Argentine Power Cuts Threaten Economy, Kirchner Image

Argentina’s energy rationing may chill South America’s second-largest economy — along with President Nestor Kirchner’s political popularity.

As the southern hemisphere’s winter sets in, cutbacks in electricity and natural gas are leaving potatoes to rot at McCain Foods Ltd.’s French fry plant in Buenos Aires province and workers idled at Fiat SpA’s car factory in Cordoba. Energy supplies in Argentina have failed to keep up with surging demand, exacerbating shortages to the point where there’s no quick solution, analysts say.
Kirchner, 57, created the shortfall by denying utility companies residential-rate increases since 2002 while the economy grew more than 8 percent annually, said Francisco Mezzadri, president of Mezzadri & Asoc., an energy-research firm in Buenos Aires. As a result, companies stopped investing in new production. Now, four months before presidential elections, Kirchner faces angry protests over plant shutdowns, school closures and layoffs.

“Argentina is in real trouble,” said Marco Tavares, a partner at Porto Alegre-based Gas Energy and former head of Repsol YPF SA’s natural-gas business in Brazil. “If it doesn’t get its pricing situation in order, there will be no new investment.”

The government has asked 4,000 companies to curtail electricity use, according to the Argentine Industrial Union, a manufacturers’ group. At the same time, it applied gas restrictions to about 900 businesses, forcing cuts that, in some cases, lasted several days, the group said.

Bloomberg