Blackouts Deepen Tension Between Argentine Power Cos, Govt

Oct. 16, 2003

BUENOS AIRES (Dow Jones)--One day after Argentina's power sector warned of a
looming electricity crisis, two afternoon blackouts Thursday left much of
downtown Buenos Aires in the dark and fueled an ongoing conflict between the
government and the country's electricity companies.

About 330,000 people in downtown Buenos Aires and nearby neighborhoods lost
power for 13 minutes around 1700 GMT, according to electricity provider Edesur
SA, a unit of Spanish utility Endesa SA's (ELE) Chilean holding company Enersis
SA (ENI). In a press statement, Edesur blamed arson for the outage, saying
someone had set a fire beneath high-voltage lines linked to two substations
that serve the metropolitan area.

Another 120,000 customers of Edenor SA, Buenos Aires' power distributor in the
north, had their electricity cut off for about ten minutes, said Edenor
spokesman Alberto Lippi. Edenor belongs to Electricite de France SA (EDF.YY).
Lippi also pinpointed a third party as the cause, saying there was an "external
problem" outside of the company that affected three Edenor substations.
The outages shut down Buenos Aires subway service and disrupted operations at
the local currency and stock markets. Afterward, the stock exchange extended
the trading day by an extra half hour.

The service disruptions follow a joint statement released Wednesday by
Argentina's electricity generators, distributors and transport companies
warning that "the entire electricity industry ... fundamentally fears the
arrival of a state of crisis and for this reason they understand that urgent
measures should be adopted."

Utilities say the electricity system is near its limit because economic
conditions and government policies - particularly the conversion of contracts
into devalued pesos and a 21-month rate freeze - have generated enormous losses
and limited investment in maintenance and new capacity. Both Edesur and Edenor
have warned that an expected spike in demand over the summer might overwhelm
their systems, which are already strained from the repeated theft of cables and
steel girders.

But the government has taken an equally hard line against the country's
privatized utility sector. Local media quoted Cabinet Chief Alberto Fernandez
as saying late Thursday that "it is very symptomatic that the companies
complain and there are almost simultaneous outages. We want to believe it is a
coincidence."

Press reports also said the Energy Secretary has requested detailed reports
from Edesur and Edenor about Thursday's blackouts, though Edenor's Lippi said
filing reports to the national electricity regulator is standard procedure
whenever outages occur. Lippi declined to respond to Fernandez' comments,
saying the company doesn't speak on political issues.

Minister of Planning Julio de Vido warned last week that utility companies
could be slapped with "severe penalties" for any suspensions in service.
And in August, when 390,000 Edesur customers lost power for an hour, President
Nestor Kirchner hinted at a press conference that the company might have
deliberately disrupted service to pressure the government into raising rates.
Edesur said the outage was caused by the collapse of three electricity towers
weakened by missing girders.

Wednesday's statement by the power sector stopped short of explicitly
demanding an increase in rates, though it said the industry has been
jeopardized by the "macroeconomic and regulatory decisions that were adopted at
the beginning of 2002." Despite new legislation that authorizes the government
to raise utility rates while it renegotiates the country's public service
contracts, officials have shown no signs of doing so.


-By Wailin Wong, Dow Jones Newswires; 5411-4311-3125; <mailto:wailin.wong@dowjones.com>wailin.wong@dowjones.com

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