MercoPress. South Atlantic News Agency

China will build and finance two dams in Patagonia equivalent to 10% of Argentine power demand

One of the dams will be named after President Nestor Kirchner

Argentina's government this week awarded a 4 billion dollars contract for the construction of two hydroelectric dams to a consortium led by China Gezhouba (Group) Co. and which includes Argentine firms Electroingenieria SA and Hidrocuyo SA.

The hydroelectric project is expected to generate 1,740 megawatts of electricity in the sparsely populated Patagonia province of Santa Cruz, which also happens to be the political turf of President Cristina Fernandez and her late husband Nestor Kirchner.

Hydroelectric dams currently account for about 30% of the power generated in Argentina

The government says the dams will help curb Argentina's need to import diesel and liquefied natural gas and save some 1.1bn dollars a year. Argentina's rising energy deficit has become so significant that trouble paying for energy imports has led the government to implement a host of unpopular economic policies, including a ban on the purchase of foreign currencies, principally US dollars.

The government of President Cristina Fernandez needs those dollars itself to pay for energy imports and to make payments on its foreign debt.

The project's critics, however, argue the river doesn't have enough water flow to generate the full 1,740MW of power. The project's isolated location will make it expensive to transport the electricity from there to other parts of Argentina, critics say.

“This project will be a huge headache for Argentina,” said Gerardo Rabinovich, an energy industry consultant. “It doesn't make any sense from a technical standpoint or in terms of an investment. The country doesn't have the money to pay for this, especially when there are simpler, less expensive options available.”

Rabinovich said it would make much more sense to build smaller hydroelectric projects along the borders of Brazil and Paraguay where the infrastructure already exists.

However Argentine President Cristina Fernandez praised the project saying it would lead to greater economic development. She also said the winning consortium initially would finance the entire project.

Argentina's government first announced plans to build the dams about five years ago but repeatedly delayed the project among questions about financing. More recently, opposition politicians and critics of the government have raised questions about the transparency of the bidding process, and some have announced plans to challenge the construction contract in court.

More than 20 companies, including other firms from Brazil, China, France, Korea and Spain, had participated in bidding for the hydropower projects.

The dams, which will be named after two former Santa Cruz governors, including Argentine President Cristina Kirchner's late husband and predecessor in office, Nestor Kirchner, will provide power to residents and companies in Santa Cruz.

Provincial officials say they hope the availability of more electricity will help attract industry to the region, though they aim to export any unused electricity to other provinces and potentially even to neighboring countries.

Infrastructure Minister Julio De Vido, who has overseen the planning of the dams, said earlier this year that it will take more than five years to build them. De Vido said the dams will generate about 10% of total national demand for electricity.

The energy situation is Argentine is so delicate, almost desperate, that a group of former energy secretaries has estimated that the government will have to pay around 13 billion dollars in energy imports this year to ensure the domestic market is adequately supplied.

Despite recent efforts to increase oil and gas production, production of both goods has declined sharply over the past decade. At the same time, demand for energy surged during the country's economic boom, raising the need for imported energy. But new investment in energy production has been relatively scarce. Industry executives say price caps and unpredictable government policies have discouraged investment in the sector.

Last year, President Kirchner said the energy import bill was so onerous she decided to seize a majority stake in oil and gas company YPF from Spain's Repsol SA in hopes of increasing energy output. The seizure has reached international courts.