AES in Argentina

On its website, AES states that "in Argentina, AES is one of the largest private power generators in the country, producing approximately 12% of the country’s total power generation capacity. AES’s two distribution businesses in Argentina serve approximately 474,000 customers in the state of Buenos Aires."

AES has been active in Argentina since the country liberalised its electricity sector in the early 1990s. With 3,506 MW of installed electricity generation capacity, the company currently accounts for 12% of the total capacity in Argentina through a number of Argentine generation subsidiaries including AES Gener, Central Térmica San Nicolas S.A., Hidroeléctrica Río Juramento S.A., TermoAndes S.A., AES Caracoles S.R.L., and AES Parana.

In June 2009, The Centre for Research on Multinational Corporations (SOMO) published a case-study that looked at the sustainability of AES' activities in Argentina. The research looked at the social, environmental and economic aspects of the company's business activities, and focused on the company's subsidiaries Edelap and Central Dique.

Affordability
AES’ Edelap was the first energy company to reach an agreement with the Argentine Government in the context of the renegotiation of utility rates in Argentina following the economic crisis of 2001-2. The agreement, signed in 2004, included an increase in the average electricity tariff (of no more than 15%); the payment, in installments, of the penalties imposed by ENRE on Edelap; and the suspension and withdrawal of lawsuits filed by Edelap against the government with the Arbitration Court of the International Centre for Settlement of Investment Disputes (ICSID). In addition, the agreement stipulated that increase in distribution tariffs should not affect residential user rates, but apply only to the remaining user categories (e.g. industrial, commercial). The contract renegotiation also included an 18 million Argentine peso (US$ 6 million) investment plan for 2005 aimed at improving the quality of the service provided to users in Edelap’s concession area.

Labour issues
Labour relations between Edelap and its workers are regulated by the national labour laws, the collective agreement in the electricity sector, and the Edelap-specific collective agreement Convenio Colectivo de Trabajo (CCT) Nº 860/07 “E”, which is applicable to all Edelap workers except senior staff, professionals with specific functions, legal representatives, and contracted and sub-contracted personnel. The Agreement was signed by Edelap and the Buenos Aires power sector trade union, Sindicato de Luz y Fuerza de Capital Federal, and ratified by the national Ministry of Labour and Social Security by means of Resolution 277/07, on 28 March 2007. It will be in force until 30 June 2009.

With regard to occupational health and safety, Edelap committed to providing ongoing training to ensure safety at work (Article 22) and to creating a capacity building, prevention, hygiene and safety commission to be comprised of representatives from both the trade union and the company (Article 12). The workers’ concern stems from the significant number of work-related accidents and deaths in the past years. Of the 605 worker deaths at work reported in Argentina in 2006, 129 (21.6%) occurred in the electricity sector. According to an electricity union official 4 Edelap workers died in the period 2000-2007.

The collective agreement also stipulates that Edelap should reduce the use of contractors and sub-contractors (Article 23). In 1997, before the company was bought by AES, less than 2% of the workforce was contracted or outsourced personnel. Outsourcing increased markedly after privatisation.

Public health and safety
Residents of La Plata, one of AES’ Edelap’s principal areas of operation, have complained of dilapidated and dangerous electricity infrastructure with frequent reports of electricity poles falling on cars and houses and explosions of transformers and at electricity sub-stations. ENRE, the national electricity regulator of Argentina, has fined Edelap four times for public safety violations and anomalies. The fines related to the company’s failure to comply with Article 16 of Law 24065 regarding proper maintenance of electricity infrastructure so as not to cause a danger or threat to public health and safety. According to local government officials, the dangerous health and safety situation and accidents with electricity infrastructure are due to “a lack of investment” on the part of AES and Edelap. The company’s use of low-quality electricity poles and insufficient investment in low and medium-tension power cables threatened public safety and led ENRE to require Edelap to purchase 20,000 new poles in 2008.

