Friday, August 23, 2013

China-led Consortium Wins Argentina Dam Contract

China-led Consortium Wins Argentina Dam Contract
By Dow Jones Business News, August 21, 2013

BUENOS AIRES--Argentina's government on Wednesday awarded a contract
worth billions of dollars for the construction of two hydroelectric dams
to a consortium led by China Gezhouba (Group) Co. Ltd. (600068.SH).

The group, which also includes Argentine firms Electroingenieria SA and
Hidrocuyo SA, will construct a $4 billion hydroelectric project capable
of generating 1,740 megawatts of electricity in the sparsely populated
province of Santa Cruz in southern Argentina.

The government says the dams will help curb Argentina's need to import
diesel and liquefied natural gas and save some $1.1 billion a year.
Argentina's rising energy deficit has become so significant that trouble
paying for energy imports has led the government to implement a host of
unpopular economic policies, including a ban on the purchase of foreign
currencies, principally U.S. dollars. The government needs those dollars
itself to pay for energy imports and to make payments on its foreign debt.

The project's critics, however, argue the river doesn't have enough
water flow to generate the full 1,740MW of power. The project's isolated
location will make it expensive to transport the electricity from them
to other parts of Argentina, critics say.

"This project will be a huge headache for Argentina," said Gerardo
Rabinovich, an energy industry consultant. "It doesn't make any sense
from a technical standpoint or in terms of an investment. The country
doesn't have the money to pay for this, especially when there are
simpler, less expensive options available."

Mr. Rabinovich said it would make much more sense to build smaller
hydroelectric projects along the borders of Brazil and Paraguay.

Argentine President Cristina Kirchner praised the project Wednesday,
however, saying it would lead to greater economic development. She also
said the winning consortium initially would finance the entire project.

Argentina's government first announced plans to build the dams about
five years ago but repeatedly delayed the project among questions about
financing. More recently, opposition politicians and critics of the
government have raised questions about the transparency of the bidding
process, and some have announced plans to challenge the construction
contract in court.

More than 20 companies, including other firms from Brazil, China,
France, Korea and Spain, had participated in bidding for the hydropower

The dams, which will be named after two former Santa Cruz governors,
including Argentine President Cristina Kirchner's late husband and
predecessor in office, Nestor Kirchner, will provide power to residents
and companies in Santa Cruz.

Provincial officials say they hope the availability of more electricity
will help attract industry to the region, though they aim to export any
unused electricity to other provinces and potentially even to
neighboring countries.

Infrastructure Minister Julio De Vido, who has overseen the planning of
the dams, said earlier this year that it will take more than five years
to build them. Mr. De Vido said the dams will generate about 10% of
total national demand for electricity.

An important component of the plan is a related project to connect Santa
Cruz and other areas to the national power grid. In an interview earlier
this year, Santa Cruz Lieutenant Governor Fernando Cotillo said the dams
wouldn't make any sense if they weren't connected to the rest of the
country's electric grid.

A group of former Argentine energy secretaries has estimated that the
government will have to pay around $13 billion in energy imports this
year to ensure the domestic market is adequately supplied.

Despite recent efforts to increase oil and gas production, production of
both goods has declined sharply over the past decade. At the same time,
demand for energy surged during the country's economic boom, raising the
need for imported energy. But new investment in energy production has
been relatively scarce. Industry executives say price caps and
unpredictable government policies have discouraged investment in the sector.

Last year, President Kirchner said the energy import bill was so onerous
she decided to expropriate oil and gas company YPF SA (YPFD.BA, YPF)
from Spain's Repsol SA in hopes of increasing energy output.

Earlier this year, Mr. De Vido said international bidders would have to
ensure that at least 30% of the construction components are made in

Hydroelectric dams currently account for about 30% of the power
generated in Argentina.

--Shane Romig contributed to this article.

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