January 5, 2014
By Claudio Loser
From the Northern Hemisphere, perhaps one cannot totally grasp the effect of the energy crisis that Argentina faces. In any case, throughout the worldpeaks in consumption can appear due to storms, heat and cold waves, and other similar events. However, the recent problems of power cuts and blackouts, which can surely be repeated, demonstrate a substantially more serious problem.
According to official Argentine information – which goes to 2011-- the capacity for generation and consumption of electricity in the country doubled in the period of 1976-91. In the period of 1992-2001, installed capacity grew by 62%, while consumption grew by 69%. In the decade of 2002-2011, installed capacity grew by 18% while consumption grew by 46%. At the same time, net importation of electricity into the country went from 1.7% of total consumption of 1991 to something more than 2% in 2001 and almost 8% in 2011. These numbers speak for themselves. In a period in which GDP grew by 4.7% annually, and consumption grew at a slightly lower rate (3.9%), the generation capacity grew by less than half.
These developments come at a time when electricity rates are apparently falling by 20% in real terms for residential consumers, but not for industrial consumers. The operative revenues for power production and distribution companies are stalled, as greater collections go directly to the government, while electricity companies require increasingly greater subsidies and their dependence on the government is growing. Clearly, government policies leads to reduced investment and increased residential consumption.
Together with the stagnation of production in oil and gas, pressure on the energy sector has become extremely serious, and shows the inconsistence between the policy of expansive demand and serious restrictions on aggregated supply from the country. In addition, an overvalued official exchange rate, restrictions on imports, and strong expansion in monetary supply show an inevitable trajectory towards disaster. The possible intervention or confiscation by the government, like other actions in the past, would not have a favorable effect.
According to the analysis of the requirement of investment incorporated in the study“Latin America 2040 – Breaking with complacency” (2013), in which I had the privilege of participating, the needs for investment in energy at the annual level are almost 3%of GDP. Any recovery requires strong increases in investment not only to accompany growth but also to recover lost ground.
The equivalent process in the area of fuel production and other areas of infrastructure show the difficult but inevitable challenge. And this challenge is not only relevant for Argentina but for the whole region, which with very few exceptions has fallen behind in the path of sustained growth that other emerging economies are achieving. While commodities prices were ceaselessly increasing, it seemed no problem existed. Now that prices are heading down, the discovery has come that there is no path and there is a lot of walking left to forge one.