The parliamentary affront to the project of the so-called “omnibus law” presented by Javier Milei may not mean much for the energy sector: with the current legislation, oil production grew by 30% since December 2019. The sector awaits further concrete measures from the Government, which seems to be moving in a minefield of increasingly controversial rules. According to Daniel Gerold, director of G&G Energy Consultants and one of the most renowned consultants in the sector, the adjustment of electricity and gas tariffs it could be priceless and having a brake on Justice, the full union of local prices with world prices will be a utopia, and a possible sale of YPF, a complete failure.
-How does the failure of the omnibus law affect the energy sector?
-Not so much. The reality is that we no longer need laws for the sector but those that exist must be respected. With current legislation, hydrocarbon production in Argentina has increased by 30%. Current regulations They don’t stop the industry from thriving.
-But the Charter of Bases and Starting Points for the Freedom of Argentines contained guidelines on prices and conditions for export…
-It is true. The proposed law prohibited, for example, the YPF, with a state majority, from selling fuel below the imported value. That is, how much it costs to buy it in the world. It reaffirmed the principle of import parity for fuels and export parity for crude oil. Something that the latest DNU tries to consecrate.
-Exporting at an international price is what the industry demands, especially the non-integrated industry (which does not produce fuels).
-Domestic prices must be aligned with international prices. But it is unrealistic to do so in the current conditions of the country. What will happen to fuel prices if there is a new devaluation or if the price of crude oil, which today is close to $80 a barrel, were to jump? Would it be possible to continue increasing the price of petrol on the local market in the same proportion? I do not believe.
-But the price of gasoline will continue to rise.
-Exact. About 17% or 18% at the pump, because the value of the tax on liquid fuels and the carbon tax must be adjusted to the consumer price index throughout 2023. To this we must add some increase in the value of the biofuel with which cutting is carried out and which today costs double that of fossil fuels. But if there were another jump in the exchange rate, which would make the local price of oil more expensive, or if the barrel were more expensive on the international market, this would imply an even bigger increase.
-Super petrol has not yet reached the global average value of around $1.20 per liter that refineries consider adequate.
-That gasoline must cost $1 or $1.20 per liter He is a myth. In the 90s, oil Previously it cost 18 dollars a barrel, now it costs 80. So?… Should we think that at some point there was price abuse? It is not easy to support such a linear reasoning.
-An oil company manager explained this by stating that a liter of petrol cannot cost less than an empanada…
-This is an absurd and capricious analogy. It does not make sense. I also don’t think we need to go to the Kirchnerist extreme of wanting to fix the price of fuel. only based on local costs or updated only by the CPI. Not only because it is an industry with some of its costsdollarised, but because the sector’s investments are made by thinking long term and in dollars. There is no other way. But these problems cannot be solved with laws.
-And how are they resolved?
-The problem is that the laws are not respected. But no one goes to court to report this non-compliance. Current law already guarantees oil export parity (that Argentine crude oil is sold inside and outside the country at international market value). But he is not satisfied. A law guarantees you nothing. The industry awaits concrete measures.
-Was the omnibus law not a concrete initiative in this sense?
-The project served to generate a debate between integrated and non-integrated companies on export freedom (Editor’s note: some refineries have asked the government to reserve the right to prevent oil sales abroad when they request it). The Government is studying the possibility of replicating the 1990s model to set competitive prices for electricity and gas. But energy today costs 4 times more than in the 90s. How will they do it? I can’t find a possible pattern. What I see as positive about this management is that it does not set prices for YPF.
-The Ministry of Energy is also working on adjusting electricity and gas tariffs, eliminating subsidies.
-I don’t know how they’ll do it. I am not a fan of tariff shocks.S. The correction regime should be implemented gradually over time. (Juan José) Aranguren wanted to apply a tariff update in six installments and this was impossible. Will Javier Milei’s government be able to do it in just three sections? Citizens will not be able to bear this expense. And I think the government doesn’t know what to do. The N1 sector (with the highest income) has already multiplied the cost of some public services by 4 and continues to protect 65% of the population, delaying the cut of subsidies. The issue is complex to resolve and they don’t know how to do it.
-Is there a risk that the Justice increases will be stopped?
-Safe. The CEPIS ruling, which allowed collective protection against rate increases during Mauricio Macri’s government, is deplorable but is still in force. Rate hikes could end up in court.
-It seems that the official dilemma is to allow prices that are attractive to licensees and potential investors and, at the same time, digestible by consumers with poor incomes.
-In the case of the oil industry, it is capital intensive and we think in dollars. Argentina has higher oil service costs and operator wages than the United States. And inputs are imported at $970 per dollar and products are exported at just over $800. This is another challenge of local politics.
-Could we do without a law to privatize 51% of YPF?
-Congressional approval is more of a political necessity than a legal one. A potential buyer would want assurance that the next government will not cancel the deal. But today no one would want to buy YPF.
-Why?
—It is not certain that it will not be affected by the requests for renationalization of Burford, which already has a favorable judgment for 16 billion dollars and is able to start with the embargo. It is very likely that this group will appeal the decision to exclude YPF from the lawsuit and the company will end up being subject to this obligation. Judge Loretta Preska’s sentence was lapidary. I read it in detail and it accuses Argentina of wanting to evade justice. The prospects are not good.
Source: Clarin
