Electricity and gas subsidies: 3 keys to understand the Government’s announcements, the rise in rates and what will happen to energy

The Undersecretary of Electric Power, Santiago Yanotti; the Secretary of Energy, Flavia Royón; and Malena Galmarini, head of Aysa

The government announced yesterday the new scheme of tariffs and subsidies for electricity, gas and water. It is the long-awaited regime with which the minister Serge Massa it will seek to lower the deficit and comply with the IMF. It is also the most sensitive sector of this government, the same one that cost several officials of the Alberto Fernandezlike their bishops Martin Guzman Y Matias Kulfas.

“This segmentation has been based on social justice and equity. We have proposed that the subsidy reach those who need it most and that the population with the highest income can accompany the tax savings”said Flavia Royonthe official from Salta that Massa appointed as head of the Energy Secretariat and with whom he will seek to put an end to what Kulfas defined as an “exasperating internalism” that crosses officials in the area, several of whom are not still in the Government either.

The Government communicated yesterday how the new scheme of subsidies and tariffs for water, gas and electricity will work, that is, basically what Argentine households are going to pay from now on for basic public services.

what is known

“This measure contributes to an efficient and orderly State. We are going to work to concretize the population on the efficient use of the resource”, promised Royón yesterday. next to him, Malena Galmarinipresident to Aysa, showed the distortion in water rates with two convincing examples: the inhabitants of the stately Kavanagh building pay an average of less than 2,000 pesos per month, while those of the luxurious Chateau Libertador pay about $3,936 per month.

Galmarini showed how much two premium buildings in Buenos Aires pay for water
Galmarini showed how much two premium buildings in Buenos Aires pay for water

For all services, the Government had established three groups of consumers:

Level 1: higher-income users and people who were not registered in the registry (269,000 households).

Level 2: low-income registered users (provisionally beneficiaries of the social tariff will be included) with more than 2.8 million households.

Level 3: middle-class customers, some 2.6 million households.

As was known, the light will have a consumption limit for the rate with subsidies of 400 kWh per month per household. New: the localities that do not have natural gas through the network will increase the cap to 550 kWh.

An example given by official sources: for an Edesur user, with an average consumption of 300 kWh per month, the final bill will go from $1,467 in August to $2,285 in September 2022.

Gas is more complex and little or nothing had transpired from the new scheme. Level 1 users will be without subsidies in installments until December. Those of Level 2 will not have variants and will pay the same bill as this month. Those of Level 3 –the middle sectors– they will be able to access subsidies to a volume equivalent to 70% of the average of the minimum and maximum thresholds of each category and subarea. As happens with electricity, the surplus to these caps —which vary according to the area of ​​the country— will not have a subsidy. Therefore, the part of the bill that exceeds those 400 kWh will pay the full rate.

Examples of uploads for the electricity sector
Examples of uploads for the electricity sector

In the case of the City of Buenos Aires, where the company Metrogas operates, the annual cap will be 175 cubic meters for R1 users (the lowest category) and 403 cubic meters for the R2-1 category. Then, that annual figure will be monthly, it was reported. Also, The Government announced that it is working on a grid with caps month by month to detail the users. In other words, there will still be more news for gas.

In the case of water – it had already transpired on Monday – there will also be a full rate for residential users and land located in “high” income areas. Those who already have a social rate will not lose the benefit.

For users located in areas classified as “medium”, the removal of subsidies will be done in three stages: they will have 40% from November 1 to December 31, 2022; then, 20% from January 1 to February 28, 2023. And finally, the elimination of the subsidy from March 1, 2023.

What’s missing

“The rate charts are needed, that they expand more. They gave general guidelines, but we need more details”they told him from a gas company to Infobae. Now, for gas and electricity, the key concept will be “tariff charts”. In other words, ENRE and Enargas, the regulators, will have something to say to the distributors who will pay with increase and how much they will have to pay.

“It was an Energy ad. Until the regulators get everything down to ‘paper’ and implement how to do it, there will be nothing concrete. The rest applies: they give us a list of users and they tell us ‘a gas price of so many pesos is applied to all of them as of that date.’ And we do it”, they detailed from another of the companies.

“The rate charts are needed, that they expand more.  They gave guidelines, but we need more details.  The levels of each user, for example”, they say in the distributors (EFE/JUAN CARLOS HIDALGO/File)
“The rate charts are needed, that they expand more. They gave guidelines, but we need more details. The levels of each user, for example”, they say in the distributors (EFE/JUAN CARLOS HIDALGO/File)

From another gas company they added: “The bill paid by the user includes the cost of gas, transportation, distribution and taxes. Yesterday the variation of an invoice component (gas at PIST, or Entry Point to the Transportation System) was announced, but until Enargas signs a resolution where distribution and transportation are added to that value, we are ‘blind’ to invoice”.

Some distributors already warn that depending on the time of the month in which the resolutions are issued and the information is sent, they could have a logistical bottleneck. “It should not happen because there is time. Everything is digitized, but from one day to the next it cannot be done”they argued.

the savings

as explained yesterday InfobaeWith this scheme, the Government expects to save some $50,000 million this year. Close to Massa they explain that it is triple what would have been achieved with the segmentation plan of Martin Guzman that never saw the light of day, something that marked his departure from the cabinet. Yesterday the Secretary of the Treasury, Raul Rigoestimated that it will be 0.5% of the Gross Product.

Energy is not an exclusive drama for Fernández. Since the 1980s, with the cuts programmed during the government of Raul Alfonsin, Until today, all the presidents had energy problems. “Why can’t you get out of that quagmire?”, was asked days ago to Daniel Montamatformer secretary of energy and former president of YPF, in the first edition of Dinero, the newsletter of Economic Infobae.

“Energy becomes central to the Argentine macro problem because populism is equal to sacrificing the future on the altar of the present. Thus, the capital-intensive sectors are trapped in the short term and that is equal to the end of the strategy”, summarized Montamat.

“Then prices are politicized and frozen, something that in a context of inflation is very serious because the distortions grow very strong. Regulatory frameworks are violated, entities intervene, a signal is given to demand, which increases, investment falls and a country that had positive exportable balances begins to import and external accounts are affected. And the subsidies appear, which are financed with taxes and then with inflationary emissions. This mess has a direct impact on pockets and there is a lack of diesel and gas in winter, there are power cuts and there is no capital to develop Vaca Muerta. When are we going to get out of this? When the political class recovers the long term”, closed the specialist.


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