw in the ridiculous prices a wide field to get Menem back on track. Thus, it allowed a 3000 percent increase in a few months. The recession that plagued the Casa Rosada during Macri’s years was a poor combination for such growth, so much so that some analysts attribute his 2019 election defeat to the burden imposed on lower- and lower-middle-class families to pay for public services.

According to Edesuri, a significant increase in its billings between 2015 and 2019 translated into a 50% reduction in the duration of supply interruptions per customer, although their frequency did not change much. What hasn’t changed is that every time there’s a heat crisis due to climate change, Edessur usually has four times as many customers without power as Edenor, owned from 2021 by Argentinian businessmen José Luis Manzano, Daniel Villa and Mauricio. Philibert.

Together with the center-left Peronist Alberto Fernández and the pandemic, the fourth economic scenario in the three decades of service has begun for Edessa. Fernández has frozen rates again, but starting in his second year in office in 2021, he has sought to set inflation-matched increases for high-income households. Vice President Cristina Fernandez de Kirchner ordered her officials at the Energy Secretariat to block the process as much as possible. Only in the middle of 2022 did the so-called tariff increase begin. “Segmentation” according to purchasing power of households. Meanwhile, the financial situation of the Enel subsidiary worsened, the quality of service continued to be poor, and the state accumulated more deficits.

In a presentation to the regulator last October, Edesuri claimed that since 2020, its revenue, regulated by the Ministry of Energy, has increased by 31.5% in Argentine pesos, while the rest is driven by variables that affect its costs, such as the exchange rate. Dollar, wage index, general and wholesale prices were between 343 and 302%. The other side is that the payment for electricity production is partially guaranteed by dollar-denominated contracts, which bifurcates interests between generators and distributors.

The road to a unilateral end to concessions is long and uncertain. Enel has an ICSID letter which could be beneficial given the reality that it will not be easy for them to sell Edessa for a good price. In addition, if the right-wing opposition Juntos por el Cambio wins the presidential election in October, the contract’s deadline will surely be canceled and rates could rise again.

If it goes to ICSID, Enel has the upper hand. Of the roughly 60 lawsuits Argentina has brought to the agency since the 2001 crisis, almost all have ended in favor of the companies. Even Marsans, who left Aerolíneas Argentinas in 2008 due to fraud allegations in Spain and Argentina, received an award in his favor in 2017 for three hundred million euros.

Source: El Diario

Leave a Reply

Your email address will not be published. Required fields are marked *