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UNCLAS BUENOS AIRES 001819 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
ESC/IEC/EPC FOR MCMANUS,JIZZO 

WHA/EPSC FOR FCORNEILLE 

PASS NSC FOR MICHAEL SMART 

PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE 

PASS USTR FOR KATHERINE DUCKWORTH AND MARY SULLIVAN 

TREASURY FOR LTRAN, MMALLOY 

USDOC FOR 4322/ITA/MAC/OLAC/PEACHER 

US SOUTHCOM FOR POLAD 

 

E.O. 12958: N/A 

TAGS: EINV ECON ENRG AR

SUBJECT: ARGENTINA: PAMPA HOLDINGS BETS ON GOVERNMENT PROMISE TO 

REWARD NEW ELECTRICITY GENERATION CAPACITY 

 

Ref:  (A) Buenos Aires 1726 

       (B) Buenos Aires 1456 

       (C) Buenos Aires 1415 

      (D) Buenos Aires 1352 

      (E) Buenos Aires  978 

      (F) Buenos Aires   65 

 

This cable contains business-sensitive information - not for 

internet distribution. 

 

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Summary 

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¶1. (SBU) Pampa Holdings, one of Argentina's largest investment funds 

with a market capitalization of over $760 million, is aggressively 

expanding its participation in Argentina's electricity generation, 

transmission, and distribution sectors.   Pampa principal Carlos 

Mindlin described his investment strategy to Ambassador as (1) 

buying quality ""distressed"" energy assets cheaply as large 

multinationals re-position themselves out of the Argentine market 

(e.g. CMS, Total, Electricite de France); and (2) investing to build 

incremental electricity generation capacity based on the GoA's 

promise to reward new capacity with closer to international market 

returns.  If the GoA continues to keep domestic retail and wholesale 

energy prices significantly below international market levels, 

Argentina will require roughly 1,000 MW of new generating capacity 

in each of the next 4-5 years simply to keep up with growing 

domestic demand.  The GoA has announced over US$ 10 billion in new 

energy infrastructure projects in the past few months (Ref A), but a 

recent study argues that Argentina will need US$ 3 - 4.5 billion 

worth of new energy investment each year to meet demand.  Mindlin 

argues that, sooner or later, the GoA will have to compare the 

relative costs and ability to deliver of public vs. private sector 

players.  Pampa appears to be benefiting from the Kirchner 

administration's unofficial policy favoring domestic ownership of 

energy assets.  End Summary. 

 

----------------------------------------- 

Pampa Holdings: Energy Investment Vehicle 

----------------------------------------- 

 

¶2. (SBU) Ambassador and EconCouns met August 28 with Marcelo 

Mindlin, Chairman of one of Argentina's largest investment fund 

Pampa Holdings (and senior manager of Pampa's majority owner, the 

Dolphin Group) to review Pampa's growing investment in Argentina's 

electricity generation and distribution sector.  Originally a 

refrigeration storage company, Pampa was acquired by the Dolphin 

Group in 2005 to serve as its investment vehicle for ""distressed 

valuation"" energy assets.  According to Mindlin, 50% of Pampa 

Holding equity is held by Argentine nationals, 35% by U.S. interests 

(including U.S. investment fund Eton Park with a 4-5% stake, Ref D) 

and the remainder primarily by European interests. 

 

¶3. (SBU) Mindlin called Pampa's first two years of growth 

""spectacular"" and emphasized that Pampa's strategy is to continue 

growing via equity rather than debt funding. Pampa was taken public 

in 2006 and, with a market capitalization of over US$ 760 million, 

it is now the second-most heavily weighted stock on Argentina's 

benchmark MerVal index.  In addition, Pampa took its Edenor 

electricity distribution subsidiary public in 2007 with an equity 

issue of over $300 million.  In a comment on the relative 

under-development of Argentina's capital markets and the lack of 

home-grown entrepreneurial spirit, Mindlin noted that in all of 2006 

and 2007 there have been only four major Argentine equity issues 

(Pampa, Edenor, Banco Macro and Banco Patagonia) for roughly US$ 2 

billion.  This amount, he said, is equivalent to a week's worth of 

equity issues in Brazil's deeper and far more active markets. 

 

¶4. (SBU) Key Pampa Group holdings includes its ownership of Buenos 

Aires power distribution company Edenor (with roughly 2.4 million 

retail clients), its stake in national electricity distribution 

network Transener (Ref D), and its equity stakes in a portfolio of 

electricity generation assets.  These include two hydroelectricity 

generation complexes in Mendoza province (Nihuiles and Diamante, 

which provide 2.7% of national capacity), Central Termica Guemes in 

Salta province, Loma de la Lata in Neuquen province, and Central 

Puerto in Buenos Aires province. 

 

--------------------------------------- 

Pampa Strategy: Buy Low, Build Capacity 

--------------------------------------- 

 

¶5. (SBU) Mindlin described his investment strategy as (1) buying 

quality ""distressed"" energy assets cheaply as large multinationals 

re-position themselves out of the Argentine market (e.g. Total, 

Electricite de France, CMS); and (2) investing to build incremental 

capacity of these generation assets under the GoA's ""Energy Plus"" 

scheme, whereby new private sector capacity is to be purchased by 

the GoA-regulated wholesaler CAMESSA at rates higher than those paid 

for existing capacity.  Mindlin noted that Argentina will require 

roughly 1,000 MW of new generating capacity in each of the next 4-5 

years simply to keep up with growing domestic demand.  (Separately, 

a recent study prepared by the prestigious Technical Institute of 

Buenos Aires, ITBA, concluded that Argentina will need US$ 3 - 4.5 

billion worth of new energy investment each year to meet demand. 

