Argentine Power Sector Wholesale Electric Market Management Company Argentine Power Sector APEX 2003 Conference Cartagena, Colombia CAMMESA

Outline Global figures Changes in the demand and supply Macroeconomic changes Impact of these changes in the market and the operation Expectations - Concerns

Wholesale Electrical Market - 2002 CUYO COMAHUE CENTRO NOA NEA LITORAL BUENOS AIRES GBA PATAGONICO Installed Capacity 24 GW Generation 2002 80 TWh 500 kV 9.100 km 220/132 kV 12.000 km WEM - Participants Generators 53 Distributors 63 Large Consumers Ma 302 Large Consumers Mi 2006 Transmission COs 10 Traders 4

Outstanding Variables - Generation Capacity WEM: 1992 = 13267 MW 2001 = 23284 MW  ~70%; 10000 MW increase in Generation Capacity

Outstanding Variables – Peak Demand EXPGrowth = 2200 MW LocalGrowth = 5000 MW

Industrial consumers => Annual Demand Growth Industrial consumers =>

Traded Energy High exposure to spot volatility

SPOT PRICE EVOLUTION

Outstanding Variables Competitiveness of the market and efficiency of generation units provoked a fall in spot prices of about 40%  48.8 $/MWh1992 to 28.5$/MWh2002

Macroeconomic Changes Dic 2001 => political crisis with deep recession in economy led to the fall of the government; social instability Austral summer 2002 New transition government Debt default; end of the fixed exchange rate (1$=1u$S) and devaluation economic emergency law => pesification of economy Profound economic crisis; inflation

Macroeconomic Changes Since July 2002 => conditions begin to stabilize; relative normalization of the behaviour of economy May 2003 => new elected government Evolution of exchange rate=> Increase of industrial demand due to greater competitiveness to export and import substitution Jan02-oct03 Exchange rate => 200% Inflation => about 50%

Electricity Sector Scenario Tariffs to end consumers => social impossibility to increase tariffs due to economic crisis and people impoverishment Pesification of natural gas, energy and capacity prices on the WEM Increase of imported fuel and maintenance costs Uncertainty related with exchange rate evolution and expected performance of the generation units

Electricity Sector – Regulatory Decisions Keep tariffs at the initial level, absorbing the difference with the stabilization fund Cover variable costs (fuel, operation and maintenance) of each generator, permitting costs declarations each fortnight Maintain short term marginal cost system, with a cap price of 120 $/MWh Modify capacity payments, turning them independent of actual dispatch and include base payment for almost every thermal plant available, and increasing it from 10 to 12 $/MWh Remunerate new reserves (competitive bids) against commitment to fulfill them, to ensure fuel (gas or liquid) and MW availability Create a spot market in advance, similar to a contract, through competitive bids, to diminish volatility and risks. Decision based on minimum cost (+risk) criteria

Results – Prices & Fund

Regulatory Decisions - Results Transition was managed, allowing to operate the system in good supply conditions Higher marginal spot prices due to increase of maintenance and liquid fuel costs, with a cap price of 120 $/MWh. Differences between variable costs and maximum charged as uplift costs Spot market in advance, allowing to hedge, from mar to oct-03, about 40% of the spot market to an energy price of 24,4 $/MWh. The average real price resulted 3 $/MWh higher => savings => about 60M$. Generation availability performance similar as historical and new reserves fulfilled adequately Stabilization fund exhausted since jul-03. Debt of the fund with generators of abut 280 M$ (1-2 months of payment). Priority of payment to cover variable costs (thermal units receive more money than hydro plants)

Expectations - Concerns Increase of tariffs required to gradually normalize situation. Gas increase pending, when adopted it will imply an additional increase to the WEM The whole situation seems very difficult to handle politically Demand increase and exports to Brasil, along with default of the stabilization fund may lead to a significant increase of the deficit of supply risk Medium and long term viability and the lack of new investments in generation is then one of the major concerns, until the regulatory framework may be adapted and political solutions adopted.

Next steps From CAMMESA’s point of view Be flexible enough to implement changes on rules and keep on running the system and the Market, in a delicate environment. Study and analyse scenarios to identify and anticipate risks, in order to help in the search of solutions.

For an Electrical Market without frontiers Quality, Technology & Transparency For an Electrical Market without frontiers ¡Thanks for your attention! Colombia, October 2003 Doubts => jluchilo@cammesa.com.ar More info => www.cammesa.com.ar