By Taos Turner
BUENOS AIRES--Argentine utility holding company Pampa Energia SA
(PAM,PAMP.BA) said Wednesday it is still awaiting news from the
government about possible plans to help alleviate the
ever-worsening financial crisis affecting the electric power
industry.
The company's distribution unit, Empresa Distribuidora y
Comercializadora Norte SA (EDN, EDN.BA), or Edenor, is in dire
straights and urgently needs new regulatory rules to help the
distributor pay wages and invest in capacity.
Pampa Chief Executive Ricardo Torres said the government is
completely aware of the strained financial situation facing the
electric sector and said he expects the government to come up with
new regulations sometime soon.
"I don't think this is a stable situation and I expect really to
have news in the short-term--if that's 15 days, two months or six
months or a year, really that's out of my reach," Mr. Torres said
in a quarterly conference call with investors.
Mr. Torres said wages and other labor costs account for about
75% to 80% of Edenor's operating expenses. Those costs have been
soaring year after year amid annual inflation that economists
estimate now totals around 25%.
To solve Edenor's financial problems the government will have to
address labor costs and related payments, he said. Mr. Torres said
this could mean getting government approval to raise rates and pass
on costs to customers, or at least to some segments of
customers.
"They (in the government) should decide who will contribute to
that payment," Mr. Torres said, noting that the government
essentially needs to make a "political decision" to let
distributors raise rates or find some other solution. "So we are
waiting for news on that," he said.
Argentina's government has vowed to keep energy prices cheap for
customers and companies, saying that this helps keeps the country
competitive and helps underpin economic growth. But the desire to
keep prices low has made it virtually impossible for energy
companies, especially power distributors, to make a profit.
Mr. Torres noted that Argentina's second-largest power
distributor, Edesur, a unit of Italy's Enel SpA (ENEL.MI), recently
ran out of cash and had to delay making payments to the electricity
board, Cammessa, a largely state-run company that manages the
wholesale electricity market.
Pampa and Edenor have provided the government with all relevant
business and industry information and are simply waiting for the
government to decide what kind of solution to offer the sector, Mr.
Torres said.
"We are not far from reaching the situation of Edesur," he
said.
Argentina froze utility rates in 2002 after the country
defaulted on its sovereign debt and devalued its currency, which
had been tied 1-to-1 to the U.S. dollar. The idea was to provide
temporary relief to people and companies battered by what some say
was the worst economic crisis in Argentine history.
But Argentina quickly recovered and the economy almost doubled
in size between 2003 and 2010. Rapid growth and low rates caused
electricity demand to increase about 4% a year, outpacing the
capacity of companies to invest in infrastructure.
In previous conference calls, Mr. Torres has said the only
scenarios he sees in terms of government support for the sector are
to increase rates or provide direct financial aid to utilities.
Earlier Wednesday, Pampa said its second-quarter net loss
widened 68% partly because of surging costs. The company posted a
net loss of 228.5 million pesos ($49.5 million), versus a loss of
ARS136.1 million in the second quarter of 2011.
Meanwhile, Edenor posted a net loss of ARS259.2 million for the
second quarter, also due largely to rising operating expenses. The
company lost ARS88.9 million in the same quarter the year
before.
Write to Taos Turner at taos.turner@dowjones.com
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