Renewable sources of energy for electricity
Despite Argentina’s huge potential for renewable electricity (see Section 3.1), more than two-thirds of AES Argentina’s electricity generation capacity (2,264 MW) is based on fossil fuels. Less than 1% of the company’s capacity (10 MW) is based on sustainable sources of energy (small-scale hydro). The rest of its hydropower (1,232 MW, 35% of total capacity) is generated in large-scale hydroelectric facilities. While AES does have a global policy to increase investment in renewable energy, the company does not have an Argentina-specific plan or policy.

Waste and pollution
ENRE’s Resolution 555/2001 requires that electricity companies submit their environmental management plans to the regulator in order for it to monitor the stations’ emissions (among other environmental issues). In 2006 ENRE fined AES’ Central Dique for its failure to comply with Resolution 555/2001, despite being given a deadline extension for the implementation and certification of an EMS. In addition, a 16 May 2006 ISO 14001 report cited Central Dique for not anticipating certain potential accidents, such as those that could result from loading fuel in gas oil tanks. The report also mentioned the company’s failure to establish and reprogram devices to test the methods used in case of emergencies (emergency drills). Both AES’ Edelap and Central Dique now have ISO 14001-certified environmental management systems, but a random audit carried out by ENRE on 27 March 2008 indicated that while Central Dique does have an EMS, it must also implement additional activities and corrective actions to be in full compliance with Resolution 555/2001. ENRE also fined Edelap in 2003 for non-compliance with environmental safety requirements in its Resolution 403/03, specifically for not presenting its environmental management plan within the allowed timeframe.

Reliability of supply
The Argentine electricity regulator ENRE fined AES’ Central Dique thermal generation station 20 times between 1999 and 2008. Eighty percent of these fines were due to the station’s inability to provide an adequate level of electricity required by the regulated wholesale electricity market (MEM). The remaining fines were due to AES’ failure to report system disturbances to the relevant authority, or to their untimely reporting.

ENRE has also issued 42 fines against AES’ distribution company Edelap since the unit was purchased by AES in 1998. Of these fines, 19, or 45%, were due to the company’s inability to provide electricity to the national grid when required, a situation similar to that of the Central Dique. A further 14 fines were issued for breaches related to the technical quality of the company’s commercial and residential service and failing to meet requirements for the collection and processing of data concerning service quality.

Citizens complained about the poor quality of Edelap’s service and these were corroborated by complaints from the municipal authorities of La Plata about the company’s failure to invest adequately in electricity infrastructure. After one particularly severe thunderstorm, residents were left without service for approximately 30 hours. The complaints about the company’s poor quality of service became so frequent that on 29 April 2008 ENRE opened an office in La Plata to handle customer complaints. During its first three months of operation, the La Plata office received 574 complaints – 10 per day – related to the poor quality of Edelap’s service.

AES acknowledges that its investments in electricity infrastructure in Argentina have “probably not met its clients’ expectations”. However, the company claims that since it began operating in Argentina in 1993, it has invested more than US$1 billion in the Argentine power generation and distribution segments and that the company has continued to invest in the country despite losses.

Fraudulent accounting practices
In December 2008, an investigation by the Argentine electricity regulator ENRE revealed “serious irregularities” in the accounting practices of AES’ electricity distributor Edelap. ENRE alleged fraud in connection with Edelap’s presumed losses of 55.3 million Argentine pesos (US$16 million). The alleged fraud comprised a debt restructuring process carried out by AES that left Edelap unfunded, Edelap’s outsourcing of management services (to the company Luz del Plata S.A.) and alleged tax evasion. Edelap denies that its accounting practices are inappropriate and asserts that it has fulfilled “all its obligations under its concessionary agreement and with the regulator”. The company further claims that it invested US$7.6 million in Argentina between January and September 2008. The case is still pending and could result in the Argentine government forcing AES to sell Edelap.

Related SourceWatch articles

 * Corporate Social Responsibility
 * Endesa in Argentina and Peru

External resources

 * J. Wilde Ramsing and T. Steinweg, Down to the Wire, SOMO (Center for Research on Multinational Corporations), June 2009. (Pdf)