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7/17/2017 Electricity regulation in Argentina: overview | Practical Law

Practical Law

Electricity regulation in Argentina: overview


byJos Carlos Cueva, Estudio Beccar Varela

A Q&A guide to electricity regulation in Argentina. Law stated as at 01-Jun-2014


Resource Type
The Q&A gives a high level overview of the domestic electricity market, including domestic electricity Country Q&A
companies, electricity generation and renewable energy, transmission, distribution, supply and tax issues. It
covers the regulatory structure; foreign ownership; import of electricity; authorisation and operating Jurisdiction
Argentina
requirements; trading between generators and suppliers; rates and conditions of sale and proposals for reform.

To compare answers across multiple jurisdictions, visit the energy and natural resources Electricity regulation
Country Q&A tool.

This Q&A is part of the global guide to energy and natural resources. For a full list of content visit
www.practicallaw.com/energy-guide.

Overview

Electricity market

1. Provide an overview of the electricity market in your jurisdiction, including recent trends
over the last 12 months.

Overview
In 1991, the Argentine Government undertook an extensive privatisation programme, including the electricity
sector, based on laws No. 23,696 (State Reform Law), issued in 1989, and No. 24,065 (Electricity Regulatory
Framework (ERF)), issued in 1992. In turn, and based on the ERFs principles and guidelines, the provinces
adopted their own regulatory frameworks, to be applicable within their own jurisdictions. The ultimate objective
of the system, among other goals, was to:

Promote competition.

Encourage investments.

Achieve a reduction in rates paid by final consumers.

Protect consumer's rights.

Improve quality of service.

Promote e iciency, reliability and open access.

The ERF, still in force but substantially altered in the last few years, divided generation, transmission and
distribution of electricity into separate activities, and subjected each to appropriate regulation. The ERF
declared generators, distributors, transmission companies, large users and brokers as "agents" of the wholesale
electric market (WEM). The Secretariat of Energy regulated the WEM to allow electricity generators, distributors

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and other agents to buy and sell electricity in spot transactions or under long-term supply contracts at prices
determined by the forces of supply and demand.

Under the ERF, distribution and transmission is considered a public service, and generation is considered an
activity of general interest. Long term concession agreements were granted by the Federal or Provincial
governments to distributors, transmission companies and to hydroelectric power plants. Large users were
admitted as members of the WEM and were authorised to operate in this market through power purchase
agreements (PPAs) directly agreed with the generation companies.

Tari s for distributors and transmission companies were nominated in dollars, with adjustment twice a year
according to US indexes and final approval by the regulatory entities (federal or local). In turn, generators
operated in an open market, being dispatched under the marginal cost principle (the most e icient was the first
to be dispatched, selling energy at marginal cost, that is, the hourly cost of the energy in the WEM at the time
when it is selling energy, as calculated by the WEM administration company (Compaa Administradora del
Mercado Mayorista Elctrico SA) (CAMMESA).

The ERF also created a:

Spot market in which prices are established on an hourly basis as a function of economic production costs,
represented by the short-term marginal cost of production measured the system's load centre.

Contractual or term market in which generators, distributors and large users enter into long-term agreements
on quantities, prices and conditions for the transactions of purchase and selling energy in the WEM, both
systems administrated by CAMMESA.

The WEM currently has an installed capacity of approximately 31.089 MW, composed of:

Thermal (natural gas and fuel): 61%.

Hydroelectric: 35%.

Nuclear: 3%.

Others such as renewable energy: 1%.

The WEM is wholly interconnected by more than 32.000 km of high voltage (500 kV) and medium voltage (220 kV,
132 kV) transmission lines and related facilities, called the National Interconnection System. There are two high
voltage international interconnections to Chile and Brazil. The distribution sector is composed of:

Two distribution companies, Edenor and Edesur, that operate in the federal jurisdiction.

Provincial distribution companies operating in each of the 23 provinces.

Minor scale distributors called cooperativas, many of them operating within the municipalities' jurisdictions.

Recent trends
Due to the 2001/2002 economic crisis, and based on Law No. 25,561 known as the "Emergency Law", concession
agreements were subject to renegotiation (in many cases, this renegotiation is still in process). The operation of
generators and, in general terms, the operation of the WEM was substantially altered (Emergency Law):

Foreign currency, specifically, US dollars, for the payment of fees included in concession agreements were
converted to pesos at a rate of one peso one dollar.

