The Once and Future Argentine Energy Sectors

15 July 2020
Dr. Jeff D. Makholm

In an article in the July 2020 issue of the Wiley journal Natural Gas & Electricity, NERA Managing Director Dr. Jeff D. Makholm reviews the history—and failure—of energy sector privatization efforts in Argentina.  

In 1992, with the passing of the Energy Act, Argentina established one of the world’s most open and competitive electricity sectors. The market reflected familiar elements of modern competitive markets, including a competitive generation sector, a centralized wholesale power market, and a regulated distribution sector. During the remainder of the 1990s, service improved markedly, and electricity consumption boomed.  

Argentina nationalized its natural gas sector in 1945 and built its first major pipeline in 1949. Following a policy of rapid expansion, natural gas met nearly 40% of Argentina’s primary energy needs by 1988. With this rapid growth came great demands for capital, which led Argentina to invite a Dutch consortium in the 1970s to build a 1,125-mile pipeline to new natural gas fields southwest of the capital. During the Falklands War in 1982, the government stopped all peso payments to that consortium, causing it to fail, and effectively froze foreign credit to the natural gas sector. Argentina moved to privatize the natural gas sector in 1991.

The Argentine institutional foundation could not support those structures in the electricity and natural gas sectors—either in basic regulatory capacity, which proved to be much more difficult than anticipated, or in the ability of Argentina to maintain its credit in the wider world (which proved to be impossible). What is evident now, even if it was not in 1991, is that investor ownership in essential public service energy businesses will not work without strong support in a nation’s legal, administrative, and accounting institutions. 

Makholm, Jeff D. (July, 2020). “The Once and Future Argentine Energy Sectors,” 36/12, ©2019 Wiley Periodicals, Inc., a Wiley company.