Regulatory Risk Seen in Argentine Power Sector

Regulatory risk is a concern for the Argentine power sector, according to Fitch, which sees minimal private investment in the industry, an aging generation and transmission infrastructure and electricity supply unable to meet increasing growth in demand. “Regulatory risk is by far the largest concern for electric company credit ratings,” says Fitch. “In general, however, most companies used the period of high liquidity in the capital markets during 2006 and the first half of 2007 to reduce credit risk by refinancing their debt,” it adds. Fitch compares the sector now to the early 1990s in Argentina and says that consistent with the continued expansion of the economy, annual investment needs are estimated at $1bn. Manipulation of electricity resources to avoid power shortages will not stop the need for eventual rationing, the agency adds. “There seems little likelihood that existing capacity will approach the levels required by the expected growth in demand over the medium to long term,” says Fitch. “As a healthy energy sector is fundamental to sustaining Argentina’s long-term economic growth, a significant tariff increase for utilities, combined with the elimination of a cap on energy prices, is vital to encouraging private investment in the sector,” it concludes.