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News: Argentina must avoid 'energy crisis'

Mon, 22 Oct 07

Argentina's next government will have to consider raising natural gas and electricity prices soon after it takes office in December as a way to avoid a repeat of the energy crisis of recent months, reports Reuters...

President Nestor Kirchner has avoided mass blackouts in the run-up to an October 28 presidential election by imposing energy restrictions on industry in Latin America's No. 3 economy, where supplies are tight due to rapid economic growth and years of underinvestment to expand production.

Polls suggest Kirchner will be succeeded by his wife, Sen. Cristina Fernandez de Kirchner, and she has already ruled out significant utility rate increases, saying any changes to current prices will be gradual.

Encouraging private investment

The new government will take office on December 10, during a month in which energy demand jumps as Argentines crank up air conditioners during the Southern Hemisphere summer. Experts expect a repeat of the problems posed by this year's winter -- the harshest in more than four decades.

"In order to encourage private investment in the sector, a significant tariff increase for utilities, combined with the elimination of a cap on energy prices, is vital," said Ana Ares, the director of ratings agency Fitch in the South American country.

Scant investment in increasing energy production during a four-year recession that started in 1999 left the country ill-equipped to respond to the surging demand that has accompanied the economy's rapid expansion since 2003.

Economic analysts say price freezes have aggravated the problem by deterring the much-needed investment.

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