Mismanagement in the state explains Vaca Muerta´s pipelline dalays - IDESA

Report Nº: 96901/07/2022

Mismanagement in the state explains Vaca Muerta´s pipelline dalays

The Néstor Kirchner Gas Pipeline is a source of controversy both for the enormous costs caused by the delays in its construction and for the political conflict it generates. But the most important thing is that it reveals the deep and structural management deficit of the State.

In 2011 the results of the first explorations in Vaca Muerta were released. The discovery highlighted the enormous potential of the area for oil and gas production. It has the magnitude to have an impact on the future country’s development. However, for this to happen, a necessary condition is to improve the infrastructure. Within this infrastructure, key work is the one that will allow the gas to be transported from Neuquén to the rest of the country and abroad.

In 2018, an international bidding process for the construction of this pipeline was announced, but, for various reasons, it was delayed. The current government gave it a name –Gasoducto Néstor Kirchner– and announced that instead of selecting a company to be integrally in charge of the work, the task would be executed through a national state company. The change of strategy did not allow the construction of the gas pipeline to begin. Instead, it led to a cross of accusations between the Vice-President and the Minister responsible for the project, which resulted in a new political crisis and the intervention of the Judiciary to investigate possible acts of corruption.

This situation highlights the importance of analyzing public management in the development of productive infrastructure. In financial terms, according to information published by the Ministry of Economy, between the years 2000 and 2021, it is observed that:

  • Total public spending by the national government was 21% of GDP on average.
  • Within this expenditure, investment was approximately 2% of GDP on average.
  • This implies that national public investment represented 9% of total public spending.

These data show that public investment from the national government contrasts with the country’s serious infrastructure deficits. The delays in the Néstor Kirchner Gas Pipeline show that the main problem is not the availability of resources but the lack of management abilities. The case has special notoriety because of its domestic political connotations and because the war in Ukraine increased energy prices. But it reflects a general, transversal, and structural problem of the Argentine State.

The non-existence of the Néstor Kirchner Gas Pipeline is very instructive. Sustaining high public spending does not guarantee results. Concrete evidence is that even with high public spending a gas pipeline of strategic importance was not built. But reducing the fiscal deficit by applying the traditional adjustment measures does not solve the issue either. If the State is incapable of doing the work in a context of high spending, it will also be incapable of doing it by applying adjustments that, in general, imply reducing public investment. This makes it necessary to emphasize that the challenge in Argentina is not only to reduce the fiscal deficit but also to strengthen the quality of public management.

In the last decade, Argentina had a total investment rate (public and private) of 16% of GDP. In order to grow for several years, it is necessary to invest no less than 25% of GDP for several years. This requires a more favorable context for private investment. Among other factors, are macroeconomic stability, reasonable taxes and regulations, and legal security. In addition, it must be taken into account that public infrastructure is essential to boost private investment. It is a strategic mistake to involve the State as the builder of works or as the sole investor. It is much more practical for the State to be responsible for planning and inviting the private sector to finance, execute and operate infrastructure works and services, and then to be in charge of regulating and controlling the quality of maintenance and operation.

The principle where there is no division is that of the “Present State”. In truth, this is a consensus around policies that cause insolvency and inefficiency. The way to recover coherence for social development is to approach an integral ordering of the State starting by questioning these mistaken consensuses. The objective is not only to balance public accounts but also to improve the efficiency of public management.


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