Procurement & Negotiation Strategies: Argentina Power Project Finance

This case study examines the procurement and negotiation strategies employed in Argentina's power plant projects, focusing on the challenges faced by YPF and foreign partners, particularly during the administrations of Presidents Peron and Frondizi. It critically discusses the procurement methods adopted, evaluating their competitiveness and the approach to selecting bidders. The analysis extends to the negotiation approaches used to secure contracts for new power plants, highlighting the integrative (win-win) approach and the key factors contributing to successful negotiations, such as clarity, detachment, and equilibrium. The study also identifies potential reasons for negotiation failures, including political, financial, project execution and operational risks. The report concludes by emphasizing the importance of addressing these factors to ensure the successful completion of power plant projects in Argentina.

The Procurement project

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1........................................................................................................................................3
(a).................................................................................................................................................3
(b).................................................................................................................................................4
Question 2........................................................................................................................................5
(a).................................................................................................................................................5
(b).................................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Project procurement is a process which states the stages and approaches required for the
successful completion and implementation of projects. This report is based on the case study of
Argentina Power which will provide the solution to two question.
Question 1
(a)
The procurement method adopted by the government of Argentina to obtain various
contracts for the new power plants projects against its competitiveness is bid or tender method.
The bid method for the Power tender is one of the best method because of no nepotism. Tenders
or bids are reviewed by the Argentina government on established criteria such as quality, price
and value for money. Thus, the chance of partiality among the bidders because of the jack is not
at all possible. It is because the tenders and bids of each supplier are heavily examined and
assessed by the public and the project is only given to the bidder that meets the minimum
requirement set by the CAMMESA. The tendering method is also best because it encourages and
promote the competition in the market. The impact of which suppliers will provide the best
quality products and service at lower cost. It is because for the power plant projects, many
contractors and supplier have participated in the bid. Beside this, the government of Argentina
has also set the participation criteria for the bidders (Kang and et.al., 2018).
However, this method also creates various issues for the success of power projects. It is
because insufficient profit margin of the bidders allow them not to spend more money in the
research and development, modern technology and equipment. The impact of which the quality
of the power project will get affected. Beside this, the another issue that may arises from this
competitive bidding is that it is quite time-consuming which affects the customers to large
extent. It means sometime the bid method take too much time such as months or may be a year to
announce a bid winner. The impact of which customers need to wait too long for the proper
power supply in Argentina.
Approach to evaluate and select bidders
The government of Argentina has set the minimum requirements to participate and get selected
in the bid and Auction which are as follows:

 In order to participate in Argentina government power capacity tender, each bidder have
to install a minimum capacity of 40MW. While on the other hand, the capacity of
individuals generating units must be 10MW. In case, if the bidder unable to meet the
requirement than they can not participate in this bid and auction.
 Beside this, the CAMMESA has also set the minimum requirement for the evaluation and
selection of bidders in June 2016. This involves the two requirement such as Bid
Guarantee and Power Plant Construction Guarantee.
 The bid guarantee involve $5000 * MW Capacity, ICC totals of $1 MM and letter of
credit and insurance bond. While on the other hand, power plant construction guarantee
involve capacity fee bid* MW capacity * 6 months, this must be valid till COD and
backstop letters of credit or an insurance bond.
(b)
Challenges faced by YPF and foreign partners:
The several challenges faced by the YPF and foreign partner during the administration of
President Peron and President Frondizi are as follows:
 Conflict between internal political parties: At the time of President Peron, the proposal
of foreign direct investment of US partners was not approved by the government because
of the major and vigorous debate between the internal parties of the government. This is a
challenge which is faced by both YPF and US partners the impact of which the FDI
contract was not approved or executed. Basically, in this contract the US partners will
receive 40% of the total revenue while YPF will get 60% of revenue. Here, the challenge
faces by both the parties of the contract is that, the internal conflicts between the people
get more preference than the benefit of the Argentina economy and country. Argentina
vast energy resources development is highly affected by this (Smith, 2017).
 Loss of revenue: Another challenge faces by the YPF after the cancellation of FDI
contracts with the US partners in the year 1963 because of the military coup of Frondizi.
Basically, during the administration of President Frondizi the FDI was easily approved by
the government but after the cancellation of contract, the YPF faces the heavy loss of
revenue. It means that because of the cancellation of contract the YPF had to pay $50
million indemnity to the US partners. After the cancellation, the YPF stop investing the

