Argentina Quietly Starts Making Friends With Energy Companies

Buenos Aires just got its first

snow in 30 years, in what is almost certainly its first real, snow-on-the-ground

snowstorm since 1918. In the US, energy usage rises in the summer, when everybody

starts switching on their air conditioners. In the Argentine, however, it’s

the other way around: energy usage rises in the winter, when people start heating

their poorly-insulated homes using subsidized energy. With the current cold

snap sending energy demand skyrocketing, the government of president Nestor

Kirchner has been forced to ration energy supply to businesses, hurting

the fast-growing economy.

The bigger picture is that Argentina’s energy companies have had no interest

whatsoever in beefing up the country’s energy infrastructure since Argentina’s

default and devaluation at the end of 2001. When that happened, Argentina unilaterally

started paying its energy companies – most of which were foreign-owned

– in pesos rather than dollars. (Up until 2001, the peso was pegged, one-to-one,

against the dollar, and the distinction didn’t matter nearly as much.) The foreign

investors in Argentina’s energy sector lost hundreds of millions of dollars,

and saw no prospect of making any more money down the road. So they ceased investing,

and, for good measure, took Argentina to the World Bank’s international court

for the settlement of investment disputes, Icsid.

Kirchner knows that energy rations are unsustainable, so he needs to make nice

with the energy companies against whom he has been railing for years. At the

same time, he doesn’t want to lose any political face. So what’s he doing? Euromoney’s

Jason Mitchell has at least some of the answer (behind a subscription

firewall here):

Argentina has settled more than half of the 36 cases that multinational companies

have filed against it at the International Centre for the Settlement of Investment


At least 17 of the cases before Icsid have now been settled or suspended,

as a result of direct out-of-court bilateral negotiations with the companies.

The Argentine government managed to get the claims withdrawn in exchange for

concession extensions, tariff increases, subsidies and tax exemptions.

Everyone wins. The energy companies get the tariff increases

they’ve long been demanding, Argentina gets the energy it needs, and Kirchner

gets to keep the whole thing quiet: the Icsid settlements have received almost

no press. What’s more, if his wife Cristina Kirchner, who is

running for president in October’s presidential election, is asked about any

of this, she can always start backtracking

on her husband’s policies during the election campaign. Meanwhile Nestor

is now a lame duck with nothing to lose. It’s all very clever indeed.

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