Argentina Attracts Green Capital
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With an extremely bold move by the government of the nation, Argentina is now attracting the green capital that is needed to realise works in clean energy, by using the Decree of Necessity and Emergency number 882 of the Ministry of Mining and Energy, which enshrines in law exceptional measures to ensure foreign investment in renewable energy.
This year the government has authorised the entry of up to US$1,700 million for the execution of works within the regulatory framework of energy production from renewable sources.
The executive is of the view that, regardless of political sides, few or none will oppose the measures taken. Although this path has avoided the intervention of parliament – and the consequent delay – no outright opposition is expected.
Broadly speaking, the DNU provides outstanding guarantees to foreign capital entered under this legislation, a matter which would highly likely have been ensnared in a parliamentary discussion. On the contrary, it establishes the law of the state to expropriate, with compensation for works already invested, in case of a breach of contract.
Within the established guarantees is the facility that investors have to take out insurance with the World Bank to guarantee their investment, which gives a degree of certainty and extraordinary warranty beforehand.
The whole operation is structured to carry out an international tender already in progress, for the execution of works that should produce 1,000 megawatts, without the use of polluting energies.
The third recital of Decree 882 states: “… also it will make a significant contribution in caring for the environment, contributing to climate change mitigation, economic recovery from attracting domestic and foreign genuine investment, and the generation of jobs”.
From a macro perspective, the enactment of the decree means that, beyond proposing a pathway for investment in energy, in Argentina it is a strong political coup that the government of the nation is taking a strong lead.
In view of the default and lack of confidence of the big capitalists and foreign banks, due to the recent history of Argentina, this decree is an extremely powerful signal.
We estimate that this has not yet been fully appreciated. It complies with the aim of providing a beneficial and attractive framework for potential investors, and much more.
It is possible that, even though the rules are public (as in any rule of law), somehow excessive internal advertising has been avoided, so as to avert potentially negative criticism.
In another section of the decree, plans regarding the current energy situation are discussed: “… 8% of the national annual consumption at December 31 2017, increasing this percentage share progressively to reach 20% at 31 December 2025.”
It is important to note that currently, at 16 months before the first deadline stipulated in the framework law, Argentina has only 2% of its energy produced from renewable sources. So it is an industry that necessarily has wide horizons for development.
Argentina attracts green capital for this year
The government that recently entered into power in Argentina has as a task of first order the regaining of trust.
The facilitation of foreign investment necessarily entails giving strong signals, with clear guarantees, even beyond what would normally be in place. This is explained by the deteriorated situation in which Argentina found itself after the default, worsened by the persistent attitude of the previous government, which refused to honour its commitments.
From this perspective, this expeditious way to attract the required capital, along with achieving the immediate objective: clean energy, is, at the same time, the great sign that the world was waiting for.
Commitments and guarantees
Decree 882 ensures the acquisition by large consumers of energy that will generate the power plants to be built. For those who do not know the reality of energy in Argentina, demand far exceeds supply, so much so that the country lives under an emergency decree, with power outages during seasons of increased demand.
In turn, as a country with a developing economy, this will continue for the next few years. Also the price of energy, today known fully by the market, it is higher than the rest of the continent.
Moreover, there exists for the large Argentine companies a major stumbling block in relation to green energy. By law, since last year, they are required to gradually make more use of clean energy. They are being compelled to contract long term at high prices to fulfil what is legally stipulated. Hence the resentment about the issue.
The maximum price which may be requested in proposals is USD113 per megawatt. If we consider that the average price for countries of the region is $60 per megawatt, and currently $115 per megawatt is the average price paid in Argentina, we are talking about big business for companies and a return above average for investors.
Great difficulty has been observed regarding the public relations which necessarily must be undertaken by the winners of tenders. Local businesses will not be at the ringside to cheer; no one would be, if forced to pay high prices by law.
This is, in fact, only a necessary consequence of the inefficiency of the previous government, which did not facilitate investment – on the contrary, exterminated it – and in turn did not perform the works per se, and squandered resources on spurious bids.
It is understandable that there is some curiosity about who will be these first large investors. The signals so far have been confusing.
We must understand that an international tender of this magnitude is managed by large corporations, investing heavily in the research and development of proposals. They must be competitive in price to win the tender, and at the same time ensure its investors an adequate return for the next 30 years. Yes, this regulatory framework allows 30 years for an already attractive opportunity for any investment of capital.
Already in the purely speculative terrain, most likely such investments will be joint ventures, such as joint enterprises between large foreign companies like Siemens or others, and Argentine business leaders who have the knowledge to navigate in domestic politics. This implies constituent companies, which will be governed by the civil law of Argentina.
An important note to add: in the case of a dispute between the Argentine Government and the bidding companies, they shall be entitled to go CIADE to settle their disputes; they will not be tied to Argentina’s domestic judiciary.
“The pampa, in the south of Argentina, has constant winds, which only lack being taken advantage of, and the north has a scorching sun that will be an inexhaustible source of wealth.” These are some of the many qualities with which nature has endowed the Argentine landscape.
Do you want to know more about Argentina? Then read some of our other Argentinean posts.
English Editor: Audrey van Ryn
Writer & Translator: Mª Verónica Brain
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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