Risk responsibility for supply in Latin America - the Argentinean case

In deregulation of electricity sectors in Latin America two approaches have been used to allocate the responsibility on the electricity supply: (1) The government keeps the final responsibility on the supply. Suppliers (distribution companies or traders) do not have control on the rationing when it becomes necessary to curtail load. In such case they cannot manage the risks associated to the supply. This is the case in the markets of Brazil and Colombia. (2) The responsibility is fully transferred to suppliers. The regulatory entity supervises the quality of the supply and different types of penalties are applied when load is not supplied. This approach is currently used in Argentina, Chile and Peru. In Argentina the bilateral contracts, that are normally financial, become physical when a rationing event happens. This approach permits suppliers to have a great control on risks. Both approaches have defenders and detractors. In some cases, the conclusions on a same event have completely opposite interpretations and diagnoses. For instance, the crisis of supply in Brazil during 2002 was interpreted as a fault of the market by the defenders of the final responsibility of the state, or attributed to excess of regulation and of interference of the government by the advocates of decentralized schemes. This presentation will analyze the performance of both approaches in Latin America, assessing the diverse types of arguments used to criticize or to defend to each one of these approaches, and finally to present some conclusions on the current situation and future of the responsibility on supply and risks associated.