Investing in Buenos Aires: Energy Shortages Stifle Growth in Argentina

BUENOS AIRES ARGENTINA (Daily Reckoning: One of the things I enjoy when I travel is seeing how bigger global trends impact a local economy. There is no escaping the high cost of fossil fuels, for example, or the growing importance of finding reliable supplies of water. Last week, I traveled around rural areas in Salta. I spent some time at a ranch and also viewed properties owned by American and European investors seeking to develop them into residential communities, golf courses, vineyards and more.

So it was interesting to hear them talk about water rights and energy issues. In the fertile valley of Cafayate, there is plenty of water. In some other areas, there are worries of polluted water supplies. Energy is also an important issue. Farmers complain of diesel shortages. While I was in Salta, the regional government reportedly signed a contract with a firm to construct 130 miles of gas pipelines in the area.

Reading the local newspaper is always a good way to get the pulse of a city. And in reading the Buenos Aires Herald, you can get a sense for what worries the Argentines. There are growing concerns over possible energy shortages and blackouts. I'm not sure of the whole picture, but I know that the government holds the price of electricity artificially low. Argentines pay one-third of what their South American neighbors pay. This has stifled investment in new power generation, as you might imagine. Who wants to spend a bunch of money building new and better power generation plants when the government won't allow you to charge a market rate?

Chris Mayer
for The Daily Reckoning Australia

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