Energy South America

Roberto Lavagna, former Economy Minister of Argentina under Nestor Kirchner, claimed yesterday that an energy crisis has already begun in Argentina. During a luncheon for industrial executives, Lavagna was asked by one executive whether there is a risk of an energy crisis, to which he responded that it has already begun.

He cited as an example the increase of power cuts in Argentina over the same time last year. Lavagna said that frequently electric distribution companies will take lines out of service alegedly for repairs and replacements, when the truth is that there is not enough power to meet demand. These maneuvers amount to concealed power cuts.

Lavagna went on to explain that the energy crisis will lead to increased production costs (leading to therefore increased inflation) when companies use their own generators to power their plants. The cost of those emergency measures is far higher than electricity from the grid.

Bear in mind that Lavagna is a potential candidate for president opposed to Kirchner, but he does not have a reputation for fudging the facts. Whether the crisis is real or potential, it generally accepted that it is caused by the lack of development of power sources over the past several years.

Evo Morales, who has been president of Bolivia a mere seven months, is having problems.

First there were two seizures of gas pipelines, the main lines exporting gas to Argentina and Brasil, where Comrade Evo had to send in the forces of repression (the army) to retake control of the Argentine line, which was out of operation for 12 hours. The Transierra line to Brasil is still being held by Guarani indians of the region, who want $9 million US plus other goodies from Transierra, owned by Petrobras, Repsol YPF and Total.

Now there are strikes and road blockades in La Paz, El Alto (one of Evo's areas of strongest support), and Cochabamba, with possible strikes in Santa Cruz and other locations. The truck and bus drivers in La Paz are on strike, as are the school teachers nationwide. All these strikes and seizures are for many different reasons. Evo does not have just one problem to deal with, but many.

This is how Bolivia goes. The average term for a president of Bolivia in this century is 1.5 years, out of a 4-year term. It would take a political genius, or a ruthless dictator with large outside resources to effectively govern Bolivia for any length of time. Comrade Evo is neither, so he may not even complete the average 1-1/2 year term, even with the support of Comrade Chavez. (By he way, I do not use the term "Comrade" inronically; that is what they call each other - "Compañero" in Spanish.)

Comrade Chavez must be a little miffed when he considers the millions he spent to put Evo in office, now about to go down the drain. However, with Evo gone the investment climate in Bolivia has to improve. Oil companies should stall for time until things change for the better.

The government of Argentine province Rio Negro announced that it has sold bid document packages to ten companies since the bid was called in July. Sale of the documents has brought in $700,000 pesos ($229,500 US) for the province.

Companies who have purchased the package are Repsol YPF, Chevron San Jorge, Petrolífera Petroleum, Petrobras, Vintage Oil Argentina, Oil M&S SA, Interenergy, Pluspetrol, Golden Oil Corp, and Estrella Servicios Petroleros.

Permits will be auctioned for exploration in the Laguna El Loro, Cinco Saltos, Loma de Kauffman, Meseta Baya and Laguna de Piedra areas of the Neuquen basin.

Bids will be opened Sept. 26 and the winners announced shortly thereafter.

(Source: Rio Negro On Line)

There is a rumor that a new law is working its way through the Argentina congress, intended to promote exploration and production in basins designated "under-explored or non-productive". I have seen only a preliminary summary of the law, so there will probably be some changes during the legislative process. However, President Kirchner wants it passed, so it will be.

The law will apply to all provinces adjoining the continental shelf. Some of the features of the law will be:

1.) It will apply to areas where no exploration or development permits have been issued.
2.) The provinces will control the sales of permits.
3.) Companies must associate with ENARSA, the federal energy company to receive the benefits of the law. If ENARSA opts out, this does not apply.
4.) Permits for areas adjoing permitted areas will be issued to the permit holder if it can demonstrate geological continuity, if rights of 3rd parties are not infringed.
5.) Various tax breaks including exemption from import taxes on capital goods, exemption from minimum income tax, VAT reductions, and others, will be granted to companies under this law.
6.) There will also be incentives for companies currently operating in certain areas.

These provisions should make exploration in high risk areas more attractive.

Bolivian federal prosecutors ordered the offices of Andina, Repsol YPF's Bolivian company, and Petrobras to be searched as part of a fraud investigation into allegations that the two companies have defrauded the Bolivian government. The government also ordered the detention of several Repsol YPF and Petrobras executives, most of whom have already left the country.

The cops also hauled off to jail the local representative of Repsol YPF, Saul Encinas Miranda. He was freed later that night on a judge's order.

This latest spectacle stems from an allegation that Repsol YPF and Petrobras conspired to screw the government out of possibly $160 million US by entering into a secret agreement to control the volatility of gas prices. Brasil is by far the largest buyer of Bolivian gas.

Evo Morales's government is also going after former government officials who are alleged to have been part of the deal.

Just by coincidence, Bolivia is crawling with people from Petroleos de Venezuela, the piggy bank of Hugo Chavez. The same type of thing has been happening in Venezuela, with the government demanding huge amounts of back taxes and fines from the foreign companies operating there. Taking revenge on the ancien regime is a growing trend in Latin America, where most people believe that the French Revolution was the first one. They seem, therefore, to respect the great tradition of Robespierre by chopping off heads whenever they can.

This week Nestor Kirchner announced that Argentina would reactivate the Atucha II nuclear project, which has been mothballed since 1994. Argentina will enrich uranium to supply the plant. Currently 34% of Argentina's energy supply is hydroelectric, 9% nuclear from two plants, and almost all the rest from oil and gas.Due to government policies hostile to investment in oil and gas, there has been almost no development of new gas production for several years, and the government has implemented highly unpopular policies to deal with the gas shortages experienced during last winter and this, such as:

1.) Renege on gas supply contracts with Chile. This has caused major economic losses in Chile. Chile is now building LNG facilities as quickly as possible, and may or may not be a customer of Argentina in the future, depending on what kind of deals Argentina offers. Chile will be able to buy gas from any source in the world.

2.) Impose penalties on "excessive" gas consumption. If you use more gas last winter and this, than you did in a previous year, you pay fines to the gas company, greatly increasing the cost of gas. Since the cost of gas to residential consumers is subsidized to the tune of around $6.00 US per million BTU, the bureaucratic punishment, complicated in the extreme, is supposed to take the place of market forces, which in any normal country would be penalty enough. The complaint lines at the local gas office are long, the customers are hostile, or bewildered, and the employees who have to deal with them have had a belly full. Standing in line one day, I heard the little old lady explain to the old sourpuss manning the desk that her husband had been taken ill this winter, and she had to heat the house more because he was home for weeks, and she just did not have the money to pay the fine, which was a multiple of what her gas bill should have been. The response was to explain to her the Byzantine complaint process.

3.) Gas supply cuts. Gas has been repeatedly cut off to industrial plants which are big consumers, the plants idled, and the workers sent home.

4.) Brow beating the oil and gas companies. One cabinet minister famously stated that he wanted the oil companies to "turn on the wells". Good for laughs among those who actually have a clue as to how oil and gas wells work. Kirchner has stated publicly that companies should invest in gas development out of patriotism.

So now Nestor Kirchner is taking charge of a mega nuclear project, not only opening juicy new opportuinties for corruption, theft and graft, but also raising serious security fears. This week some moron from the States packed a souvenir stick of dynamite in his bag and flew to Houston, where it was found (please give him some jail time, you guys.) What would be the problem with a little uranium for a dirty bomb?

THe history of these mega projects run by the Argentine government is, as you might expect, somewhere between tragedy and black comedy. Maybe this time it will be different. Argentina certainly needs the energy.