Security Exchange News

Power Struggle

20 June 2019

A massive power outage has affected millions of people across Argentina and Uruguay. In the early hours of Sunday morning, nearly 50 million people across both countries were without electricity. Airports were still operating with the aid of generators, but disruption to public transport and major roads was reported both in Buenos Aires and Montevideo. In Argentina, while some parts of the country were still waking up to celebrate Father’s Day, some provinces were scheduled to hold their local elections. Although blackouts in Argentina are not a new issue, the latest was labelled the largest.

Running against time

For most of the morning, both countries were in the dark. Power providers in Argentina and Uruguay announced that the power outage happened due to a potential failure in the Argentinian Interconnection System (SADI), which provides power to all provinces in Argentina – except the southern province of Tierra del Fuego –, Uruguay, and some parts of Paraguay, Bolivia, Brazil and Chile. However, despite the extent of the SADI, other countries promptly managed to restore power through other sources. For example, Paraguay received emergency supplies from the Itaipu hydroelectric dam. In a statement, Argentina’s Energy Minister Gustavo Lopotegui said that investigations have been launched and that results on the potential motives behind it will be released within two weeks. While he considered the extend of the blackout unprecedented and ensured that the government is working to avoid a similar event in the future, opposition parties and energy experts slammed the administration of President Mauricio Macri for the failure in the country’s energy network. Preliminary reports suggest that a potential failure happened in the distribution connection between the Yacyreta and Salto Grande power stations in north-eastern Argentina, which are considered two of the biggest.

A long-standing issue

For years, previous administrations were accused of neglecting the country’s energy infrastructures, leaving it in decay as result of deep economic crisis. Since taking office, President Macri has pushed to revamp and modernise the country’s energy sector, while also seeking alternative sources of power and exploring methods to expand renewable energy in Argentina. President Macri’s pro-business platform further seeks to return Argentina to the golden days after the energy reforms in the 1990s and early-2000s, where privatisation and liberalisation of the industry were encouraged. During that time, with confidence and sustained foreign investment, the Argentinian energy sector transformed significantly. However, with the deep economic crisis and recession that engulfed Argentina in 2002, the energy sector was severely affected. The initial confidence of investors and liberalisation was followed by capping energy prices and halting energy exports. By offering highly subsided energy, companies barely managed to cover running costs, leading to a shortfall in investment and lack of sustainable ways to maintain power plans and vital energy infrastructure across the country.

Drastic times call for drastic measures

Although the current administration seeks to return to the big leagues in the Latin American energy market, the plummeting value of the Argentinian peso and high-level of inflation have compromised efforts to achieve rapid results. Through launching highly unpopular austerity measures, President Macri has pushed for cutting subsidies to household energy. His government has been in the frontline of attempting to promote the reduction of energy consumption to alleviate the pressure on a network that is already under strain. Recently introduced policies are also attempting to further invest in renewable energy mechanisms – such as solar power – whilst at the same time looking for fossil-fuel sources. A report of the World Energy Council (WEC), the World Energy Issues Monitor 2019, shows that Argentina is on track for the exploration of unconventional hydrocarbons, such as shale gas and oil recently discovered on the Vaca Muerta basin in western Argentina – according to the report, this is believed to be the second-largest shale gas deposit in the world. However, despite relative future optimism, his controversial austerity measures and the renewed intervention from the International Monetary Fund (IMF) in 2018 with a massive 57-billion-dollar loan, President Macri has been targeted in many protests as the 2002 crisis remains in the people’s memory.

Elections in October

President Macri has a massive challenge ahead of the upcoming general elections in October. He is currently running for another four-year-term in office, where he seeks to continue his economic and fiscal reforms. His Cambiemos coalition has recently joined forces with an unusual ally. Miguel Angel Pichetto, the head of the opposition Justicialist Party (PJ) in the Senate, will be Macri’s running mate. The move comes as the Cambiemos continue to expand its alliances in Congress, while already counting on the support of the Radical Civil Union (UCR) and Macri’s Republican Proposal (PRO). Pichetto is a former ally of former President Cristina Fernandez de Kirchner, who is also running for office as vice-president to her former chief-of-staff, Alberto Fernandez. While both sides of the Argentinian political spectrum face widespread internal divisions, left-wing Peronist parties continue to achieve strong results in the recent regional elections held earlier this year. In a busy political year in Argentina, the recent blackout may have cast a shadow over President Macri’s re-election aspirations.