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Argentina,Venezuela Fuel-For-Food Deal To Continue

BUENOS AIRES (Dow Jones)--Argentina and Venezuela will extend this year's fuel-for-food accord over the coming years, giving Argentina the option to continue importing diesel and gasoil from its South American neighbor, if current gas and power shortages remain a problem.

"Yes, in reality, the window remains open not only for 2006, the window of the accord that we signed in April remains open so that it can be extended over some time," Planning Minister Julio De Vido told Argentine station Radio 10 Thursday morning.

De Vido is in Venezuela for the Venezuela-Argentina Business Roundtable on Margarita Island, which has brought together hundreds of exporters and importers from the countries. Argentine President Nestor Kirchner is to arrive later Thursday.

In April, Argentina signed a $240 million contract with Venezuela that allowed Kirchner's government to import around 1 million tons of diesel and gasoil. Venezuela can receive cash for the imports or request agricultural imports from Argentina as payment.

De Vido's spokesman, Alfredo Scoccimarro, told Dow Jones Newswires that this year's $240 million deal would be "renewed" in 2005. From 2006, the amount of fuel ordered will depend on Argentina's energy situation, De Vido said earlier.

The fuel imports have been crucial to Argentina's ability to overcome what threatened to be its worst energy crisis in years - reducing natural gas demand by around 7 million cubic meters daily - or some 5% of Argentine natural gas demand. That has lifted pressure on the government, which was widely accused of mishandling the already difficult energy situation since it took office in May 2003.

De Vido said Argentina has already used up 700,000 tons of the 1 million earmarked for this year. The fuel is purchased through Venezuela's state oil company Petroleos de Venezuela (PVZ.YY), or PdVSA.

A new accord would help the two countries boost their bilateral trade, which amounted to $151 million in 2003. A Venezuelan official said he expected that figure to hit $500 million this year.

Meanwhile, De Vido also confirmed that PdVSA is moving ahead with plans to establish a presence in Argentina. He said the company would set up offices in Buenos Aires in September run by company official Alejandro Gomez, who negotiated the fuel-for-food accord with Argentina.

De Vido said there were still no firm plans for PdVSA to set up service stations in Argentina, though it was something the governments were talking about.

"In the case of the service stations, this is an old conversation that we have with PdVSA. It is a pending theme," De Vido said.

He said he had discussed the matter this week with PdVSA President Ali Rodriguez, who indicated it was an issue that would advance once the company set up its Argentine offices.

In another radio interview Thursday, De Vido said the accord with Venezuela and a broader gas-import deal with Bolivia - expected to be announced later Thursday - meant the government not only had subdued this year's energy crisis, but had also defused potential problems in coming years.

"The government has completely contained ... the energy possibilities for 2005 and 2006," he told Radio La Red.

De Vido said a key part of the government's plans is the launching of state energy company Enarsa. He said he expects the senate to approve the new company Tuesday, though there have been some murmurings in congress about where the money will come from to fund the government's planned projects.

However, analysts raise doubts about whether Argentina has its energy situation under control. Pointing out that this year's crisis was only avoided by the import of more expensive fuel - costing the Treasury an extra 2 billion pesos ($1=ARS2.955) - they say the country needs large-scale investment in the next 12 months to avoid continued gas shortages in 2005 and a potential power crisis in 2006, when electricity demand is expected to outstrip generation capacity.

Analysts say that with gas and power rates still largely frozen following the 2002 economic crisis, the necessary investment levels will be hard to attain.

-By Laurence Norman, Dow Jones Newswires; laurence.norman@ dowjones.com

(Raul Gallegos in Venezuela contributed to this story.) Dow Jones Newswires 07-22-04 1359ET

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