by Staff Writers
Buenos Aires (UPI) Aug 28, 2013
China is entering a politically sensitive partnership with Argentina to build two new giant hydroelectric dams to showcase the Asian nation's expertise in a region ripe for more trade with Beijing.
China has indicated it's ready to commit cash and expertise in Latin America at a time few other overseas partners of the region are ready to do either.
Argentine officials say a contract awarded to China for building the two dams is worth $4 billion. But it's not clear whether China will all invest all of the contract value in cash, or whether some of it will be in kind.
Officials said a consortium led by China, with several Argentine companies in tow, will finance the entire project.
Once completed, the dams in southern Argentina's Patagonia region is projected to meet at least 10 percent of the country's projected electricity demand during the next decade. Hydro-electronic power currently accounts for about one-third of electricity in the national grid, the rest met with nuclear and thermal power.
Although Buenos Aires invited various companies to bid on the project, it appeared likely from the start that investors wouldn't be comfortable with the government's recent conduct with foreign investors.
Argentina's largest energy company, YPF, with a majority Spanish stake, was nationalized in April 2012 because it was seen to be investing less than a desired percentage of its earnings in Argentina.
Former owner Repsol, a Spanish energy major, is still battling to secure Argentine agreement on multibillion dollar compensation claims. Meanwhile, YPF has gone ahead and drawn new investors into its energy ventures -- an indication that nationalizations don't discourage everyone in a cut-throat energy market.
The Patagonian dams projects are seen as politically driven "pet" projects of President Cristina Fernandez, who claims a strong following in the area. Her late husband and former President Nestor Kirchner also saw Patagonia as a political stronghold.
Officials have said one of the dams will be named after Nestor Kirchner, a former governor of Santa Cruz province.
China is fronting Gezhouba (Group) Co., a major construction and engineering company based in Wuhan, in China's Hubei province, which is regarded as the world's 42nd largest contractor by revenue.
Gezhouba is building a large hydro-electric complex in Kazakhstan in a contract said to be worth $727.8 million.
The company is a standard-bearer for China's ambition to expand its footprint in infrastructural projects in emerging markets, building roads and bridges, real estate and cement production plants.
Argentina says its energy deficit is a persistent drain on its foreign exchange earnings from commodities exports. Current estimates say the dams, once in full operation, will save more than $1 billion a year currently spent on importing diesel and liquefied natural gas.
Neither side has yet discussed how soon the savings will be achieved.
Major questions on power transmission from the remote Patagonia region to the rest of Argentina remain unanswered.
Gezhouba's Argentine partners include Electroingenieria S.A. and Hidrocuyo S.A. China is also becoming more involved in other logistic and infrastructure projects in Argentina.
Contracts signed in May will give China the upper hand in the renovation of Argentina's railroad transportation networks, including metropolitan transit systems.
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