Tari s of distributors and transmission companies were frozen for several years.

Indexation clauses were forbidden.

Provinces evidenced a similar situation. Since then, the Argentine Government has repeatedly intervened in and
modified the rules of the WEM.

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This situation caused many Argentine electricity generators, transmission companies and distributors to defer
further investment. As a result, Argentine electricity market participants, particularly generators, are currently
operating at near full capacity, which could lead to insu icient supply to meet growing national energy demand.

Currently, within the federal jurisdiction, distributors and transporters are still negotiating an integral tari
revision of their tari schemes, as envisaged in the renegotiation agreements of their concessions. On the other
hand, the provinces authorised increases of tari s for their distribution companies, allowing them to receive
adjusted prices for the energy sold to their customers.

Wholesale prices were virtually frozen and kept artificially below costs, therefore creating a structural deficit in
the operation of the WEM, covered by means of subsidies paid by the National Treasury to CAMMESA.

These modifications have created a huge structural deficit in the operation of the wholesale electricity market.
To face the crisis, the Government, through the Secretariat of Energy, has taken various measures, including,
among others:

Leaving aside the application of the system marginal-costs system, setting caps on the prices paid by
distributors for the purchase of electricity and determining that the prices charged by generators be
calculated on the basis of the price of natural gas, regardless of the use of other fuel (Resolution No. 204/2003).

Setting a maximum (artificial) spot price of ARS120/MWh (Resolution No. 406/2003).

To promote investments in generation, creating a Fund for Investments Required to Increase Electricity
Supply in the Wholesale Electricity Market, called Foninvemem. This funded the construction of two new 800
MW combined cycle generators. The Foninvemem was financed with the net revenues of generators derived
from energy sales in the spot market and through specific charges from CAMMESA applicable to large users.

Creating the Energy Plus Programme, which aims to ensure that the energy available in the market is used
primarily to serve residential customers and industrial and commercial customers (Resolution No. 1281/1206).
In turn, large users (above 300 kW) must satisfy any consumption in excess of their base demand (the demand
registered in 2005) with energy from the Energy Plus Programme at unregulated market prices. The Energy
Plus Programme consists of the supply of additional energy generation from new power plants or generation
units.

Renumerating generators at prices set by CAMMESA and approved by the Secretariat of Energy, according to
the available capacity, percentage of availability and type of fuel used (Resolution 95/2013). Large users
(except those who enter into PPAs under the Energy Plus Programme or similar) can only purchase energy
directly from CAMMESA, at wholesale prices set by CAMMESA, virtually eliminating the original term marker.

As recently reported by the media, representatives from nearly all the regions of Argentina agreed with the
Federal Government on the so-called Convergence National Tari Plan to establish unified parameters for
distribution rates throughout Argentina (see Question 24).

Regulatory structure

2. Describe the regulatory framework for the electricity sector, including the regulatory
authorities.

Regulatory framework
See Question 1.

Regulatory authorities

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The principal regulatory authorities are:

The Secretariat of Energy of the Ministry of Federal Planning, Public Investment and Services (Secretariat of
Energy). The Secretariat of Energy is responsible for the application of general policy concerning the
Argentine electricity industry, at federal level. In particular, the Secretariat of Energy can:

formulate federal policy and the strategic planning of the electricity sector;

approve rules and regulations about the technical dispatch of the WEM;

approve wholesale prices for electricity;

control the National Regulatory Commission for Electricity (Ente Nacional Regulador de la Electricidad)
(ENRE);

approve imports and exports of electricity.

The ENRE is an autonomous agency created by the Regulatory Framework Law. Among others, the main
faculties of the ENRE are:

enforcement of compliance with the Electricity Framework Regulation (ERF);

control of supply standards of electricity services and enforcement of compliance with the terms of
concessions;

adoption of rules applicable to generators, transmitters, distributors, electricity users and other related
parties concerning safety, technical procedures, measurement and billing of electricity consumption,
interruption and reconnection of supplies and quality of services o ered;

prevention of anticompetitive, monopolistic and discriminatory conduct between agents of the WEM;

imposition of penalties for violations of ERF, concession agreements and related regulations; and

arbitration of conflicts between WEM agents.

