Argentinian government takes over key waterway

Argentinian government takes over key waterway

On July 1st the president, Alberto Fernández, signed an executive decree temporarily handing over control of the Hidrovía Paraná-Paraguay, the country's most important waterway, to the Administración General de Puertos Sociedad del Estado (AGP, the state‑owned port administrator). Although maintenance works for the waterway are to be subcontracted to a private firm, this will only partly allay concerns about growing state intervention in the economy.

The presidential decree transfers administration of the waterway to public hands, after 25 years of private control. Since 1995 the Hidrovía Paraná-Paraguay had been managed by Jan De Nul, a Belgian company, and Emepa, its local partner. The waterway is an extremely important transport route for Argentina, as it is the outlet for more than 80% of the country's exports.

The government has said that the AGP will only oversee operations in the Hidrovía for the next 12 months. It will ostensibly use this period to prepare a new long-term international concession for management of the waterway. The government plans to create a regulatory agency to monitor the tender, comprising representatives from both the federal government and the provinces where the Hidrovía flows. In order to assuage concerns that the nationalisation of the waterway is not a means for the state to derive new revenue, the government has committed to using all proceeds from toll collection—amounting to more than US$300m annually—to outsource maintenance works to a private contractor. The government's decision to subcontract dredging works is also a tacit recognition of its limited technical expertise in this area.

Nonetheless, the business community remains apprehensive about the state takeover of the Hidrovía. Although the AGP is supposed to manage the waterway for only 12 months, this period could be extended indefinitely if the concession fails to materialise. Given that leftist-populist elements within the government continue to push for wholesale nationalisation, this is not a scenario that we can rule out entirely. Moreover, even assuming that the nationalisation of the waterway is temporary, there is a risk that businesses will face higher logistical costs. Procurement charges for short-term contracts tend to be higher than those for long-term contracts, and the differential could well be passed on to firms in the form of higher tolls. This would have important implications for Argentina's already poor international competitiveness.

The growing role of the state in the economy will hamper the business environment, presenting downside risks to our economic outlook.

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