VZCZCXYZ0005
RR RUEHWEB

DE RUEHBU #0006/01 0021707
ZNR UUUUU ZZH
R 021707Z JAN 09 ZDK
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 2816
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000006 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINV ECON EIND AR
SUBJECT: Argentine Government Delays Charges Against AES, According 
To Local Press 
 
Ref:  A. Buenos Aires 1653 
      ¶B. Buenos Aires 836 
 
SUMMARY 
------- 
 
¶1. (SBU) Argentine media reports that the GoA has decided internally 
not to charge U.S. energy company AES Corporation's local affiliate 
(EDELAP) for bookkeeping irregularities (reported ref A).  The press 
reports allege that the GoA is backing off because it could not find 
any interested buyers for EDELAP and also to avoid further 
complications to the bilateral relationship with the U.S.  Local 
press reports have regularly highlighted Ambassador's calls for 
"fair" treatment of AES.  However, GoA Planning Minister Julio De 
Vido and AES officials subsequently indicated that a GoA decision on 
EDELAP is pending a January 8 meeting, at which the GoA and AES will 
review AES's investment plans in Argentina.  De Vido added that he 
intends to treat AES fairly.  End Summary. 
 
GoA ceasing its offensive against AES? 
-------------------------------------- 
 
¶2. (SBU) Argentine daily Clarin reported December 29 that the GoA 
had decided to "freeze its offensive" against U.S. energy company 
AES's local affiliate, the electricity distribution company EDELAP. 
This followed earlier GoA threats to file criminal and civil charges 
against EDELAP for accounting irregularities (reported Ref A).  The 
Clarin article claims there are two reasons behind the GoA's 
reported decision to back away from its aggressive approach with 
EDELAP (which the article speculates was beginning to look as if it 
would end up as another in a string of GoA nationalizations of 
previously privatized companies).  First, Clarin claimed, the GoA 
wants to avoid "a new short circuit" with the USG, particularly 
following Ambassador Wayne's public call for the GoA to ensure "fair 
and normal treatment" of AES.  Second, the article alleges that the 
GoA sounded out three local companies about taking over EDELAP from 
AES, but none expressed interest.  Therefore, according to Clarin, 
the GoA's Planning Ministry has agreed to suspend its investigations 
in exchange for a commitment from AES to take a more direct role in 
managing EDELAP operations and also increase investment in its 
Argentine operations. 
 
¶3. (SBU) However, during a press conference on the day of Clarin's 
report, Planning Minister Julio De Vido denied the existence of any 
deal, stating that "the situation is not yet resolved" and the GoA 
will continue analyzing EDELAP's investment plan until January 8. 
At that time, he stated that the GoA will make a decision, which 
could include the rescission of EDELAP's contract with the GoA as an 
electricity supplier. 
 
AES Says Still Waiting 
---------------------- 
 
¶4. (SBU) Guillermo Baistrocchi, EDELAP's Institutional Relations 
Manager, confirmed to EconOff December 30 most of De Vido's 
interpretation of the status of AES's discussions with the GoA.  He 
said that AES Chief Operating Officer Andres Gluski came to 
Argentina and met with Minister De Vido shortly before Christmas. 
According to Baistrocchi, De Vido told Gluski that the GoA has 
substantial evidence of bookkeeping irregularities, and "basically 
told us to invest more or pull out" of Argentina.  AES had already 
made the decision to stay in Argentina.  In fact, Gluski presented 
to De Vido EDELAP's investment plan (the one De Vido referred to on 
December 29).  As part of this plan, AES announced December 15 its 
intent to invest 300 million pesos (USD 87 million) in improvements 
over the next five years.  Baistrocchi said that AES would meet 
again with De Vido on January 8 to discuss the investment plan. 
While commenting that De Vido never made an explicit quid pro quo 
offer, Baistrocchi said he expects that the GoA will drop its claims 
of accounting irregularities if it deems the investment plan 
satisfactory. 
 
¶5. (SBU) Contrary to Clarin's speculation that the accusations were 
part of a GoA strategy to nationalize EDELAP or encourage the 
transfer of EDELAP ownership to Argentine hands (see Ref B), 
Baistrocchi believes that the charges arose not because EDELAP was 
foreign-owned, but rather because of the importance of the power 
sector to the GoA.  (Comment:  A key element of this importance is 
politics.  The GoA wants to make sure the electricity distribution 
companies make the investments needed to avoid significant power 
outages in 2009, an election year.) 
 
¶6. (SBU) As evidence that the GoA is not targeting foreign firms, 
Baistrocchi cited the GoA's December 29 announcement that it will 
take control for at least 120 days of majority Argentine-owned 
 
Transportadora de Gas del Norte (TGN), which operates 4,000 miles of 
gas pipelines.  The GoA said it would take over TGN for four months 
following TGN's announcement that it would likely default on $22.5 
million of debt in the absence of restructuring.  The GoA defended 
the move as being essential to ensuring the continued supply of gas. 
 (Note: In May 2008, Bank of America's Blue Ridge Investments, a 
distressed asset fund, acquired the final judgment awarded to CMS 
Energy by the International Center for the Settlement of Investment 
Disputes, ICSID, along with CMS's 23% stake in TGN.) 
 
¶7. (SBU) Baistrocchi reiterated AES' earlier request that the USG 
not get out ahead of AES on this issue, but expressed appreciation 
for the Ambassador's public request that the GoA investigation of 
the alleged accounting irregularities be "fair and transparent." 
This request seems to have resonated with Minister De Vido, because 
he assured reporters during his December 29 press conference that 
AES would indeed receive "fair treatment." 
 
Comment 
------- 
 
¶8. (SBU) Press speculation aside, it appears the GoA may be using 
these accusations -- whether justified or not -- as leverage to 
force AES to make the investments needed to avoid future power 
outages (such as occurred in late November and preceded the initial 
accusations against EDELAP).  As such, it fits the pattern of the 
GoA going after both foreign and domestic companies in public to 
force them either to increase investments, avoid layoffs, drop ICSID 
suits, or limit price increases, regardless of local economic 
conditions.  Those that don't give in generally are compelled to 
depart the Argentine market. 
 
WAYNE