Energy subsidies: the end of the cycle and the tariff paradox

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The heart of compliance fiscal commitments in the agreement with the IMF lies in the reduction of economic subsidies, and in particular of energy ones.

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This can be seen from the IV review on the achievement of the objectives, which dedicates a specific section to the commitments for the elimination of subsidies for high-income residential users (level 1) and for commercial users. These commitments have been respected with the increases published and in force since 1 May for electricity.

Added to these increases in energy prices is the recomposition of the distribution margins of the companies Edenor and Edesur, and that They will be reflected in tariff increases of 500% next winter, compared to 2022.

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Is this solution a problem?

In principle not, since the minimum income of this segment is $670,000 pesos and the new electricity bills would represent 2% of income, a level in line with the INDEC consumption basket.

However, problems could arise if there are holes in the user registry to which the increases are applied. We recall that the RASE (register of requests for energy subsidies) was created on the basis of spontaneous presentations, i.e. those who did not request the subsidies were considered to have high incomes (N1). We are talking about a universe of about 4.5 million families (30% of the total), while 40% correspond to low-income families (level 2) and 30% correspond to middle-income families (N3).

It is very likely that there are numerous exclusion errors, i.e. families in need of subsidies but who for some reason have not registered with the RASE. In short, the testing ground will be upon receipt of the invoices.

The acceleration of inflation complicates the correction of tariffs. In the short term, May’s hikes put a very high ceiling on this month’s inflation and accelerate the inertia of recent months, but at the same time the announcement of “no more hikes for the rest of the year” means that almost all of these increases will be paid off by the end of the year.

At the same time, the high nominality of the economy requires huge tariff corrections to eliminate subsidies in N1, but since levels 2 and 3 (low and middle income) are not adjusted, the distortion generated is also huge and generates tariff differences up to 7 times between N1 users and the rest of the levels, a difference that will be very difficult to correct.

Unfortunately, the Government arrives late and badly at the inevitable tariff correction, which is worth remembering that this is a problem self-generated by the current administration which irresponsibly froze the tariffs at the beginning of the administration.

paradoxically it was the discrepancies within the ruling coalition those that have prevented even the partial corrections of the tariffs, suffice it to recall how a secretary of state has blocked at least three times the attempts of an economy minister to increase energy prices.

Today, in a context of very high inflation, without reservations and in the midst of a timed negotiation with the Fund, the Government no longer hesitates to increase rates if necessary, and applies increases of up to 500% which will be received in the invoices of months of July/August. That means, the bills will arrive in the middle of the election calendar and very close to the primary.

Quite a paradox at the end of the cycle for a government that had tariff freezes and subsidies as a pillar of its energy and tariff policy in particular.

The author is coordinator of the Energy Commission – Alem Foundation.

Source: Clarin

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