Rurelec taking 'cautious view' as Argentina negotiations continue

(Sharecast News) - Rurelec updated the market on the Argentine resolution on Tuesday, which governs the capacity and offtake revenue generated by the steam turbine at Energia del Sur (EdS), the Argentinian power plant owned by Patagonia Energy (PEL), in which Rurelec holds a 50% interest.
The AIM-traded firm said the resolution, '220 PPA', had now expired.

It said EdS' management, together with support from external advisers and the Rurelec board, were engaged in "extensive negotiations" to establish a new tariff for EdS' power generation.

Those negotiations were being held with CAMMESA, the organisation which controls the administration and distribution of electricity in Argentina, and the Secretariat of Energy, which has ultimate responsibility for the policies and tariffs that control the generation and regulation of electricity supply in the country.

"The outcome of those negotiations, which have been taking place over several months, is currently uncertain, but it is the board's view that the strategy that is being adopted and the team that is being used to handle these negotiations will achieve an optimal outcome for EdS, bearing in mind the poor state of the Argentinian economy and the effects of the Covid-19 pandemic on that economy," the board said in its statement.

It said the negotiations were in their final stages, but added that it was not currently possible to say with certainty when they would conclude.

The negotiation process had been extended by the Argentinian authorities beyond the time when EdS expected to have a new tariff in place, as a result of political changes at the Secretariat of Energy and delays in government's processes due to the impact of Covid-19.

"In the meantime, until a new tariff is operational, capacity and offtake revenue generated from the steam turbine is being remunerated at spot prices.

"If this pricing is not corrected in the short term, it would likely have significant adverse implications for EdS's revenue and cash generation, which in turn would affect the timing and amounts of any of the cash payments due from EdS to PEL and ultimately to Rurelec.

"However, in order to maximise future net cashflow generated by EdS, the directors of Rurelec understand that EdS's management has formulated contingency plans to reduce costs including options to shut down parts of the EdS operation in order to reduce associated operational costs should it be necessary."

Rurelec said there could be no guarantee as to the outcome of the negotiations, and as a result, the Rurelecboard was adopting a cautious view regarding the preservation of cash reserves.

The company said its cash holdings as at 30 October totalled £0.91m.

Meanwhile, in Chile, the firm said it had continued to maintain the necessary environmental consents and lease obligations for the Central Illapa project.

"[We have] been granted an extension to the project construction period from Ministerio de Bienes Nacionales, the Chilean Ministry of National Assets, to November 2021," the board confirmed.

At 1001 GMT, shares in Rurelec were down 1.53% at 0.84p.