After this run...time to sell
Reuters
No Quick Fix for Argentina Utilities
Saturday June 21, 7:56 am ET
By Hilary Burke
BUENOS AIRES, Argentina (Reuters) - On the day Guillermo Moreno was sworn in as Argentina's communications secretary, he boldly dismissed one of the thorniest issues facing foreign investors -- utility rate hikes.
"This is the last item on our agenda," Moreno, a top government official who oversees the telecoms sector, told Reuters. "It is neither urgent nor relevant."
That is bad news for mostly foreign-owned utilities -- a potent symbol of Argentina's free-market successes in the 1990s -- which lost billions of dollars last year after a massive currency devaluation and rate freeze.
The companies now paint a nightmare scenario of blackouts or shortages if tariffs stay frozen. But officials like Moreno, installed after center-left President Nestor Kirchner came to power on May 25, say tariffs won't go up anytime soon.
"At this rate, the electricity sector will be totally devastated by 2005," ADEERA, an electricity distributors' lobby group, has warned.
Despite IMF pressure, Kirchner is loath to impose hikes on the six in 10 Argentines living in poverty after last year's worst-ever economic crash. Local businesses profit from low rates, too.
The additional delay could anger top companies such as Spain's Telefonica or Arlington, Virginia-based AES Corp., which were hammered in January 2002, when the government devalued the peso, slashed their tariffs in dollar terms and froze them.
Many companies defaulted because their earnings in pesos -- now worth only about a third of their value from two years ago -- did not cover dollar debts.
Kirchner knows Argentina must make peace with multinationals to lure back foreign investment and credit. But he attacks the way ex-President Carlos Menem privatized public utilities in the '90s, saying it heavily favored investors.
Government officials say rates won't rise until they have looked into company profits and assessed compliance with investment targets. But a commission created last year was supposed to have already done that.
Upping the ante further, a Planning Ministry spokesman said on Friday that each company's request for rate hikes will end in a public hearing.
"We've given them the documents they want five different times," said a source from one of the country's largest utility companies who asked to remain anonymous.
"We're starting again from scratch," he said.
CONFLICTING CLAIMS
Some foreign-owned companies with subsidiaries in Argentina -- such as Spanish-owned Endesa, which controls the electricity firm Edesur -- have sought international arbitration to press for higher utility rates.
These companies suffered huge losses last year, but many posted first-quarter financial gains in 2003.
Telecom Argentina, controlled by France Telecom and Telecom Italia, lost $1.5 billion last year and defaulted on $3.2 billion in debt. But from January to March, the company earned $322 million.
Kirchner must forge a fast accord with the International Monetary Fund (News - Websites), which consistently backs company demands. But he must also protect Argentines, whose purchasing power was ravaged by last year's 41-percent inflation.
Even if companies could set their own rates, price hikes would be limited, according to economist Andres Chambouleyron.
"People simply can't pay," he said.
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