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Following the surprise victory of Mauricio Macri in Argentina’s presidential elections in November, all eyes are on what is seen as a very competent new government lineup to kick-start the country’s economy which is struggling after years of interventionist and incompetent policies and poor management.

The election result bodes well for players in the country’s energy sector which struggled with chronic underinvestment since authorities froze gas and power prices at pre-crash levels.

At the end of November, the left wing Peronist party conceded defeat to the centrist Camblemos (Let’s Change) party, and Mauricio Macri replaced Christina Fernandez de Kirchner as president of Argentina.

The new energy minister is Juan Jose Aranguren, a former oil executive ( Shell ),  who is expected to dismantle the web of subsidies and cross-payments developed over the last twelve years. Not least because they are costing the government an estimated 4% of GDP and are not supportable.

Given the huge interests at play, reform of the energy sector is likely to be gradual. But as consumers — both households and industries — are exposed to more market forces, renewables will be seen as the likely solution, said Gerardo Rabinovich, an industry consultant.

Argentina’s wind resource is viewed as one of the largest on the planet with many projects promising capacity factors of more than 45%. Developers have filed plans to install more than 5GW of wind capacity.

However, despite feed-in tariffs and tenders, the country is nowhere near reaching a target of meeting 8% of power needs through alternative renewables sources by 2016. Today, Argentina has just 271MW of installed wind capacity compared to almost 1GW in neighbouring Chile and over 8GW in Brazil. Uruguay has already shown the way by producing 95% of its energy from renewables.

Legislation passed last September reiterated the 8% target, albeit delayed to 2017, backed by a series of incentives such as relief from corporate and sales tax.

Meeting the 8% target in two years is impossible, said Rabinovich. But developers are watching carefully how the new regime implements the law.

More importantly than any subsidies will be Macri’s efforts to bring Argentina back into the international financial markets again, according to Rabinovich. This is looking increasingly likely sooner than later.

Also what needs changed is the current land laws which prevent foreign investors from buying properties that need development. Currently this market is frozen resulting is zero investment creating hardship and a lack of opportunities for locals.

Apart from the restrictive land laws the other barrier to developing wind energy projects in Argentina has been reluctance among local banks to provide project financing. We see this as a less of a problem now that Argentina has a competent government.

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

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