CAMMESA. CAMMESA was created in July 1992 by the Argentine Government, which currently owns 20% of
CAMMESA's capital stock. The remaining 80% is owned by various associations that represent wholesale
electricity market participants, including generators, transmitters, distributors, large users and electricity
brokers.

CAMMESA is responsible for:

managing the national interconnection system;

determining the technical and economic dispatch of electricity;

maximising the system's security and the quality of electricity supplied;

minimising wholesale prices in the spot market;

planning energy capacity needs;

monitoring the operation of the term market and administering the technical dispatch of electricity.

Provinces have their own authorities.

See box, The regulatory authorities.

Electricity companies

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Main companies

3. What are the main companies involved in electricity generation, transmission, distribution
and supply in your jurisdiction?

Generation
The main generation companies include the following:

Hydroelectric power plants:

El Chocn;

Alicur;

Cerros Colorados;

Yacyret;

Salto Grande;

Los Nihuiles;

Diamante.

Thermal power plants:

San Nicols;

Genelba;

Puerto;

Buenos Aires;

Costanera;

Capex;

Loma de la Lata;

Gemes;

Pluspetrol.

Nuclear power plants: Atucha I y Embalse Ro Tercero.

Transmission
The transmission companies include the following:

220/500 kV: Transener.

132 kV:

Transba;

Distrocuyo;

Transnea;

Transnoa;

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Transcomahue;

Transba;

Transpa.

Independent transmission companies:

Yacylec;

Lneas de Transmisin del Litoral;

Lneas Mesopotmicas;

Lneas del Norte;

Lneas del Comahue Cuyo;

Lineas Elctricas del Sur Eclesur.

Distribution
The main distribution companies are the following:

Federal level: Edenor and Edesur.

Provincial companies:

Empresa Distribuidora de La Plata (Edelap);

Empresa Distribuidora Buenos Aires Norte (Eden);

Empresa Distribuidora Atlntica (Edea);

Empresa de Energa de Crdoba (Epec);

Empresa de Energa de Santa Fe (Epe);

Empresa Distribuidora de Energa de Mendoza (Edemsa);

Empresa Distribuidora de Tucumn (Edet);

Empresa Distribuidora de Energa de Jujuy (Ejesa).

Supply
Not applicable.

Unbundling requirements
To preserve competition in the electricity market, participants in the electricity sector are subject to vertical and
horizontal restrictions, depending on the market segment in which they operate.

The following vertical restrictions apply:

Neither a generation company, nor any of its subsidiaries or its holding company, can be an owner or a
majority shareholder of a transmitter company or the controlling entity of a transmitter company.

A holder of generation units cannot own distribution concessions. However, the shareholders of the
electricity generator can own an entity that holds distribution units, either as shareholders of the generator or
through any other entity created with the purpose of owning or controlling distribution units.

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Neither a transmission company nor any of its subsidiaries or its controlling entity can be owner or majority
shareholder or the holding company of a generation company.

No transmission company, any company controlled by a transmission company or any company controlling a
transmission company can be owner or majority shareholder or the holding company of a distribution
company.

Transmission companies cannot buy or sell electric energy.

Neither a distribution company, nor any of its subsidiaries or its holding company, can be owner or majority
shareholder or the holding company of a transmission company.

A distribution company cannot own generation units. However, the shareholders of the electricity distributor
can own generation units, either directly or through any other entity created with the purpose of owning or
controlling generation units.

Large users are entitled to execute power purchase agreements directly with generation companies or with
traders, at prices and conditions freely agreed between the parties, paying the local distributor a fee for the use
of its distribution network.

Foreign ownership

4. Are there any restrictions concerning the foreign ownership of electricity companies in
your jurisdiction?

There are no special restrictions applicable to foreign companies.

Import of electricity

5. To what extent is electricity imported in your jurisdiction and are there interconnection
issues?

A small percentage of energy is imported. There are no interconnection issues.

Electricity generation and renewable energy

Sources of electricity generation

6. What are the main sources of electricity generation in your jurisdiction?

The main sources of electricity generation are thermal, hydroelectric and nuclear. The installed capacity in 2013
was total 31,089 MW as follows:

Thermal: 18,816 MW, composed of steam units (4451 MW), natural gas units (4061 MW), diesel units (1099
MW).