revenue in new exploration and development and start transferring it into their personal
piggy banks (Medina and Vassilvitskii, 2017).
Discussion of challenge addressed in the new contract
In the new contract of procurement where EFC, ICC and BEM enter for the successful
completion of power plant projects the challenge of internal parties conflicts were easily
addressed. It is because this time the contract was reflected the proper terms and conditions.
Here, Bruce the CEO of EFC has clearly negotiated each agreement for each project so that no
conflicts and confusion arises among the parties. Further, in new contract EFC had provided
small to medium-sized power plants that burn gas and liquid-fuels to CAMMESA to win this
proposal. This provides fast power to people of Argentina for upcoming summer and two winter
seasons. Because of the clear terms & conditions in contract and effective negotiation between
the people this contract able to address the previous contract challenge. But the loss of revenue is
a challenge which is not addressed in the new contract because that was a loss of revenue which
are irrecoverable in nature (AWWAD, ATALLAH and MENASSA, 2018). Thus, recovering that
amount from the new contract is only possible if the power plant project easily get completed
and benefit the country in large extent.
Question 2
(a)
Negotiation is basically a process of dialogues between two or more parties in order to
reach on a beneficial outcome over one or more issues. In the given case study, the negotiation
approach adopted to procure new power plant projects are Integrative Approach or Win-Win
approach. It is because this approach is superior to all the other approach. For example, in the
bidding procedure government of Argentina and EFC both get benefits from this contract where
government able to enjoy low and high quality project while EFC able to enjoy revenue and
earnings. The win and win approach of negotiation is best because this helps in building the
collaboration and creating value to both the parties. Further, because of this approach the both
parties of the new power plant project able to achieve what they really wants to achieve. It means
this result into the satisfaction of both the parties and the impact of which people of Argentina
also able to enjoy the fast power in both summer and winter seasons. It is possible only because
EFC has described each terms and conditions along with the extinguishment of resources. This

approach state that if there are sufficient amounts of resources is divided then the both party can
win in the negotiations (Gunasundari, Janakiraman and Meenambal, 2018).
However, achievement of win-win negotiation is quite difficult and time-consuming as
compared to other approach. It presents many challenges as it is not possible in every situation. It
is because in this approach both parties need to mutually agreed on some point and if they fail to
do so implementation of integrative approach get also failed (Erasmus, 2019). Here, both the
parties need to manage the expectation from the other one in order to achieve outcome
perceptions.
(b)
Three main factors responsible for successful negotiation:
The three key factors that helps in the success of the negotiation between the parties are as
follows:
 Clarity: The parties have to be clear about what they are offering and what they want
from the other party in this negotiation. For example, in the present case, EFC has
provided the agreement in which they have provided the full information about their 5
partners in partner and project selection, terms and conditions for favourable contract and
effective deployment. They also specify that they want 10% to 50% ownership and
around 12% ROE from its investment (Delina and Olejarova, 2021).
 Detachment: Another factor key to the success of the negotiation is the parties
detachment and engagement from feelings. For example, in order to make this
negotiation successful, Bruce the CEO of ECF, has hire the non-Argentina capital
providers for the purpose of construction and permanent financing. The reason behind
this decision is that they want to keep this project with fraud.
 Equilibrium: This is a strategy which state that both the parties in negotiation will
achieve the desired outcome without deviating from its main objective and strategy. For
example, in order to make this negotiation successful EFC invested capital and ICC the
parent company of EFC provided loan which is around 57% of all projects cost. It is
because they know financing is must for the winning the auction.
Three main reasons that may leads to negotiation fails are as follows:

 Political risk: This is risk which state the adverse changes in the law system of the UK is
a factor which may fails the negotiation. It is because this can negatively affect the
foreign investors when the interest rate get down.
 Finance and Enforcement risk: The financing structure was not plant by plant basis and
if the ICC need to provide all the financing then its potential espouser is $532 million.
This is a risk which affects the foreign investors to finance the project and may lead to
fail of negotiation. The chances of local disputes with the Argentina entities is also the
reason which may lead to failure of negotiation (Xinquan and Wolfe, 2021).
 Project execution and operational risk: The time to conduct the due diligence is quite
short and the impact of which uncertainty in the project execution is a risk for the parties.
Thus, this may lead to failure of negotiations. The change in the currency and foreign
exchanges is also one of the risk which can affect the negotiation in large extent. Thus,
they have to adopt the proper strategies to mitigate this risks.
CONCLUSION
The report has concluded the various aspects such as procurement approach and
negotiation approach for the new power plant project of Argentina. The report has also
concluded the factors which leads to negotiation successful and failure.

REFERENCES
Books and journals
Kang, B. G. and et.al., 2018. Competitive tendering for construction projects in Sudan. Journal
of Fundamental and Applied Sciences. 10(3S). pp.828-835.
Smith, A. J., 2017. Estimating, Tendering and Bidding for Construction Work. Macmillan
International Higher Education.
Medina, A. M. and Vassilvitskii, S., 2017. Revenue optimization with approximate bid
predictions. arXiv preprint arXiv:1706.04732.
Gunasundari, S., Janakiraman, S. and Meenambal, S., 2018. Multiswarm heterogeneous binary
PSO using win-win approach for improved feature selection in liver and kidney disease
diagnosis. Computerized Medical Imaging and Graphics. 70. pp.135-154.
Erasmus, D., 2019. A win-win approach to farmer support. Farmer’s Weekly. 2019(19029).
pp.4-4.
Delina, R. and Olejarova, R., 2021. Evidence-based analysis: the success factors of a new
competitor entering the negotiation in B2B e-procurement. Applied Economics
Letters. 28(14). pp.1239-1244.
Xinquan, T. U. and Wolfe, R., 2021. Reviving the negotiation function of the WTO: Why the
onus falls on the three major powers1. Rebooting Multilateral Trade Cooperation:
Perspectives from China and Europe, pp.29-43.
AWWAD, R., ATALLAH, S. and MENASSA, C., 2018. INFLUENCE OF COLLABORATIVE
BEHAVIOR ON CLAIM NEGOTIATION.
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