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SOUTH AMERICAN ENERGY MARKETS WEEKLY ROUNDUP (August 17-24): Are winds of war amassing between Colombia and Venezuela?

August 17, 2009

South American Energy Markets (SAEM) now publishes a weekly roundup of the top-five stories including analysis affecting energy markets in the region with links. The roundup includes all the major web dailies of South America and other websites that write about the region’s energy markets. SAEM Weekly Roundup appears on Mondays and is published by noon London time.

Monday, August 17, 2009

COLOMBIA & THE REGION/US MILITARY BASES

Despite all the saber-rattling by Venezuelan President Hugo Chavez, Colombia said that it would like to increase military cooperation with the United States in that country’s fight against guerrilla groups such as the FARC and the illicit drug trade, reports Bogota-daily El Espectador. The announcement was made after President Alvaro Uribe met with Barak Obama in Washington. “I would like this agreement with the United States to project itself to the rest of the continent,” said Uribe. “We would want to have [a similar agreement] with Brazil and the rest of the American continent.”  Uribe told his neighbors Venezuela and Ecuador, which have been against Colombia’s plans to increase military cooperation with the United States, that he wants to reestablish good relations with his country’s neighbors. “The first message [goes] to Ecuador and Venezuela that they are our brothers,” he said. “We are fighting a war against terrorism.”

COMMENT: Will Chavez and Ecuadorean President Rafael Correa sit at a same table with Uribe after the announcement? Probably not because Venezuela and Ecuador will try to get the most political mileage from the situation in their home countries. It is pretty incredulous that Chavez in his weekly television address, Alo presidente, said that the matter could lead to a war in South America. While it is highly doubtful that both countries will go to war, it is still a possibility. Taking into account the half-a-century civil war in Colombia, a war with Venezuela would be ruinous for both countries. The last time there was a major arm conflict in Latin America was in 1982 over the Falkland (Malvinas) Islands between Argentina and Great Britain.

ARGENTINA/GAS & POWER TARIFFS

After giving the green light to gas and power tariff hikes, the Argentine government through gas regulator Enargas and the Energy Secretariat suspended such rises after strong protests from various consumer groups, reports Buenos Aires business daily Ambito Financiero. The measure to suspend the hikes has creates a lot of confusion among consumers as well as distribution companies that sent the new bills.

COMMENT: Amid the confusion and protests that the measure to raise tariffs by 300%-400% caused, the government decided to subsidize the rise with 493 million pesos ($130 million). Originally, the money from the hikes was supposed to be earmarked for paying for gas imports from Bolivia and LNG. The government will try again to raise gas and power tariffs in October.

ARGENTINA/GAS TARIFFS

In a statement to the National Securities Commission (CNV), Metrogas, Argentina’s largest gas distributor serving Buenos Aires, blamed directly the government for losses of 39.6 million pesos ($10.5 million) incurred during the first six months of the year, writes Buenos Aires daily La Nacion. Citing the freeze on tariffs by the government and indirectly referring to the intervention of the energy markets since January 2002, the distributor said that the present situation is causing the company’s financial situation to “deteriorate day to day.”

COMMENT: The statement by Metrogas is significant because it is the first-ever that openly criticizes directly the government’s tariff policy. It is also a sign that at least publicly large companies such as Metrogas are becoming increasingly frustrated with President Cristina Fernandez de Kirchner’s energy policy. In an unprecedented move in July 2007, the government intervened Metrogas and forced its head, Robert Brandt, to resign. The government justified the move because it said Metrogas was not supplying industrial customers and in breach of its obligations.

BOLIVIA/UPSTREAM INVESTMENTS

State-owned energy company YPFB invested during the first half of the year a mere $1.9 million of the $107.9 million it had budgeted for the period under review, writes La Paz daily La Razon. Citing a source that spoke under condition of anonymity, the money budgeted was supposed to be earmarked for expansion of the gas-distribution network. A YPFB source, however, denied that so little was being spent by the energy company. Hydrocarbons minister, Oscar Coca, said that YPFB would spend “30%-40%” of its budget in August.

COMMENT: It is odd that YPFB, which has in some cases even threatened companies to invest in upstream projects in the country, could set such a poor example. Even President Evo Morales has joined the chorus and openly criticized YPFB president, Carlos Villegas, for the low investments. However, this may mean that Villegas’ days at the state-owned energy company may be numbered. It also shows that tremendous logistic and inefficiency problems that continue to plague YPFB.

PERU/CAMISEA GAS AND EXPORTS

Lima-based La Republica, which is openly against exporting gas from Camisea (see South American Energy Markets Weekly July 24-31), wrote in a story that nationalization of Peru’s largest gasfields would be mistake. The nationalization proposal was made by Cusco regional president, Hugo Gonzales. Even though such a proposal appears far-fetched at this moment, it reveals how nationalist sentiment is growing in Peru. The nationalization of Camisea, which is located in Cusco department,  is not a good idea, according to Jorge Manco Zaconetti of the UNMSM university.  “Nationalization in order to supply southern [Peruvian] markets is senseless,” said Manco Zaconetti. “We should explore and prove up reserves and one must take into consideration that Peru is receiving royalties of almost 50% from Blocks 88 [Camisea] and 56 [Pagoreni]…”

COMMENT: It would take a pretty blind person to not understand that apart from poor energy planning, nationalism has been raising its head in Peru for quite a while. There are many examples of this in Peru’s history. One can go back to the last-1960s to the mid-1970s, when left-of-center General Juan Velasco Alvarado nationalized a number of industries after overthrowing an elected civilian government. His nationalization experiment ended in ruin. President Alan Garcia’s first term (1985-90) was probably one of the worst periods ever in Peru. His economic policies forced hyperinflation to rocket to 36,000%, while Maoist Shining Path guerrillas threw the country deeper into turmoil. One analyst, who spoke to SAEM, gave a candid view of the future: “If economic growth stagger it could fuel populism,” said a Scotiabank analyst. “Poverty is always a good breeding ground for populism.”

These briefs can be reprinted as long as the source is cited.

If you have any feedback on today’s articles, or if there are energy industry stories you think should be covered, or need research assistance, please contact etessieri@latamreport.com.

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