Chinese investment sought for Argentina’s power sector

By the Potencia correspondent

Argentina is seeking new investment partners to fund the exploitation of its natural energy resources and in particular is looking outside its borders. President Fernandez de Kirchner believes that China is a key target in this regard, and recent meetings between the minister of Federal Planning Julio de Vido and two Chinese companies are evidence of Kirchner’s intentions.

The Argentinean government wants to install two large hydropower complexes along the Santa Cruz River, which is located in the south of the country. According to La Prensa, De Vido met with Sinohydro Corporation’s chairman and then held a meeting with the deputy chairman of China Gezhouba Group International Engineering. The latter was responsible for 70 per cent of the work on the Three Gorges Dam, the world’s biggest dam.

Both Santa Cruz River hydropower projects are expected to have a combined installed capacity of 1740 MW, and the government aims for work to start within the first half of next year. The overall investment needed is expected to be in the region of 22 billion pesos ($5 billion).

The construction of the hydroelectric dams has been put out to tender and at the moment nine companies, including the two Chinese companies have expressed interest. According to Eco Business, the tender process is due to close on 12 December, but this relatively short tendering process has raised some concerns. For example, Wang Yifu, advisor to the president of Sinohydro, was reported as saying Argentina is being a “bit stingy” with time.

Among the other interested parties are Brazil’s Camargo Correa Group, Odebrecht SA OAS Limited and Grupo Andrade Gutierrez, as well as domestic players, such as Panedile, Industrias Metalurgicas Pescarmona SA (IMPSA) and Helport.

The Santa Cruz River is one of the fastest flowing rivers in Argentina. The two hydroelectric facilities will be named after two Sanat Cruz governors, Nestor Kirchner (dam height of 75.5 metres), and Jorge Cepernic (dam height of 43.5 metres). The building works are expected to take around four years, says the secretary of Public Works forecast.

According to De Vido, trade between Argentina and China has grown by almost 500 per cent in eight years, so Chinese companies are well-positioned to participate in such projects. And it is not only in Argentina that China is making its presence felt. Many believe the Asian giant will conquer the Latin American energy market, both in the renewable and conventional energy sectors.

With its domestic market nearing saturation point, China clearly has interest in financing projects right across the globe, with Latin America no exception. Many Chinese companies manufacture the equipment and components used in a whole host of power stations, so funding from the Chinese government’s investments can open new markets to these OEMs.

Chinese interest in wind power in the region has also increased in recent years. In July, Generadora Eolica Argentina del Sur SA, an Argentinean renewable energy developer, announced it expected to obtain $3 billion in financing from the China Development Bank Corporation for what it describes as Latin America’s largest biggest wind power project.

As part of the deal, the project will use turbines manufactured in China. They will be installed across 45,000 hectares in the Chubut province in the south of the country, and have an installed capacity of 1350 MW.

The project is clear evidence of the significant interest the Chinese government has in investing money in energy projects in the region. In 2011, the Economic Commission for Latin American and Caribbean countries (CEPAL) announced that China was the single biggest investor in the region.

However, not everyone is completely happy with China’s growing financial muscle in Latin America. Spanish newspapers, such as El Pais have confirmed that several Latin American governments have misgivings over the true intentions of its new partner, with China snapping up much of Latin America’s valuable raw materials.

Furthermore, according to El Pais, Argentina’s government has asked MERCOSUR, the common market that integrates Brazil, Uruguay, Venezuela, Paraguay and Argentina, to put in place some sort of mechanism to limit Chinese imports, as a way of protecting its burgeoning manufacturing base.

At the moment the influx of Chinese money into Latin America’s energy sector is welcome but a growing economic dependence on just one commercial partner may bring problems in the medium to long term, so its is important that Latin America opens up to other new foreign investors. For example, Argentina is also looking to Russia for investment.

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