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Argentina’s Economic Shock Therapy Leads Enel to Delay Sale of Power Distributor

Enel has decided to hold off the sale of a power distribution company it operates in Argentina, as it expects the country’s new president to deregulate the electricity market, making the company, Edesur, more valuable.

Libertarian Javier Milei has bet on a shock therapy in his attempt to turn Argentina’s economy around and that therapy includes deregulating the electricity market and removing subsidies and price controls that kept electricity affordable for Argentinians but produced losses for Edesur.

Bloomberg cited several officials from the Italian utility major as applauding President Milei’s decision, which has yet to be passed by Argentina’s parliament. Milei issued a decree for deregulating the electricity market in December and although the senate has voted to overturn it, the decree stands until the lower chamber of parliament votes on it. Bloomberg reports a date for that vote has not been set yet.

President Milei's strategy involves some quite radical measures such as devaluing the local currency and removing all energy industry subsidies. Earlier this year, the strongly pro-market president angered several oil-producing provinces when he threatened to withhold billions of dollars in federal tax revenues as compensation for unpaid debt. In response to the threat, the provinces’ leaders threatened to suspend the supply of oil.

President Milei also had an idea to privatize 41 state-owned companies, including YPF, the country’s nuclear energy company, and the state energy infrastructure entity, Energia Argentina.

YPF was nationalized in 2012 after Spanish Repsol was accused by the government of Argentina of neglect. Accounting for around 760,000 barrels of oil per day, YPF was to lead the charge in terms of shale development in Argentina, which is home to what is believed to be the world’s second-largest shale oil and gas formation, the Vaca Muerta.

However, its growth in this respect has been consistently diminished by soaring inflation and government price controls. The privatization proposal was struck down by parliament.

By Charles Kennedy for Oilprice.com


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