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The Real Deal With Argentina’s ‘Energy Emergency’

By | [email protected] | December 21, 2015 9:03am


The story goes that when God created the earth and the heavens, he carried the riches of the world in a basket. Each region would be blessed by a different gift from his basket, so he dropped some coal in Colombia, iron ore in Brazil and fish in the waters of Peru. He gave Chile copper, but on his way across the Andes he tripped, spilling the basket’s abundance all over the Pampas. One of the Angels asked, “Lord, are we going to leave all of these riches for this country?” “Don’t worry,” God said, dusting himself off. “I’ll put the Argentines there too.”

A few millennia later, Argentina’s politicians are still promising solutions to the great paradox: that a country with such vast natural resources has equally enormous problems managing them, especially when it comes to energy. On Tuesday, Macri’s new Energy Minister, Juan José Aranguren,  announced that he was declaring a state of “energy emergency” that would last until December 2017, proclaiming that, “The electrical system is in a precarious situation … [We must take] the necessary preventative measures to avoid its collapse.”

The “precarious situation” involves a lack of the proper infrastructure, especially in Buenos Aires, to deal with too many Porteños cranking up the AC. Summers in Buenos Aires can hit over 40 degrees Celsius and when everyone is more worried about staying cool than the utility bills. That’s when the blackouts happen. The last one hit in October, lasting four days and affecting tens of thousands of residents in some of the city’s nicer neighborhoods. In 2014, the blackouts were so bad that Argentina had to import power from little ol’ Uruguay. The power outages don’t just affect residents, they have also caused huge traffic jams, shut down business and destroyed medical research. Sometimes, even the Casa Rosada and Congress lose power.


The fact that Argentina has an energy crisis is ridiculous. The Vaca Muerta shale reserve is estimated to have 308 trillion cubic feet of natural gas. Trillion! To put this in perspective, Vaca Muerta, which is roughly the size of Belgium, has more shale gas than the entire country of Brazil, has made Argentina the world’s second biggest holder of shale gas reserves and could satisfy the country’s current energy demand FOR 150 YEARS, according to the Economist.  The country also has enormous potential for hydroelectric and wind energy. But somehow such power remains largely undeveloped and untapped.

If you’ve got time for some in-depth econ analysis, check out Colin Docherty’s take on why Argentina, and Buenos Aires especially, still has an energy problem.  The boiled down version is that in the ’90s, private energy companies focused on exporting instead of providing energy domestically, as the former was more profitable. Hence, most of their investment went to things like pipelines and shipping networks instead of the local electrical grid and backup generators.

When former President Néstor Kirchner took over in 2003 he ushered in a new era of state-sponsored energy industry, freezing the price of utilities and allowing entrepreneur Marcos Mindlin to run the utility company Edenor in exchange for a much needed supply of foreign capital.  But neither Edenor, nor the other utility in Buenos Aires, Edesur, have invested the dough necessary to stop transformers and power lines from blowing once the city’s energy consumption heats up.

The utility companies argue that skyrocketing inflation and increasing energy consumption mean that they can no longer pay for improvements to infrastructure, especially when their source of income is frozen.  Critics of the K energy policy also point to import taxes that make it harder for companies to purchase the necessary equipment to upgrade energy infrastructure.

Despite the billions of pesos per year that her government paid the utilities in subsidies, former President Cristina Kirchner’s public relationship with Edesur and Edenor soured.  Every time the blackouts hit, Cristina would demand further investment and threaten fines, lawsuits and government takeovers, but the next summer it was déjà vu all over again.

In October 2015, after the aforementioned blackouts led to a pot-banging, fire-lit bonanza of a protest, voters took their wrath to the booth.

Enter President Mauricio Macri. His energy minister’s “emergency” is really just his way of announcing a policy change. Macri’s hope is that by unfreezing the cost of utilities and opening up the economy to more foreign capital he can pour investment into Buenos Aires’ outdated power grid and decrease the demand on its fragile distribution system. Using a phrase like “energy emergency” also helps the new President justify a move as politically toxic as cutting gas and energy subsidies, a process which will start next month.