Hydroelectric: 11.095 MW.

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Nuclear: 1.005 MW.

Solar: 8 MW.

Wind energy: 165 MW.

Fossil fuels
See above.

Nuclear fission
See above.

Renewable energy
See above. A minor percentage of energy is generated by other sources of renewable energy, such as biomass,
biofuels, biogas and minor (below 30 MW) hydroelectric units.

7. Are there any government policies, targets or incentives in place to encourage the use of
renewable energy?

Government policies/incentives
Both the federal and provincial governments have issued regulations to promote the use of renewable sources
of energy.

At the federal level, there are two promotional laws:

Law No. 25,019 National Regime for Wind and Solar Energy. (Regimen Nacional de la Energia Elica y Solar).
This promotes wind and solar energy production and establishes that such activities do not require previous
authorisation from the Federal Government. Capital investments destined for the installation of wind power
and solar power plants or equipment can benefit from 15 year value added tax (VAT) deferral. Additionally,
the law foresees a fiscal stability regime for a 15 year term.

Law No. 26,190 National Regime for the Use and Promotion of Renewable Energy. This specifically declares
that the generation of electricity from renewable energy sources for the supply of public services is of
national interest. Under this law, new capital investments have either one of the following fiscal benefits:

anticipated reimbursement of VAT;

accelerated amortisation of capital assets purchased for the project.

In addition, assets associated to these activities do not qualify as a taxable asset for Minimum Income Tax
purposes.

A feed-in-tari system is applied to renewable energy, consisting of a payment of an additional price per each
MWh generated (Law No. 25,019 as amended by Act No. 26.190). The premium for wind energy is ARS15/MWh, and
ARS900/MWh in the case of solar photovoltaic generation. To this end, the law created a Renewable Energy Trust
Fund to be administrated and allocated by the Federal Council of Electricity.

Finally, the Federal Government has issued a resolutions 220/2007 and 108/2011 of the Secretariat of Energy,
promoting the execution of power purchase agreements (PPAs) to be entered between companies and
CAMMESA or with the state-owned company Energa Argentina SA (Enarsa). The main provisions of these
resolutions include the requirement of previous approval by the Government of the following:

Long term PPAs (15 to 20 year term).

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PPAs nominated in dollars.

Structure of price including costs of construction, operation and a reasonable rate of return.

At the provincial level, many provinces have adhered to the terms and conditions of Law 26,190. Some provincial
regulations include other benefits such as:

Tax exemptions (stamp tax, rural, gross income tax).

Financing lines.

Fiscal stability.

Renewable energy targets


Law 26,190 foresees a contribution of 8% to the national energy consumption from renewable energy within ten
years of its enactment (that is, by 2016). This 8% contribution of renewable energy is not mandatory, but is a
goal.

See box, Common forms of renewable energy.

8. What are the main obstacles to the development of renewable energy in your jurisdiction?

Access to financing is probably the main obstacle for the development of the renewable energy industry.

9. Are there any plans to build new nuclear power stations in your jurisdiction?

The Federal Government supports the development of power plants and is currently carrying out the
completion of nuclear power plant Atucha II (renamed Dr. Carlos Nstor Kirchner Power Plant), a 745 MW nuclear
power plant based on uranium and heavy water, located in the city of Zarate, 115 km away from Buenos Aires
City.

According to publicly available information, the Government is planning to build in the short term, a fourth
power plant in the city of Lima, close to Zarate, with similar capacity.

Authorisation and operating requirements

10. What are the authorisation requirements to construct electricity generation plants?

No specific regulatory authorisations are required for the construction of thermal and renewable energy power
plants. The construction of large scale hydroelectric power plants and nuclear power plants is reserved to the
Government and therefore requires special concessions from the di erent authorities involved, mainly for the
use of water and for the construction of the facilities.

General environment and safety regulations, both federal and provincial, apply for the construction of power
plants.

11. Are there any requirements to ensure new power stations are ready for carbon capture
and storage (CCS) technology, or requiring a plant to retrofit CC technology once this is
ready?

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There are no specific requirements related to carbon capture and storage technology, or requiring a plant to
retrofit CCS technology.

