THE ARGENTINE REGULATORY FRAMEWORK VIS-

1

• THE ARGENTINE REGULATORY FRAMEWORK VIS-À-VIS THE
  CURRENT POLITICAL CRISIS AND ITS SOCIOECONOMIC
  CONSEQUENCES

2
Description of the regulatory framework

• The context in the 80s
• Poor quality service
• Low internal efficiency
• High unavailability of the installations
• High level of losses particularly due to the
  stealing of electricity power
• Poor client satisfaction
• Cross subsidized political tariffs no
  generation of resources for network expansion
• Unclear signs for the economy

3
Description of the regulatory framework

• The context in the 90s
• The new regulation permitted to
• Stimulate competitiveness wherever possible by
  encouraging the private investments
• Separation of the industry segments, whether
  monopoly ones or those subject to the market laws
• Guarantee free access to Transmission and
  Distribution
• Regulate Transmission and Distribution with fair
  and reasonable tariffs with appropriate rate
  methodologies.

4
Description of the regulatory framework

• The context in the 90s
• Achievements
• Private investment was attracted (more than 9
  billion US dollars in ten years)
• Significant increase in the supply (From 13.2 GW
  in 1992 to 20,7GW in 2000)
• Substantial upgrade in quality of service (From
  13.6 cut/client-year in 1922 to 4.6
  cut/client-year in 2000)
• Sharp decrease in power and energy prices (From
  48,7 U/MWh in 1992 to 27,6 U/MWh in 2000)

5
Description of the regulatory framework

• The context in the 90s
• Main issues to tackle
• Decrease of investment in Generation
• Transmission quality were not coherent with those
  required by the Distribution Companies.
• Keep the legal certainty in Distribution

6
A new game rules

• Effects on public service utilities companies
• Pesofication of tariffs originally expressed in
  US dollars
• Barring from modification or indexation of
  tariffs
• Announcement of a renegotiation process,
  unfulfilled to this date

7
A new ball game

• Consequences
• Legal certainty and property rights were violated
• The regulatory framework was altered
• The electricity industry became the subsidizer of
  all the sectors in the demand
• Most companies will be forced into financial
  default
• The sector is unable to renegotiate debts in US
  dollars, as it cannot schedule reformulation of
  contracts, tariffs or revenue

8
Proposals to overcome the crisis

• Emergency stage Immediate increase of tariffs
• Re-adjustment stage Define a reference rate and
  a pathway to attain it. Determination of the
  Regulatory Asset
• Recovery stage Additional tariff increases over
  the reference rate to recover financed regulatory
  assets

9
Proposals to overcome the crisis
10
The current context

• Two presidential candidates will compete in a
  runoff on May 18, 2003
• With slight differences, both their proposals
  involve
• i) Upholding legal certainty, within the new
  framework
• ii) Emergency tariff hike, sparing
  needy households
• iii) Renegotiating contracts and
  setting up a background tariff within a term of
  12/18 months
• iv) Defining a tariff pathway
• v) Clean slate for losses incurred in by
  companies between January 2002 and the end of
  renegotiation.