Argentina Power—Don’t Cry for Me Argentina

Teaching Note for HBS No. 218-041. This case concerns a complex potential energy infrastructure investment in Argentina by a global conglomerate shortly after Mauricio Macri (“Macri”) became President of Argentina in 2015. The central issues are (i) why was a country endowed with significant natural resources unable to literally “keep the lights on”; (ii) why would anyone invest in the energy sector in Argentina given its long history of governmental interference in the sector; and (ii) can a reasonable transaction be structured that would protect the interests of a foreign investor?
The case is currently being taught in the Venture Capital/Private Equity course at Harvard Business School. However, it would be suitable for a Real Estate or Real Assets course as well.
Perhaps no other country in the world has had its energy interests and its politics so inextricably intertwined for nearly 100 years. The case details how the provision of energy (including petrol and electricity) over time had fueled political upheavals and had been subject to massive government interventions in terms of privatizations, nationalizations, privatizations, nationalizations, etc.
The case involves several significant participants that should initially be understood:
• The first is the protagonist, Bruce Wayne, Managing Director of Energy Finance Corporation (“EFC”), a subsidiary of the much larger International Conglomerate Corporation (“ICC”). In the case, Bruce was refining the Investment/Credit Committee materials for the development of up to 10 power generating plants in Argentina. EFC had to convince ICC’s Investment/Credit Committee to provide capital despite the many risks associated with investing in Argentina. In addition to ICC, another affiliate company, Big Equipment Manufacturer (“BEM”), would be a party to the proposed transaction.
• The second major participant was Argentina’s largest power company Yacimientos Petroliferos Fiscales (“YPF”). Over its history, YPF had been nationalized, privatized, and renationalized by a number of Argentina’s Presidents. In 2011, President Christina Fernandez Kirchner (“Kirchner”) had, in a highly controversial transaction, described on Page 4 of the Case, re-nationalized YPF. YPF was one of the potential parties to the proposed transaction.
• The third major participant was CAMMESA, the Argentinian government’s wholesale power administrator. CAMMESA was charged with coordinating the delivery of electricity to the grid and with establishing the “tariffs” or the prices electricity companies could charge. They would also make the payments to electricity suppliers and were notoriously late in doing so.
The final major participant, while not a direct signatory but clearly a beneficiary, was the Argentine Federal Government. The Government had historically heavily subsidized consumer and commercial energy prices in the country. Indeed, as Case Figure 1 illustrates, the generation cost of electricity within the country consistently exceeded the prices companies were allowed to charge. Could Macri and his colleagues be trusted not to renege on the contract terms as had happened in the past?