12. What are the authorisation and main ongoing requirements to operate electricity
generation plants?

The operation of thermal and renewable energy power plants requires the authorisation of the Secretariat of
Energy or the provincial authorities if the power plants are not connected to the National Grid.

Hydroelectric power plants above 500 kW require a concession for their exploitation.

Generators must periodically provide information about technical data, hourly costs and power purchase
agreements to CAMMESA. In addition, environmental statements must be filed before the relevant authorities.

13. What requirements are there concerning interconnection of generation to the


transmission grid?

Prior authorisation of the transmission company is required for interconnection to existing capacity in power
lines. If existing transmission capacity is not enough to cover the generator demand, a process to enlarge
transmission capacity is necessary. Under this process, authorisation is required from the transmission
company, CAMMESA and ENRE.

Electricity transmission

Authorisation and operating requirements

14. What are the authorisation requirements to construct electricity transmission networks?

From a regulatory point of view, the construction of electricity transmission facilities requires the approval of:

The transmission company of the area.

CAMMESA who approves the technical feasibility of the connection.

ENRE who issues the Certificate of Public Need for the work.

In many cases, a public hearing is required and a bidding process is carried out, conducted and supervised by
ENRE. ENRE finally approves the construction, operation and maintenance contract (COM contract) for the
enlargement of the transmission facilities.

An environmental impact statement is required as a precondition to approving the construction.

15. What are the authorisation and main ongoing requirements to operate electricity
transmission networks?

The operation of transmission facilities requires a concession from the Government.

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Rates

16. How are the rates and conditions for the transmission of electricity regulated?

Under the Electricity Regulatory Framework (ERF), transmission is considered a public service and operates as a
monopoly. Therefore, the operation of transmission facilities requires a concession of the Government. Rates
and conditions of service are entirely regulated by the enforcement authorities (ENRE and the Secretariat of
Energy) according to the terms of the ERF and the concessions agreements. Under the ERF, tari s must be fair
and reasonable, and should allow the companies to obtain revenue to cover their costs of operation, taxes and
depreciation. Transmission rates include fees for connection, transmission capacity and energy transmitted.

Concession agreements regulate matter such as:

Area of service.

Network associated to the company.

Quality of service.

Rights and obligations.

Fines.

Open access to available capacity is one of the key obligations of companies. Under the original provisions of the
ERF and under the concessions agreements, there were no specific investment obligations to expand existing
facilities. However, under the renegotiation agreements based on Law 25,561, certain operations and
maintenance investments are required.

Rates are regulated and approved by the ENRE, and must be revised every five years, under a process which
includes a public hearing and an analysis of costs, applicable taxes to the transmission companies and the
proposed rate of return. Renegotiation agreements modified these parameters, and an Integral Tari Regime is
under analysis and negotiation in the ENRE. Until the approval of this Integral Tari Regime, transmission rates
must be adjusted every six months if transmission costs increase above 10%.

Electricity distribution

Authorisation and operating requirements

17. What are the authorisation requirements to construct electricity distribution systems?

Enlargement of distribution networks is primarily carried out by distributors, and no specific authorisation is
required. In the case of large-scale expansions, the Electricity Regulatory Framework recommends prior
authorisation from the National Regulatory Commission for Electricity (ENRE), a public hearing and the issuing
of a Certificate of Public Need by (ENRE).

Depending on the amount involved in the project, some concession agreements include the financing of works
directly from the user that requires the expansion. This contribution is in some cases reimbursed to the user.

18. What are the authorisation and the main ongoing requirements to operate electricity
distribution systems?

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Distribution companies require a concession from the national or provincial government to operate the
distribution system. There are no ongoing requirements for the operation.

Rates

19. How are the rates and conditions for the distribution of electricity regulated?

Under the Electricity Regulatory Framework (ERF), distribution is considered a public service and operates under
a monopoly. The operation of transmission facilities requires a Government concession. Rates and conditions of
service are entirely regulated by the enforcement authorities (ENRE and the Secretariat of Energy). Currently, the
largest distribution companies in Argentina operate under the ERF: Edenor and Edesur provide services in
di erent areas of Buenos Aires City and Greater Buenos Aires (see Question 16 regarding concession agreements
and open access to available capacity).

