The majority of the opposition arc hardly questioned the government’s recent removal of electricity subsidies. The executive branch withdrew completely the subsidies in the electricity bills of electricity bills paid by 5 million households, called high income. He did so to achieve the objectives of the agreement with the International Monetary Fund (IMF).
The agency is asking the Economy for energy subsidies to decrease from the 1.9% of GDP they reached in 2022 to 1.5% for this year. To achieve this, official help has been withdrawn, which will cause a 128% increase in the cost of electricity that families pay. This will be reflected tickets that in May will be 75% more expensive than in March, and almost 450% more in the interannual comparison in Buenos Aires and in the Conurbano.
To follow the recommendations of the IMF, other subsidy reductions should be applied to commercial customers. The Fund suggests a 17% increase in the rate paid by those sectors in August and another 7% in November.
An average in the business category will pay about $20,000 for a ticket in May, a 270% increase from the $6,000 they paid for the same month in 2022.
Economists and consultants specializing in energy are studying whether this change will cut 0.4% of public spending, as promised to the IMF.
While their reports are not ready yet, one of them believes they will fall short of the target agreed with the IMF, another that it will suffice, and a third are more in favor of the latter alternative.
“It will depend on the evolution of the dollar. The monomic cost (of electricity) is dollarized at the official exchange rate. Nobody really knows how this variable will evolve in the rest of the year”, agree the three, who asked not to be identified until they have studied the case better.
In its early April report, the IMF indicated that it expects electricity subsidies to improve, “reflecting a combination of lower production costs and higher real tariffs.
What will happen in winter
Argentina has brought forward the purchase of gas for the winter. Although the Vaca Muerta pipeline will reduce the need for imports, between June and August national production will not be enough to warm everyone.
Enarsa has already acquired most of the gas vessels needed in the cold months. According to official estimates, this operation would lead to a drop in gas subsidies, e a drop in the cost of electricity, since most electrical systems run on gas.
Energy subsidies reached $12,335 million in 2022. For them to fall, the government would need to reach about $10,000 million in 2023. “This is achieved with the current exchange rate (the official dollar), but it can change in the event of a devaluation.” The cost of electricity and imported gas are measured in dollars.
“Subsidies to high-income sectors had to be eliminated. Nobody can oppose it, because it is in any opposition government program,” says an economist who is part of one aspect of Together for Change. “It would have been desirable that this reduction also take place in the middle class, but it is clear that the executive wants leave the problem to the next administration”, he reflects.
Energy subsidies fell 25% in real terms in April, according to a report by the IIEP Rate and Subsidy Observatory (UBA and Conicet). For energy, the Government has already allocated 637,192 million dollars in the first quarter (January-April), with a nominal growth of 54% compared to the same period last year (414,000 million dollars). However, as year-on-year accumulated inflation is higher, there is a real decrease of 25%.
Cammesa, the wholesale administrator of the electric system, consumed $332,000 million in 2023, 7% less than $355,000 million in 2023.Adjusted for inflation, the true decline is 54%.
In contrast, Enarsa – which deals with gas imports – went from $39,000 million in 2022 to $282,500 million in 2023. That’s a “real” (inflation discounted) jump of 260%. It is explained that the state-owned company anticipated the purchase of LNG. In 2022, the Russian invasion of Ukraine disrupted plans and when Enarsa went out to buy gas, that energy was already very expensive.
“In mid-2022, what was paid for electricity in Argentina was at the lowest levels compared to other emerging countries (Paraguay, India, Turkey, Ecuador)”; quote the IMF. That same calculation for 2023 would give another result, according to the specialists. “I don’t think we are at the level of Brazil, Uruguay and Chile, who charge 10 times more for electricity than Argentina, but it seems to me that we are already more direct towards the prices of other emerging countries”, they say.
Charles Arterburn is a seasoned business journalist for News Rebeat, where he provides comprehensive coverage of the latest trends and developments in the world of finance and economics.