Analyst: Edenor, Edesur rate hike key to cash flow

The Argentine government's decision to ratify rate increases for power distributors Edenor and Edesur is "quite significant" for the companies' cash flow, Standard & Poor's ( S&P) analyst Sergio Fuentes told BNamericas. "In terms of cash flow, this increase is quite important and could probably push these companies into the black," he said. Argentina's President Néstor Kirchner has signed two decrees ratifying previous agreements with the companies, allowing a 15% increase in power rates, government news agency Télam reported. The "transitional rate regimen" corresponds to medium and large clients, explicitly excluding residential users. Fuentes said the new rates are likely to take effect in the next two months, but added the timeframe is less important than the fact the agreements have finally been approved. The companies will invest a combined 518mn pesos (US$168mn) in 2007, with Edenor planning 282mn pesos and Edesur the remainder, the government news agency said in a separate report. The distributors signed the agreements with the government's contract renegotiation unit (Uniren) in November 2005. The government froze power tariffs in 2002 following the peso's devaluation. Companies have since expressed frustration regarding their potential to post profits. Edesur distributes energy in the southern part of Buenos Aires and part of Buenos Aires province, serving more than 6 million people. Edesur posted a 52.5mn-peso net loss in the first nine months of 2006. Edenor serves 2.4 million clients in the northern part of Buenos Aires and is 51%-owned by Argentine holding company Easa. Edenor posted a 144mn-peso net loss in the third quarter of 2006, although its nine-month bottom line was positive with a 260mn-peso profit.