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Literature Review

According to the Annual Report (2015) of CAMMESA, Argentina’s electricity sector constitutes to Latin America’s third largest market for the power sector.

Argentina’s power market mostly relies on the generation from the thermal power which constitutes to 60 percent of the capacity installed and along with thermal, it is also based on the generation of power from hydropower.

The energy generation from hydropower is almost 36 percent. Argentina still must exploit its power generation from the hydroelectric sector where there lies potential for the country.Assessing the impact of electricity sector reform in the generation sector of argentina.

The government of Argentina is now taking steps and has started the process of developing heavy projects. The government is taking steps to improve the generation along with the transmission.

All these steps are being taken to meet the high demand of electricity that has been rising in the country. The estimated increase in the demand for energy in the country, as per the report published by CMMESA (2015), is approximately equal to 1000 MV.

Assessing the impact of electricity sector reform in the generation sector of argentina. These projects in Argentina are being sponsored by different sources, including the trust funds. The private sectors are still trying to recover from the Argentine’s economic crises, therefore, they are still unable to fund the energy sector.

The Electricity Reforms in Argentina

The electricity consumption by the people of Argentina has increased rapidly between the are 1992 till 2002, creating a need for the government to take steps to privatize the generation sector of the electricity.

(CAMMESA website). Therefore, there was privatization of the energy sector in Argentina which was during the period of Menem. As a result of these reforms, approximately 80 percent or more of the power generation was privatized along with the distribution sector being transferred 60 percent to the ownership of private sector.

The reforms ended the government having limited ownership of its nuclear power generation along with two of the hydroelectric generation plants in the generation sector.  (Murillo, 2001).

These reforms were a result of poor performance of the energy sector in the country and the new government’s neo-liberal nature. The country experienced some of the severe blackouts during the summers of 1988 and in the year 1989.

The plants being generated by the thermal power were also suffered from very poor availability and losses in the distribution system.Assessing the impact of electricity sector reform in the generation sector of argentina. These were a result of some partial theft of power in the country. (Heller & McCubbins, 1996)

Many foreign investors were also attracted by the energy reform of Argentina in the initial years. there have been approximately 30 foreign investors in the energy sector of Argentina in the year 2002. (CAISE, 2002).

The energy generation sector of Argentina experienced many new entrants in the market including the Spain’s Endesa. Europe’s Total Fina Elf and US’s AES.

Positive Impact of the Argentina’s Electricity reforms

According to research conducted by Hiroaki Nagayama (2005), the reforms of the power sector in Argentina proved to be very successful for the country which was prior than the macro economic crises faced by the country in early 2002.

This was because these reforms result in the generation of investment in the Argentina’s energy sector market by foreign investors. Not only this, but the reforms also resulted in decreasing the tariffs of the electricity in the country.

The author believed all these were a result of the business of the electricity supply’s unbundling along with increased competition in the market. The reform’s positive impact was also a result of the attention paid to all the lessons that were learned from all the forerunners who adopted the reforms of the energy sector in their countries, especially Chile.

This increased privatization in the generation sector also resulted in an increase in the generation of the electricity that helped the Argentine’s government to cater to the demands and need of electricity in the country along with exporting it to other developing countries.

An example of such step is the agreement between the governments of Argentine and Brazil in the year 1997 to work as an integrated power generation market where there will be free guaranteed competition along with no subsidies. They also agreed to a system of pricing that would be completely cost based. (Littlechild & Skerk, 2008)

The reforms also introduced a rule with called “Merit order, or economic, dispatch”. According to this rule, the supplier’s whose electricity generation is the most efficient would be dispatched first.

Because of introducing this rule, the existing facilities in the energy sector were upgraded and drove to the high-quality standards. This also resulted in suppliers adopting and installing the facilities of co-generation, these resulted in the increased efficiency of power generation from the suppliers in the market.  (Legisa, 1999)

The reforms also resulted in lowering the barriers to the entry of new and independent producers of electricity in the power generation market of Argentine.

According to ENRA and CAMMESA, this resulted in the establishment of new laws imposed on the foreign investment which resulted in removing the restrictions and allowing the foreign investors to be able to acquire the Argentine based companies by 100 % along with being able to repatriate profits along with capital.

This new law resulted in significant increase of the investment in the energy sector which was reported to be $318 million as of the year 1994 which increased to more than 2 billion dollars in the year 1997. $ 5.7 billion worth of investment was made during the year 1994 to 2000. (Delfino and Casarin, 2003)

Due to increase in the competition in the electricity generation sector, the whole sale prices MEM also fell significantly. This decrease in the price was also a result of increased efficiency in the power generation capacity.

The prices of electricity in the country decreased with a significant number in the year 1992 with the recorded price being as low as $45 per MWh which further reduced to $25 per MWh in the year 1998. (Rodriguez, 2004)

The reforms also resulted in increased reliability on the services. An example of these could be observed in the case of distribution by northern Buenos Aires, which reduced its outage to 6 hours per year in the year 1995, which was previously 22 hours per year in the year 1992.

This increase in the reliability of service was also a result of improvement in the technology. The generating plant’s retrofit with stabilizers of the power system was one of the major technological improvement in the generation sector. The advantage of this new improved technology was the less likely occurrence of problems with the transmission system which might have caused an outage at large. (Ferreira, 2002)

Negative Impacts of Electricity reforms in Argentine

Along with all the positive results of the energy reforms, the country and the energy generation sector also experienced some negative impacts. The government of Argentine experienced very dramatic turn to the fortunes of their economy during the years 2001 and 2002.

There was a number of factors responsible for this economic crisis. One of them is the increased level of spending by the public sector and the debt taken by the public sector. the high level of recorded corruption in the sector by the government sector also caused uncertainties with regards to the future of the country along with its economic, energy restricting efforts.

The investment in the energy sector by Peso also suffered great losses with regards to both, their value in the market and the revenues they were generating from the market. (Vignola, 2000).

The electricity generation reforms by the government of Argentine also was not able to deliver positive results with regards to the increase in the transmission capacity. These reforms were also badly influenced by the economic crises faced by the country in the year 2001, which resulted in freezing the Argentine peso in the year 2002.

This resulted in the increased inflation rate in the country that badly impacted in high-level debt of foreign currency by the private investors in the electricity generation. This resulted in the private sector is unable to generate energy that would meet the demand of the consumers and this ultimately resulted in the energy crises within the country. (Abdala & Chambouleyron, 1999)

There was a lack of the performance of the Argentine’s government, as they were unable to perform well. The over saw the increase in federal energy subsidies while the country was becoming the net importer of hydro carbon. This also showed the……..