iEarlier this month, the Argentine government published a public tender for the construction and operation of a 487 kilometer, high-voltage electricity network, five substations, and ancillary 132 kV infrastructure, ultimately involving five provinces. This project aims to relieve current transmission congestion and increase the capacity of the country’s existing transmission network through a 15 year term public-private partnership (PPP) contract. According to the current tender calendar, proposals are due May 2019 and the award of the contract is expected in July 2019, with construction scheduled to last 36 months.
This public tender for large-scale energy infrastructure was published by the Argentine government despite months of negative economic news and events. Most notably, the country has suffered a gross depreciation of its currency, a 60% interest rate (the highest in the world), brutally high-inflation (48%) and a downgrading of its credit rating, this couple with the fact that it is in the thick of a two-year recession with the economy shrinking 2.5% in 2018 (its worst performance since 2014 the year the previous government defaulted on its debt).
As bad as all that sounds, this news does not appear to be slowing Argentina’s progress on the development of energy and infrastructure projects. If it intends to come out on the other end of its crisis stronger, it should not slow down. Argentina will not improve or gain investor confidence if it “shuts down” – but it stands a chance if it continues to work with the International Monetary Fund, Inter-American Development Bank, and World Bank, and implements responsible public spending structures the likes of those seen in the RenovAr and other PPP projects.
Specifically, with respect to the development of energy and infrastructure projects, over the last two years the Argentine government has reacted to market stimuli. In August 2018, the Argentine government cancelled Round 3 of the RenovAr renewable energy public tenders citing congestion and distribution problems with existing transmission infrastructure, as well as macro-economic factors that could make financing such projects problematic. Although initially Round 3 seemed to be on indefinite hold, in September 2018, the Argentine government announced a new round of public tenders. This new round called “RenovAr MiniRen” focused on smaller projects of 0.5-10 megawatts, using existing medium voltage transmission lines, and aiming to attract smaller players in the energy sector. It also extended the time frame for RenovAr 2 projects to achieve financial close by 365 days and issued revised tender rules for “RenovAr MiniRen” giving potential bidders two additional months to review.
Argentina will undoubtedly continue to encounter myriad social and economic hurdles as it struggles through a recession and makes its way through this year’s country-wide elections. Continuing to address existing energy constraints and aging infrastructure in a responsible and planned manner is a positive step towards overcoming some of these challenges.
