Nicolás Gadano is an economist specialized in public finances and the hydrocarbon industry. In his long career he served as Undersecretary of the National Budget, senior economist at YPF, Chief of Staff of the Ministry of Economy, and General Manager of the Central Bank. The current Chief Economist of the consulting firm Empiria believes that the recent crisis due to lack of gas was avoidable, that the Government should have staggered the disclosure of rates and that getting out of the exchange rate trap is what the Argentine economy needs to grow again. In addition, he refers to the problem of Cooperating Entities, a mechanism by which the State manages hundreds of billions of pesos without any control. Gadano—author of essays and the novels Your Dear Presence (2012) and The Topper Box (2019)—revealed the mechanism in a recent publication in the Seoul digital magazine.
—Was the gas crisis of last week avoidable?
—Yes, it was obviously avoidable. To understand it you have to have a market context.
—Gas is the most important fuel in the Argentine energy matrix. In the world it can represent around 20% of the matrix, but in Argentina it is more than 50%.
—Because it is used for the generation of electricity.
-Exact. Furthermore, due to infrastructure defects, we do not have gas storage capacity, meaning it cannot be stored. If we add a highly variable demand depending on temperature, it translates into an unpredictable market. Which is not an excuse to avoid a crisis, because it must be managed as such. If you run out of gas you run out of gas and without electricity.
—That is to say, unexpected growth in demand must be anticipated.
—Because between summer and winter residential gas consumption can increase up to seven or eight times. Not because of “the stove”, but because of the heating. The system has to be prepared to handle these peaks. We had a very cold May, and infrastructure and transportation restrictions combined. All imports are managed by the State through Enarsa, which has the responsibility of ensuring supply. If it is not enough, interruptible services come into play: CNG stations, some industries.
—Why are they interruptible?
—By contract: they pay a differential, lower price because they are interruptible.
—How much did the suspension or delay impact infrastructure works?
-Absolutely. Let’s think about the Néstor Kirchner gas pipeline: Alberto Fernández’s government finished it after the winter but complementary works were missing, such as compressors that double the transport capacity from 11 to 22 million cubic meters. The Fernández government delayed these works, but added to that was the Milei government’s decision to stop public works to ensure the fiscal surplus. In the summer it was not noticed because there were no heat peaks, but in May the forces of heaven stopped operating. In any case, I believe that imports should remain in the hands of private companies, as it was in the 90s, but with years of distorted prices that is impossible.
—Speaking of distorted prices, how to analyze the rate update, with increases of more than 300%?
—It was what had to be done: maintaining energy prices ridiculously low compared to costs had many negative impacts. The user did not pay for it, the State paid for it with subsidies, which caused a fiscal deficit, which caused inflation. Furthermore, it motivated a crazy waste of energy, with inefficiencies and zero rational use and zero savings. I think there is a problem in timing.
—First, the Government presented a very aggressive schedule, for electricity that started in February and for gas that started in April. Especially strong for high-income residential, commercial and small business users. Now the government launches this entire program and in the first month that those adjustments were going to be applied, which was May, it suspends it, understanding that it got out of hand.
—Should we have done something more staggered?
—For example, and communicate it, with a clear horizon. It is never easy to update rates, the Macri government has already experienced it, because people suffer from it.
—Part of these problems would be solved by increasing production and infrastructure, and for that, investments are needed. Will the Large Investment Incentive Regime (RIGI) contemplated in the basic law help?
—In the spirit of being a little controversial, I would say no. The most important thing for the energy industry today is to get out of the trap, to have a single market free of changes, predictable, stable and reasonable, and a more or less normal macro. This is enough for Argentina to produce and export much more crude oil, and also begin to organize the production and exploitation of LNG. The type of schemes like RIGI generate unequal advantages and more distortions.
—How to pay 25% of profits instead of the 35% that everyone else pays.
—Like so many ideas that I distrust very much. It seems unequal to me that an oil energy project, with a lot of capacity and that needs clear rules to produce, cannot pay 35 percent of profits, like any smaller, medium or large company that produces in Argentina. Many times promotional regimes end up generating perks, privileges, inequalities, inequities.
—Many energy specialists maintain that Argentina’s great opportunity is in LNG, liquefied natural gas, do you agree?
—It’s an opportunity, but I don’t know if it’s a priority. In the short term, the opportunity for crude oil is much clearer. Despite all the projections of the energy transition that exist, it continues to grow, and with more stable prices than LNG. It is a simpler market, the infrastructure is simpler and more modular: you add pipelines and ports. Argentina has all the conditions to produce more and export more. LNG will have a longer lifespan because it is less polluting, but today it has more volatility.
—Can we talk about the ACARA case?
—How would you briefly explain what Cooperating Entities are?
—They are a mechanism by which different State agencies try to make money outside the traditional systems, the control of the Ministry of Finance or Congress. For example, the Ministry of Justice manages records: if you buy a property or a car or a chemical precursor, you have to register it. In the case of cars, there are the Automotive Registries, which collect, and ACARA, the Association of Car Dealers of the Argentine Republic, which manages these resources.
—What happens to the fees paid in those records?
—Instead of entering the State, they go to a fund that is managed by the Cooperating Entity, which charges for it, and offers that money to the Ministry of Justice and other State agencies. That money is used for whatever is necessary: hiring people, extraordinary expenses, bonuses, all totally outside the National Budget and State controls.
—How serious is it in the case of the Ministry of Justice?
—There is a whole world of employees, bonuses, travel expenses, rents, of billions of pesos that ACARA manages at the request of the Ministry, with absolute discretion. There are employees who are “full ACARA”, they work at the Ministry of Justice but their paycheck is from ACARA.
See alsoRates and expectations: the two reasons why the rise of the dollar was in the news again —According to the newspaper Clarín, there are more than 100 billion pesos: of the Ministry’s 6,107 employees, 2,100 belong to the National Public Employment System, 2,483 under the ACARA regime and a little more than a thousand through agreements with other entities. .
—Even the Anti-Corruption Office has employees under the regime of a Cooperating Entity. The system has given rise to tremendous irregularities and arbitrariness. There is a lot of resistance to correcting it, because it benefits many people: the Association of Notaries, the Association of Lawyers, ACARA. The Hunting and Fishing Association, for example, is crazy, because it structured a similar scheme around the registration of chemical precursors. There, those who pay are the pharmaceutical companies.
—Do you think this mess can be resolved?
—I think there is a possibility, if the press continues to spread it and this Government is consistent. The opportunity is the discussion of the Budget Law, which begins in September. At a minimum, if these resources are to be maintained, they have to be made transparent.
—They could enter a circuit where there is control.
-Yeah. I believe that we should go towards something more ambitious, which is to brutally lower the cost of registries, and also eliminate the privatization of these registries. Make it simpler, online, easier and cheaper, and disrupt everything.
-Last question. What is the Government’s main challenge today?
—The main challenge for the Government is when and how it will get out of the trap so that the normalized economy begins to move forward and recover investment and consumption.
