News

August 21, 2008

With Saudi Support For The Oil Side, And A Growing Electricity Business, Andes Energia Has Argentina’s Energy Sector Well Covered

By Alastair Ford

What do you do as a sovereign government when energy prices go sky high and your population starts screaming about unmanageable electricity and gas bills, and high oil prices start feeding through to the petrol pumps? There’s never normally much room for manoeuvre at all, but the world’s sovereign governments tend to take either of the two following approaches: option one is to fix the market with subsidies and bear the brunt of the cost from tax, reserves or what ever else is at their disposal. This tends to keeps the population happy for a time, but may mean that the government goes broke in fairly quick fashion, especially if it’s a net importer of energy. Option two is to allow the market to reign supreme, attempt to keep a lid on inflation with a judicious use of interest rates, and educate the population that energy costs are on the rise, and it’s hurting everybody, all around the world.

Argentina at the moment seems to be making a gradual transition from the subsidy option to the free market option, partly on the grounds that subsidies for electricity and other energy commodities are a proving to be a huge burden on the treasury, but also on the grounds that because electricity prices have, till now, been kept artificially low, no one has invested in new capacity, or indeed maintenance of the existing networks, and the whole system is cranking under the strain. And in order to...