Approved distribution rates vary for di erent consumers (for example residential, commercial, industrial and
government), and level of voltage demanded. Under the ERF:

Tari s must be fair and reasonable, and should allow companies to obtain revenue to cover their costs of
operation, taxes and depreciation.

Rates must be revised and new tari schemes approved by ENRE, every five years, a er a process that
includes:

a public hearing;

an analysis of costs for the rendering of the service;

applicable taxes to distributors; and

the proposed rate of return.

The renegotiation agreements modified these parameters and an integral tari regime is still under analysis and
negotiation in the ENRE. Until its approval, transmission rates must be adjusted every six months if distribution
costs increase above 10%.

Similar guidelines are included in many of the provincial distribution concession agreements.

Electricity supply

Authorisation and operating requirements

20. What are the authorisation and the main ongoing requirements to supply electricity
systems?

Not applicable (supplying is rendered by distributors).

Trading between generators and suppliers

21. How is electricity trading (between generators and suppliers) regulated?

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Not applicable.

Rates and conditions of sale

22. How are the rates and conditions of sale regulated at the consumer and wholesale level?

Consumer
Not applicable.

Wholesale
Not applicable.

Tax issues

23. What are the main tax issues arising on electricity generation, distribution and supply?

There are no relevant tax issues arising on electricity generation, transmission and distribution.

Reform

24. What reform proposals are there for the regulation of the electricity sector?

The Convergence National Tari Plan is intended to establish unified parameters for distribution rates
throughout Argentina (see Question 1). The Government's intention was to divide the country into eight regions
that establish their own distribution costs or add the value of distribution for each of these regions. Once this
parameter is set, provincial distributors with tari s below this reference price can increase their rates. Those
with tari s that exceed the parameter must reduce their rates.

In exchange, the Federal Government has agreed to finance works to improve the transmission system. As an
additional requirement, the provincial distributors must maintain their rates as at 31 December 2013. The details
and binding conditions of this agreement have not yet been disclosed by the Government.

The regulatory authorities

Secretariat of Energy (Secretaria de Energia)


Address. Avenida Paseo Coln 171, 7th Floor, Buenos Aires, Argentina T +5411 4349 5000 E
energia@minplan.gov.ar W www.energia.gov.ar

Main responsibilities. The Secretariat of Energy is responsible for the application of the general policies
concerning the Argentine electricity industry, at federal level.

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National Regulatory Commission for Electricity (Ente Nacional Regulador de la


Electricidad) (ENRE)
Address. Avenida Madero 1020, 10th floor, Buenos Aires, Argentina T +5411 4510 4600 F +5411 4510 4210
W www.enre.gov.ar

Main responsibilities. ENRE is responsible for:

Enforcing the ERF and its regulations.

Enforcing compliance with the concession agreements.

Imposing penalties on companies under its jurisdiction.

In the case of breach of obligations under the ERF and under the concessions agreements, controlling
antitrust activities.

Arbitrating controversies between WEM members.

Approving transmission and distribution rates.

Approving expansion of transmission and distribution facilities.

WEM administration company (Compaa Administradora del Mercado Mayorista


Elctrico S.A.) (CAMMESA)
Address. Avenida Madero 942, 1st floor, Buenos Aires, Argentina T +5411 4319 7700 W
www.cammesa.com

Main responsibilities. CAMMESA is responsible for programming operations in the WEM, from
dispatching to calculating the wholesale prices of electricity.

Online resources

W www.infoleg.com.ar

Description. Provides o icial and up-to-date information of national law and regulations. This website is
prepared and updated by the Ministry of Economy and Public Finance. No English translation is
available.

W www.boletinoficial.gov.ar

Description. Provides o icial and up-to-date information of national laws, regulations and publications
in the National O icial Gazette. This website is prepared and updated by the Legal and Technical
Secretariat, under the Presidency of the Nation. No English translation is available.

W www.energia.gov.ar

Description. Provides statistical, technical and legal information on the electricity sector, among other
sectors within the energy field. This website is prepared and maintained by the Ministry of Federal
Planning, Public Investment and Services.

W www.cammesa.com

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Description. Provides statistical, technical and legal information on the electricity sector. This website is
prepared and maintained by CAMMESA.

W www.enre.gov.ar

Description. Provides statistical, technical and legal information issued by ENRE. This website is
prepared and maintained by ENRE.

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