May 24, 2013
Potash and Santa Cruz hydro — the agenda with Dilma
The foreign ministries of both Argentina and Brazil see the Vale issue emerging from the freezer for Thursday’s Patagonian summit between Presidents Cristina Fernández de Kirchner and Dilma Rousseff. But it might well have to be thawed in the microwave a while longer for perfect digestion because Vale’s Río Colorado potash project in Malargüe (Mendoza), which was suspended by this Brazilian mining giant in December 2012, is at the top of the menu. Alright. But there is also another platter to be negotiated simultaneously: it is another megaproject, also delayed — the two dams being constructed on the Santa Cruz river.
Thus while during the weekend the Brazilians were insisting on a wink from the Casa Rosada in favour of tax breaks, additional funding and the incorporation of a new partner to give “financial viability” to the Río Colorado potash project, the Argentine side was seeking a minimum of half the financing from Brazil’s BNDES state development bank and the Brazilian companies involved in the tender for the two Patagonian dams.
Such is the trade-off on the table in El Calafate on Thursday March 7, with the personal monograms of the two presidents engraved on the bargaining-chips. Because while the Brazilian president is gunning for the continuation of the project which would provide around 60 percent of the potassium chloride fertilizers required by her country, her Argentine counterpart would like to speed up the hydro-electric works in her chosen province of residence (Santa Cruz), contributing 5,246 gigawatts a year (which would be some five percent of the national grid) and which have been delayed since their sterile 2008 launch under the names of Cóndor Cliff and Barrancosa — last year they were again put out to tender under the names Néstor Kirchner and Jorge Cepernic.
This negotiation coincides with another ultimatum the next day (Friday) when the evaluation of the technical and financial terms presented by the four consortia competing for the Santa Cruz river hydro-electric dams will be disclosed. Of these four, two are Chinese-funded, one Russian and the other (Group 2) with financial backing “Made in Brazil” — although not (reportedly) completely kosher since it is more a letter of intent than a financial pledge. But it has been “allowed through,” at least until Dilma and Cristina define in their El Calafate summit the future chapters for infrastructural investment.
This Argentine “wink” favouring the proposal of the consortium between Odebrecht, Alstom Brasil and Impsa (Pescarmona) is expected to see it through this week’s evaluation filter but will undergo another verdict when the second stage of envelopes (spelling out their offers and businesses’ plans) are opened at the end of March, when they would need complementary support from Dilma — at least for the purposes of opening up the BNDES coffers to finance the works.
No trifling matter. Of the 6.6 billion dollars which that state bank has earmarked for investments in Argentina, 4.4 billion (two-thirds) have already been allocated while the rest (as diplomatic sources leaked to the Herald from Brasilia) “could be assigned in the immediate future to projects being implemented.” Bearing in mind that the Santa Cruz River hydro-electric works are estimated at 24 billion pesos, the “loose change” which BNDES has available might well supply the half of foreign capital required by the tender of that Patagonian project.
Coming back to the Río Colorado project (that includes the Malargüe mine together with the railhead connection to Bahía Blanca plus the expansion of that port), it’s the same old song but with a different meaning to it. Vale assures that 47 percent of the work to develop the mine has already been carried out with an investment of nearly 2.23 billion dollars but within the sector the talk is that they are hunting for a new partner to put up at least a billion dollars. The Herald asked in Brasilia if the generous BNDES could pull out its wallet. The answer was specific enough: “BNDES already has a five percent stake in Vale mining stock.”
The same sources pinpointed the cause of the project’s delay — the 350-kilometre railway line extension (complementary to the Expreso Pampeano) from Malargüe to Bahía Blanca. Plus “the land clearance, subject to resolution, and the imposition of complementary and parallel works adding to the project’s original costs,” they said.
Although the Brazilian side was at pains to present the Vale Argentina case as “100 percent a business issue with no political angles,” the Herald learned that the main worries among the companies being sounded out to team up with the Brazilian mining giant are political.
“If the government does not sort out the rail issue, nobody will want to join with much of the line in the hands of a company (i.e. Techint) negotiating with Brazil’s America Latina Logistica (ALL) for the railway charges based on the San Martín and Mesopotámico rail networks along with the Ferro Expreso Pampeano concession.”
“The government should take charge of the transport costs to convey the potash from the mine to the port because they correspond to basic infrastructure,” they conclude, assured that this worry is yet another bargaining-chip which Cristina can play on Dilma.