Pampa has already contracted to build 100 MW of incremental capacity 

at its Central Thermica Guemes facility in Salta province. 

 

¶6. (SBU) In response to the Ambassador's question on the GoA's 

announcement of over US$ 10 billion (Ref A) in new energy 

infrastructure projects in the past few months, Mindlin argued that, 

sooner or later, the GoA will have to compare both the relative 

costs of public vs. private sector and the relative ability of 

public vs. private sector players to deliver projects on time. 

Public sector costs are high due to general government inefficiency 

and pervasive corruption, he said.  As a result, Pampa has declined 

to get involved in some energy sector projects where high levels of 

government procurement are involved, including the expansion of 

natural gas pipeline capacity (Ref E).  Public sector energy 

construction has been plagued by delays, Mindlin said, noting a 

2-year delay in the GoA's construction of the two 800 MW 

""Foninvenmem"" generators (Ref B) as an example. 

 

--------------------------------------------- ------ 

The Transener Electricity Transmission Company Deal 

--------------------------------------------- ------ 

 

¶7. (SBU) Pampa holds a minority stake but management control of 

regulated national electricity transmission company Transener. 

Mindlin commented on the GoA's decision earlier in 2007 to reject 

the bid of U.S. investment fund Eton Park to buy out Brazilian state 

oil company Petrobras's minority equity stake in Transener (Ref D) 

in favor of a joint venture of local construction company 

Electroingenieria and GoA state-owned energy company ENARSA. 

Electroingenieria, he said, had experience in building transmission 

lines, but no experience running a transmission company.  If the GoA 

does not significantly raise regulated transmission rates in the 

next three years, Electroingenieria will have difficulty servicing 

the debt it has incurred to purchase its share of Transener. 

 

--------------------------- 

Bio Note on Marcelo Mindlin 

--------------------------- 

 

¶8. (U) Marcelo Mindlin is the Chairman of Pampa Holdings S.A. and, 

since 1989, has served as Senior Portfolio Manager of Grupo Dolphin 

S.A.  Previously, from 1991 to 2003, Mindlin was Vice Chairman and 

CFO of IRSA (Inversiones y Representaciones S.A.), a major Argentine 

real estate development group controlled by prominent local 

entrepreneur Eduardo Elzstain with substantial Soros Group 

investment.  From 1999 to 2004, he served as a Board Member at the 

formerly state-owned Banco Hipotecario (now controlled by IRSA). 

From 1996 to 1999, he was a Director of Fondo de Valores 

Inmobiliarios in Venezuela and of Brazil Realty in Brazil. 

 

¶9. (U) In November 2003, Mindlin left the IRSA Group, and, with 

15-odd years of portfolio management and corporate finance 

experience, founded the Grupo Dolphin S.A.  Mindlin holds a Masters 

in Business Administration from Universidad del CEMA (Center of 

Macroeconomic Studies) and a degree in Economics from Universidad de 

Buenos Aires. 

 

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Comment 

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¶10. (SBU) Pampa Holdings, with its aggressive investment profile and 

attractive returns on capital to date, is one of the darlings of the 

Argentine market.  It is widely rumored in local financial circles 

that President Kirchner has invested a portion of his own wealth in 

Dolphin/Pampa equity.  While most local energy analysts agree that 

Pampa has indeed purchased quality energy assets cheaply, they have 

different interpretations of why the purchase prices have been so 

low.  Some argue that the Kirchner administration, besieged by ICSID 

international arbitration suits filed by multinational energy 

companies in the aftermath of the 2001/2 economic crisis that seek 

cumulative awards worth billions of dollars (Ref F), made a 

strategic decision to decrease international participation in 

Argentina's energy sector and to increase boh direct state and 

private Argentine participation.  To ""encourage"" foreign 

multinationals to cede control of electricity assets, the GoA is 

said to have used its formidable power to delay needed 

post-devaluation rate adjustments.  As a case in point, they note 

Pampa/Dolphin's 2005 purchase of a 65% stake in Argentina's largest 

electricity distributor, Edenor, for $100 million while Electricite 

de France (EDF) had paid US $800 million for a smaller 45% stake in 

¶2001.  EDF had filed an ICSID suit against the GoA following the 

economic crisis and had been unable to negotiate a tariff rate 

increase to return to profitability.  Shortly after its purchase by 

Pampa, Edenor negotiated a 28% interim tariff increase for rate 

payers. 

 

¶11. (SBU) Pampa's own strategy of building incremental generation 

capacity based on the GoA's promise to reward new capacity with 

returns closer-to-international-market levels appears a high-risk 

play given the precarious finances of regulated electricity 

wholesaler CAMESSA.  The GoA's CAMESSA is a full six months behind 

on capacity and variable cost payments to generators, and is also 

footing the bill for the GoA's expensive ""Total Energy"" diesel fuel 

subsidy program (Ref B).  Pampa is betting that the GoA will -- 

sooner than later -- adjust internal energy market prices to 

encourage and reward new investment.  Others are not so sanguine, 

and wonder how quickly and aggressively the next GoA administration 

will move to rationalize energy prices. 

WAYNE 


=======================CABLE ENDS============================