BUENOS AIRES – Mauricio Macri’s election in late 2015 sent shockwaves across the hemisphere and unleashed a torrent of optimism. Indeed, there was a period of euphoria as he announced his cabinet, economic team and desire to pursue unity and reset Argentina’s regional and global standing. President Macri embraced the expectations for his administration when, during remarks to open this year’s legislative session in Argentina, he said that his government will change the country’s history.
Quickly focusing on the nation’s nearly bankrupt energy sector makes good sense for the Macri administration. Not quite 100 days into his term optimism abounded, as did the necessity to focus on the enormity of the needs for the nation’s energy sector that has ushered in an increasingly workmanlike atmosphere. That was the clear consensus across two days of intense discussions at the Argentina Energy Roundtable convened by the Institute of the Americas on March 9 and 10 in Buenos Aires.
Throughout the election, the Macri campaign made clear their intentions with regards to revitalizing the country’s economic outlook, investment climate and particularly the energy sector. Since assuming power in December, the government has moved swiftly on a variety of fronts from navigating a path to a solution for the long-standing impasse between Argentina and international creditors and confronting onerous capital controls, the country’s currency, export duties and jury-rigged inflation statistics.
The Macri government also brought a technical seriousness to the nation’s energy bureaucracy, as well as a strong push to move beyond the “disorder” and “poor management” they inherited. There have been clear marching orders from the top as the administration works to “normalize” the many government institutions that had languished for years. In addition, little time was wasted to confront strongly entrenched market distortions and massively costly inefficiencies in the country’s energy system.
Over the last few years, energy contributed around 5 percent of the nation’s GDP, 6 percent of its export revenue and 17 percent of imports. Indeed, the interconnection between the nation’s fiscal imbalance and the cost of energy subsidies and imports was clear and demanded immediate attention. Energy subsidies cost on the order of 12% of all government spending in 2014 while energy imports that same year totaled $6 billion.
President Macri assumed power with a clear understanding that these statistics must be met head on if the country is to revitalize the energy sector and use it as a motor to jumpstart economic growth and be a significant driver of reform.
Only days after taking office in December a state of emergency was declared for the nation’s electric system to avoid what the energy minister called the possible collapse of the system. The presidential decree granted powers through the end of 2017 in an effort to stave off outages, deal with the challenges of the market distortions, and begin medium and long term planning for the system.
As part of the emergency decree, the government also moved swiftly to complete a campaign promise to liberalize prices in the electric sector and deal with the long-standing problem of distortive subsidies. New prices for the national wholesale power market were introduced in January covering the three months between February and March. Further cuts to electric subsidies are likely later this year in an effort to move electric prices toward more market based rates. The goal in confronting these distortions and fiscal issues is to foster a more attractive investment climate and one that overturns years of confrontation between the government and private investors.
Another early move that was applauded by markets and the investment community, was the government’s creation of a ministry of energy and mining. The new ministry brought into government a wide range of experienced practitioners and energy sector veterans. The ministry replaced a Secretariat of Energy that had ceased to provide policy direction or vision.
As part of the new ministry, several new secretariats and undersecretariats were created including a renewable energy undersecrariat that will work to comply with the national goal of 8% renewables by 2017, a secretariat of energy scenarios to manage energy planning in the medium and long term (15-40 years) and an undersecretariat for energy savings and energy efficiency, which seeks to reduce consumption by 5% by 2020.
Though still early days, the Macri government has clearly been busy in an earnest effort to construct a vision for the energy sector. The first draft, along with several first steps, is in place with the formal energy outlook for the government set to be finalized and published later this year in September.
A key tenet was set forth in opening remarks at the Roundtable by Secretary of Strategic Energy Planning Daniel Redondo: Energy planning and projects must balance supply and demand in Argentina at the same time as reducing imports and supporting modest GDP growth.