Frozen rates cast doubt on interconnection

The Argentine government's reluctance to increase electricity and gas rates in the short term casts doubt on power export projects to Chile, analysts in the two countries told BNamericas. Chilean generator AES Gener and Argentine energy company Petrobras Energia are planning interconnection projects from Argentina's Neuquen basin to meet growing power demand in southern Chile's Regions VIII-X. Although analysts say only one of the projects will eventually be built, both are still being studied, and are similar in their size and timing. Petrobras Energia could call for bids as early as 1Q04 and operations are provisionally programmed to start in 2006-2007, project manager Carlos Seijo said in a recent interview with BNamericas. The project would cost US$135mn. AES Gener plans to make a decision in 2004 and construction would take a little over one year, newspaper La Tercera quoted AES Gener CEO Felipe Ceron as saying. That project would have a capacity of 250MW and would cost about US$100mn. The projects would give Argentine generators dollar incomes in return for peso-denominated costs, and the imports would help alleviate Chile's generation shortfall, made worse in the south because of transmission bottlenecks. However, Argentine power distributors warn of power cuts this summer because of transmission shortfalls in Argentina, and gas exploration has dried up, making it unlikely the government would allow local generators to export energy that is needed at home, according to Francisco Aguirre, a partner in Chilean consulting firm Electroconsultores.com. "They have talked about an interconnection with Chile for a long time, but I don't know if it would be feasible at the moment," Standard and Poor's analyst Marta Castelli added. "It would make sense from a rational point of view, but it depends when and how the political agendas of both countries become aligned," Castelli said. The battle of wills between electricity companies and the government has heated up in recent weeks, with President Nestor Kirchner accusing power companies of using scare tactics to coerce the government into increasing rates that are still frozen at their pesofied January 2002 levels. There is no immediate end in sight to the standoff, with both sides firmly entrenched and neither willing to make the first move. Exporting power to Chile could also run into cultural opposition from local people who do not want to see their natural resources sold abroad, Aguirre said. "Look at Bolivia - they could have an excellent business selling their natural resource, which is gas, but people say gas should not leave Bolivia because the 'gringo' will steal it - it's a cultural problem," Aguirre said. "Sometimes things are logical from a business point of view, but have problems from the point of view of culture, and what's happening in Bolivia could happen one day in Argentina," he said. There are also suspicions from Chile, where many people are wary of depending on Argentina for gas or electricity. "It's the old problem. Chileans don't trust imports from Argentina because they think its risky depending on an unstable country," Aguirre said. Continuing transmission regulatory uncertainty in Chile is a further obstacle to the interconnection projects.