DECEMBER 634/91

Bs.As, 12/4/91

ELECTRIC SECTOR RECONVERSION

VISTO the reform of the State by Law No. 23,696, and

CONSIDERING

It is necessary to recreate a more free operation of markets and their mechanisms for the allocation of technical and economic courses favourable to the development of competition, implementing measures that guarantee the achievement of greater efficiency.

That the incorporation of private venture capital should be allowed, decentralizing decisions in electric markets (investments, prices, etc.), concentrating the responsibility of the State in the design and implementation of higher policies and the regulation and control that are necessary for the operation of the different activities of the sector.

It is desirable to reformulate the regulatory mechanisms and provisions that order the sector by creating the bodies and in the Regulatory framework appropriate to the new structures that are to be achieved.

That the development of the electric sector should be compatible with the use of substitute and complementary energy resources, and to establish standards for environmental protection and the rational use of such resources.

That the NATIONAL EXECUTIVE PODER is empowered to dictate this decree, in the use of the emerging powers of laws 15,336 and 23,696.

CHAPTER 1 OBJECTIVES, FUNDING, TRANSITION

Art. 1.- Objectives: The overall objective of the conversion of the electric sector is to ensure efficient operation of the activities of generation, transport and distribution of the electrical energy, which is for the benefit of consumers through an optimal quality supply, at reasonable non-discriminatory rates that reflect the efficiency costs in cases where monopolistic forms of market prevail; in order to achieve conditions and operating rules similar to the rest of the economy.

Art. 2.- Alcances: The management of national companies and the representation of Argentina in the binational agencies of the electric sector must be consistent with the objectives set out in the previous article. National enterprises shall be restructured to meet these objectives within existing laws and decrees, the regulations resulting from the regulatory framework to be established and the directives issued by the competent bodies of the National Government.

Art. 3.- Transition period: The conversion of the Electrical sector will become fully effective 1 January 1993. The period from the date of this decree to the new decree shall be considered as a transition.

CHAPTER 2

Art. 4.- Composition. The electric market will be made up of two levels: (a) the wholesaler, in which the producers who perform the functions of generating, the transporters and the distributors of the energy will participate; they will also be able to integrate individual consumers whose maximum demand is equal to or greater than the power that is established in the regulatory process and (b) the sale to end users, constituted by the distributors and their customers.

Art. 5.- Operation: The operation of these market levels will be done in a way of moving forward in transactions freely agreed upon in the first and regulated in the second, as stated in the previous article.

Art. 6.- Type of Transactions. There will be two types of transactions with regulated rates: I) distributors ' supplies to their own end-users, and II) producers ' supplies to distributors, in that part for supplies identified in I) However, in the latter case, it will be proposed that transactions based on freely agreed prices between producers and distributors be made under competitive and transparent and informed conditions to the regulatory entity to avoid discriminatory treatments. This same criterion will apply to producers ' supplies to individual consumers whose maximum demand is equal to or greater than the potential that is appropriately established.

CHAPTER 3 GENERATION, TRANSPORT AND DISTRIBUTION

Art. 7.- Generation industry. The generation activity will be open to the entry of companies that invest venture capitals for the renewal and operation of existing equipment or that incorporate new equipment respecting technical, economic and environmental requirements established in the Regulatory Framework. It intends that: 1) there are numerous bidders in competitive conditions of market access; 2) the private capital participates and, 3) they can place their production operating in a coordinated manner through the agency responsible for the dispatch in non-discriminatory conditions and in order to optimize the operation of the whole of the electrical system.

Art. 8.- ELECTRIC SERVICES OF THE GREAT AIRES S.A. and ELECTRIIC ENERGY SOCIEDAD The STATE should carry out a programme to decentralize its thermal generation activities, and eventually hydroelectric, in order to transfer, through the sale or concession of its plants to private risk investors, seeking to enter multiple independent bidders in order to avoid monopoly practices.

Art. 9.- Transport activity. The transport of electricity from generation plants to their destinations; it will be carried out by companies that will receive a regulated rate for this function that will cover their costs, including a reasonable gain, in conditions of incentivation of their efficiency; under the authorization and the Controller of the Regulatory entity. To this end, a methodology will be established within the Regulatory framework and the technical and entry conditions will be set.

Art. 10.- Distribution. The distribution companies of national jurisdiction shall be subject to the regulatory regime on technical, economic, tariff and environmental security aspects established in the Regulatory Framework, as concessionaires of public services with captive markets. End-user fees must respect the methodology established in the Regulatory Framework and be controlled by the Regulatory Ent.

CHAPTER 4

Art. 11.- The economic dispatch of the system in the conditions established in the Regulatory Framework and specific rules must meet the technical - economic efficiency at every time and the development of the system. These standards will be applied by an agency responsible for carrying out the economic loading office, which must also assume responsibility for the technical operation of the set of generation and transmission units that constitute the Argentine Interconnection System.

Art. 12.- The producers (generators) who sell through the system's office agency will receive a uniform rate for all at each place of delivery that is fixed. This rate will be based on the system's short-term marginal cost criterion, which from a base value should incorporate a margin that takes into account the cost of system failure risk evolution. The plaintiffs (distributors) will pay the standard generation fee plus the corresponding differential charge for transportation to their point of connection, which will be billed by the companies that fulfill this last function. Income obtained by generating companies, owned or represented by the NATIONAL STATE, by application of the descriptive scheme, will be reassigned according to the financial requirements.

Art. 13.- The firm should prepare semi-annual and annual guidance plans with monthly follow-ups that provide sufficient information to the wholesale market actors.

Art. 14.- Autogenerators. Those generators with an offer superior to the power that will be set in the Regulatory Framework will be treated for the office, in the same conditions as the other independent private producers.

CHAPTER 5

REGULAR FRAMEWORK

Art. 15.- In no longer than CUATRO (4) weeks, the ELECTRIC ENERGY SUBSECRETARIA shall propose the regime that will form the Regulatory Framework of the Electrical Sector, which shall contemplate the stages provided for in Article 19. The content of the Regulatory Framework should cover all technical, economic, managerial and legal aspects that make the organization, operation and development of the electrical industry.

The corresponding rules will include procedures to protect the interests of consumers, establishing methodologies and ways of countering transportation and distribution rates. It must also determine the form and operation of a Regulator entity.

CHAPTER 6

EMPRESARY PLANES

Art. 16.- As the process of privatization of distribution and marketing is carried out under Decree 2 074/90 for the Federal Capital and the surrounding area, the companies ELECTRIC SERVICES OF THE GREAT AIRES S.A., WATER AND ENERGY SOCIEDAD OF THE STATE and HIDRONOR S.A. will be restructured to conform to the guidelines of this Decree.

CHAPTER 7

Art. 17.- Office rules. Within a period of SEIS (6) weeks the ELECTRIC ENERGY SUBSECRETARIA will set by Resolution the rules of economic dispatch, for the transition period.

Art. 18.- The authority for the implementation of this decree is the MINISTERY OF ECONOMY (SUBSECRETARIAT OF ENERGIA ELECTRICA).

Art. 19.- For the transition period the rules of operation of the wholesale market will be set by the ELECTRIC ENERGY SUBSECRETARIA for the proper knowledge of the interested parties. Its validity may continue after 1 January 1993 if the Regulatory Entity is created, as established by the Regulatory Framework, so determined.

Art. 20. Contact, post, give to the NATIONAL DIRECTION OF THE OFFICIAL REGISTRATION and archvese.MENEM - CAVALLO.