MercoPress. South Atlantic News Agency

Chile's Argentine gas bill soars 50 to 75%

Chile's natural gas bill will increase by 130 million US dollars from now until the end of 2006, following Argentina's decision to leave its domestic prices unchanged and “pass on” to Chile the new Bolivian gas price structure.

According to the recent agreement reached with Bolivia, Argentina will be paying 5 US dollars for every million BTU, which is a significant difference with the domestic market 1.5 US dollars.

According to Chilean sources, Argentina's natural gas clients will be paying for the "added value", Chile 90%, and Brazil and Uruguay the remaining 10%.

"This is blatant discrimination: first they discriminate us with the supply of gas, in spite of contracts, and now they discriminate with additional export taxes", complained a Chilean energy company manager.

Argentina is approaching a presidential election and President Nestor Kirchner dares not introduce reforms to the distorted and highly subsidized domestic energy market.

An average monthly gas bill ranges 46 US dollars in Chile, and 11.5 US dollars every two months in Argentina. Even with considerable proven gas reserves, price distortion in Argentina has discouraged investment in exploration and production, while at subsidized prices demand has rocketed both for home consumption and electricity generation, leaving the system overstretched with limited volumes to honour export contracts.

This week Argentina is scheduled to inform Chile of the new natural gas price structure which will include an export levy equivalent to 1.5 US dollars per million BTU.

This means Chilean distributors will have to pay an additional 50 to 75% with final prices ranging between 3.5 and 4.5 US dollars per million BTU, pumped to the Chilean border.

Apparently three factors will influence the levy and final bill to pay by Chile.

First the Bolivia factor, which means that if Argentine imports from Bolivia reach five million cubic metres per day, Chile will have to pay an additional 110 million US dollars until the end of 2006. However if Argentine imports increase to seven million cubic metres per day, the bill would be 130 million US dollars.

The other two variables are linked to volumes exported, the more gas pumped, the levy can be better diluted among distributors, but if the overall volume is less, the levy will be higher.

Similarly the levy will be adjusted quarterly. This means that if Argentina promises to send 15 million cubic metres per day, at the end of the three months if the volume is below Argentina will collect the difference, but if above target cubic metres are pumped, the adjustment will favour Chilean distributors.

"This is no negotiation: Argentina is plainly informing the Chilean government of the new price structure", complained a Chilean energy company official. Even with higher prices Argentina is not guaranteeing an improved natural gas provision "which threatens the stability of electricity generation and increases generating costs".

Chile in the nineties became highly dependent on Argentine gas supply for home consumption and electricity generation.