Wracked by the need to boost its supplies of natural gas, Argentina is putting the screws to producers and certain consumers. Last week, Argentine President Nestor Kirchner justified his government’s moves.
In fact, Kirchner used the word “crisis” to describe the shortages that have forced his government to ration gas for factories in order to guarantee enough energy to heat homes.
The government, which is also forcing factories to switch from gas to more-expensive diesel or fuel oil, says it has taken steps to boost capacity-a much needed decision in a land where oil refining is said to be running at 95% of capacity.
Election looms
Kirchner’s cabinet chief, Alberto Fernandez, rationalized the decision to favor home heating over factories by saying, “We have to cut [gas supplies] where it hurts least.” But hurts whom?
Kirchner, of course, who ahead of presidential elections just 4 months away, clearly does not want to upset the electorate by cutting home heating. None the less, by cutting supplies to factories, Kirchner will still hit the population as job cuts loom.
Kirchner has called carmakers a “backbone” of growth, and the industry is leading the increase in manufacturing output. Those assertions are backed by facts and figures that are indisputable.
Independent analysts say the growth in Argentina’s industrial output-up 6.5% in the first quarter, year-on-year-is being driven primarily by the auto industry, where output is running almost a third higher than in 2006.
In May, for example, the output from the car industry was 40% higher than in May 2006, while for the first 5 months of 2006 output was 30% higher than for the first 5 months of 2006.
According to one analyst, the auto industry has hardly begun to take off since, in May, even after the massive jump in output, the industry is still running at just over 52% of its capacity. In a word, it is working at half-speed.
Tariffs fuel growth
While the economy is booming, that boom has been occasioned by Argentina’s ultracheap energy tariffs, which have fueled 4 years of growth pegged at more than 8%. Kirchner says the country’s dramatic growth has created bottlenecks-especially in the country’s gas supply.
As a result, Kirchner has ordered the country’s internal trade secretary, Guillermo Moreno, to squeeze more gas from the system. And the squeeze is on as Moreno is reported to have threatened energy companies with taking over their fields for 180 days if they fail to supply enough gas.
No less worrying, the government also fined Shell last week for what it says are insufficient diesel supplies. That’s rich, since-due to Argentina’s artificially low domestic tariffs-companies must import diesel at international prices while selling it at a loss in Argentina.
Of course, Kirchner wouldn’t dream of raising tariffs-not in an election year.
