July 2 (Bloomberg) -- Argentina's energy rationing may chill South America's second-largest economy -- along with President Nestor Kirchner's political popularity.

As the southern hemisphere's winter sets in, cutbacks in electricity and natural gas are leaving potatoes to rot at McCain Foods Ltd.'s French fry plant in Buenos Aires province and workers idled at Fiat SpA's car factory in Cordoba. Energy supplies in Argentina have failed to keep up with surging demand, exacerbating shortages to the point where there's no quick solution, analysts say.

Kirchner, 57, created the shortfall by denying utility companies residential-rate increases since 2002 while the economy grew more than 8 percent annually, said Francisco Mezzadri, president of Mezzadri & Asoc., an energy-research firm in Buenos Aires. As a result, companies stopped investing in new production. Now, four months before presidential elections, Kirchner faces angry protests over plant shutdowns, school closures and layoffs.

``Argentina is in real trouble,'' said Marco Tavares, a partner at Porto Alegre-based Gas Energy and former head of Repsol YPF SA's natural-gas business in Brazil. ``If it doesn't get its pricing situation in order, there will be no new investment.''

The government has asked 4,000 companies to curtail electricity use, according to the Argentine Industrial Union, a manufacturers' group. At the same time, it applied gas restrictions to about 900 businesses, forcing cuts that, in some cases, lasted several days, the group said.

Production Cutbacks

For Florenceville, New Brunswick-based McCain, which supplies most of South America's French fries from its Balcarce plant in Buenos Aires province, two weeks of power shutdowns and restrictions from 4 p.m. to midnight have cut total output 40 percent during the past two months. The plant stopped producing mashed-potato flakes altogether.

``The outlook is very bad,'' said Claudio Rivero, director at McCain Argentina. ``If this is prolonged, we'll have to lay off people or send them on vacations early.''

Fiat furloughed almost half of its workers for several days last month as suppliers failed to deliver parts needed to run its production lines. Guillermo Dietrich, owner of a dealership that sells Ford and Volkswagen cars, said he is buying his own power generators to keep his Buenos Aires showrooms lit.

`Critically Dependent'

Barrick Gold Corp., the world's largest gold producer, is studying the feasibility of wind power to help run its $2.4 billion Pascua Lama gold and silver project in the Andes mountains. Rio Tinto Plc, the world's second-largest mining company, said the go-ahead for its roughly $700 million potash project in Mendoza province was ``critically dependent'' on getting gas.

Evidence of energy strains on the nation's factories will emerge in June's industrial-production report, said Pablo Morra, a Latin American economist at Goldman, Sachs & Co. in New York. The crisis is ``definitely'' worse than analysts previously expected, Morra said.

Decreased production of farm products such as soybeans may trim the trade surplus to $9 billion from the government's forecast of $10 billion, said Eduardo Alvarez, chief economist of Investigaciones Economicas Sectoriales, or IES, a Buenos Aires economic-research company.

Economic Expansion

Kirchner cites Argentina's economic expansion, the fastest in the region during the past four years, as the chief cause of the shortages.

``If we are having infrastructure problems, it's because of the pace at which the country is growing and, God willing, will continue to do so,'' Kirchner said on June 21.

He blames utility companies for failing to make new investments. Demand for electric power rose 6.3 percent in the first quarter, compared with a 4.4 percent increase in supply, according to IES. Natural-gas supply fell 1 percent from a year earlier, IES said.

``We have to cross our fingers and hope we don't get too much cold or hot weather,'' Roberto Lavagna, a candidate in the October 28 presidential election, said in a June 26 interview. So far, Lavagna, 65, hasn't made energy shortages a major point of his campaign.

Kirchner's wife, Senator Cristina Fernandez, 54, will run for president in October's election, Interior Minister Anibal Fernandez said today in an interview with television channel Cronica TV. President Kirchner hasn't said whether he, or his wife, will seek the presidency.

Abandoned Operations

Argentina uses formal price accords and public pressure to keep prices from rising. Argentina will fine Royal Dutch Shell Plc for diesel shortages at filling stations, Economy Minister Felisa Miceli said in a televised conference today. In April 2005, Kirchner called on consumers to boycott Shell after the company raised gasoline prices at the pump.

More than 10 foreign energy companies, including the U.K.'s National Grid Plc and France's Suez SA, abandoned their Argentine operations in the past four years on concerns they wouldn't recover their investments.

``Many times we note that there are problems with the way these companies are managed, and, bit by bit, they are wearing our patience thin,'' Kirchner said on June 29 at a regional meeting in Paraguay.

Public approval for Kirchner is also sliding. His rating fell to 52 percent in June from 57 percent the previous month, the lowest level since he took office in May 2003, Buenos Aires- based polling company Poliarquia reported last week. The president's approval rating was as high as 82 percent in February 2004.

``People will become less tolerant if the energy shortages get worse and we see more consequences in employment and the economy,'' said Artemio Lopez, an analyst at Consultora Equis, a political polling company in Buenos Aires.

To contact the reporters on this story: Matthew Craze in Buenos Aires at mcraze@bloomberg.net; Eliana Raszewski in Buenos Aires eraszewski@bloomberg.net

Last Updated: July 2, 2007 11:05 EDT