Publications
Publications
- May 2018 (Revised October 2018)
- HBS Case Collection
Argentina Power—Don't Cry for Me Argentina
By: Nori Gerardo Lietz and Sayiddah Fatima McCree
Abstract
In 2016, Bruce Wayne, Managing Director of Energy Finance Corporation (“EFC”), was refining the Investment/Credit Committee materials for the development of up to 10 power generating plants in Argentina. As a subsidiary of the much larger International Conglomerate Corporation (“ICC”), EFC had to convince ICC’s Investment/Credit Committee to provide capital despite the many risks associated with investing in Argentina.
Due to Argentina’s vast energy resources, its modern political history has been deeply intertwined with its “energy” history. In its many military coups and political uprisings, typically each government used artificially low energy prices to keep the population subdued and the revenues from YPF to finance these subsidies or worse to line their pockets. Many of the interventionist measures that Argentina's governments imposed on the energy sector, such as price controls and at the most extreme nationalization, made it nearly impossible for private sector energy players to succeed or for the public sector to invest in its development.
After severe blackouts in the summer of 2014, many Argentines in the country's most populous cities were outraged and went to the streets in protest. These blackouts were specifically due to the increased power usage for air conditioning in the summer months but were more generally caused by the removal of subsidies for power companies and a dearth of public and private infrastructure investment. Into this environment, President Macri was elected and he made energy reform one of the key pillars of his administration. Furthermore, he invited the private sector back into Argentina to immediately alleviate its power generation deficiencies.
In this case, the students will examine the ways in which Bruce Wayne and his team may structure and diligence this electric power infrastructure deal. Particularly, the students should come to understand how the deal structure could allow EFC to both gain the most benefit but also shift the risks away from their company. Key questions that will be explored include: What makes investing in infrastructure particularly risky? Can private investment close the world’s infrastructure gap? Can political risk be mitigated?
Due to Argentina’s vast energy resources, its modern political history has been deeply intertwined with its “energy” history. In its many military coups and political uprisings, typically each government used artificially low energy prices to keep the population subdued and the revenues from YPF to finance these subsidies or worse to line their pockets. Many of the interventionist measures that Argentina's governments imposed on the energy sector, such as price controls and at the most extreme nationalization, made it nearly impossible for private sector energy players to succeed or for the public sector to invest in its development.
After severe blackouts in the summer of 2014, many Argentines in the country's most populous cities were outraged and went to the streets in protest. These blackouts were specifically due to the increased power usage for air conditioning in the summer months but were more generally caused by the removal of subsidies for power companies and a dearth of public and private infrastructure investment. Into this environment, President Macri was elected and he made energy reform one of the key pillars of his administration. Furthermore, he invited the private sector back into Argentina to immediately alleviate its power generation deficiencies.
In this case, the students will examine the ways in which Bruce Wayne and his team may structure and diligence this electric power infrastructure deal. Particularly, the students should come to understand how the deal structure could allow EFC to both gain the most benefit but also shift the risks away from their company. Key questions that will be explored include: What makes investing in infrastructure particularly risky? Can private investment close the world’s infrastructure gap? Can political risk be mitigated?
Keywords
Cross Border; Energy Markets; Infrastructure Finance; Infrastructure Development; Business Subsidiaries; Business Cycles; Macroeconomics; Energy Generation; International Finance; Project Finance; Government and Politics; Demand and Consumers; Infrastructure; Utilities Industry; Energy Industry; Financial Services Industry; Argentina; Latin America
Citation
Lietz, Nori Gerardo, and Sayiddah Fatima McCree. "Argentina Power—Don't Cry for Me Argentina." Harvard Business School Case 218-041, May 2018. (Revised October 2018.)