Although the government has made a lot of progress in just 4 months with the elimination of energy subsidies for homes, businesses, industries and other types of users, still close to 70% of families in Argentina (medium and low income) they maintain more than 90% of the price of electricity covered with the help of the national state.
This represents one of the biggest challenges the government faces in normalizing the economy and relative price distortion. In order for energy to have a uniform price, In the coming months it will be necessary to multiply the wholesale values that 7 out of 10 families pay by between 25 and 30 times.
Since February 1, the Ministry of Energy has transferred the full wholesale price of electricity to Tier 1 (N1) segmentation households – those with high income or wealth and those who have not applied for or renounced subsidies estimated for February-April, as well as all non-residential users. This means that the state no longer contributes to the difference. N1 homes represent approximately 30% of the residential universe.
At the same time, the government has left the price of energy unchanged for low-income (N2) and middle-income (N3) households, until it is possible to implement the new subsidy system, the Basic Energy Basket, which could last until June or July the enormous amount of cross-referenced data needed.
Based on a full price for the quarter of $44,401 per megawatt hour (MWh; or $44,401 per kilowatt hour, kWh, which is the unit of measurement reflected in electricity bills), N2 households pay $2,981, just 6.7 %; and N3, $3,756, 8.5%.
The energy subsidy is uniform across the country. Only N3 families – medium income – have a consumption limit covered by the State, ranging from 400 to 600 kWh per month depending on the region in which they live, and then pay the excess at full price.
The great variation that electricity bills present occurs in the distribution section, which depends on each province, with the exception of the Buenos Aires Metropolitan Area (AMBA), where the Nation has jurisdiction for Edenor and Edesur.
According to official data from the Wholesale Electricity Market Administration Company (Cammesa), in February The “monomic” price – which includes all system costs, including fuels and contracts – reached 51,880 dollars per MWh; while the “seasonal” one – transferred to the application – was 31,351 dollars. That means, 60.4% was provided by users and 39.6% by subsidies.
This percentage was covered, in January, by only 22.1% of the electricity price from demand and 77.9% from the national state.
In February, homes accounted for 49% of total electricity consumption due to high summer temperatures, although they usually require 40% of the energy (the rest is for non-residential purposes such as businesses and industries).
In their work “Energia.ai – Energy Scenarios 2024 (March 2024)”, consultants Mauricio Roitman and Luciano Caratori underline that subsidies “are the thermometer of the level of distortion of microeconomic incentives in the energy sector and of a greater fiscal problem if it is devaluation. However, they are potentially the most flexible and progressive adjustment tool.”
Depending on how quickly the increases progress, energy subsidies, which last year amounted to 1.6% of gross domestic product (GDP) or something like $9,683 million, would account for 0.8% to 1 .5% of GDP. The International Monetary Fund’s goal is to lower it to 1.1%.
SN
Source: Clarin
