Argentina: Contradiction between Martín Guzmán and the IMF on the future of tariffs

The Minister of Economy, Martín Guzmán, said this Friday that in terms of electricity and gas rates, “what was announced continues”, in response to a question from Clarion. The Monetary Fund, in its summary of the understanding, stated that “a strategy was agreed to reduce energy subsidies in a progressive manner, which will be essential to improve the composition of public spending”.

The Government announced, at the end of the year, that electricity and gas rates will have an increase from 17% to 20%. 2021 energy subsidies were US$11 billion. The IMF announced that there will be a strategy to lower them.

The fulfillment of both goals simultaneously is impossible.

To achieve final 17% to 20% increases in rates, subsidies must continue to grow. And to reduce subsidies, rates must rise double or triple the 17%-20% already announced.

Who says this? The same government.

In gas, for example, to continue subsidizing 71% of the price of the fluid that is paid in the bills, as was done in 2021, the State would need $ 216,000 million in 2022, according to projections made by the Secretary of Energy.

But the Government has $ 135,000 million to subsidize that part of the gas bills, according to the same Secretary of Energy. He is $81 billion short.

With the resources it has, the State could subsidize 44% of the cost of gas itself. To cover the difference, users will have to pay more on their tickets. Promptly, should pay between 35% and 40% more.

“This situation implies an increase in the cost of gas by users of the order of 91%,” specified the Energy Secretariat in a report. The cost of gas has a 40% incidence on the bill.

The only alternative to an “average” 20% raise is that increases of between 110% and 450% apply to certain groups of clients.

Lorenzo Sigaut Gravina, director of macroeconomic analysis at Equilibra, did a simulation. He projected a decrease in subsidies of 0.2% of total GDP and an “average” rise of 20% in rates for the bulk of the population.

The Government spoke of applying a “segmentation”, which implies a reduction in subsidies for those sectors that can pay most of the energy cost.

If the Government wants to apply segmentation to 10% of the population, to achieve both objectives (reduce the deficit and maintain the average increase of 20%), should apply a 470% increase to higher-income households, according to the Equilibra analysis.

If the Executive decided to “segment” -remove subsidies- to 20% of households, it should apply increases of 245% in that range.

If you prefer to remove some subsidies from 30% of the population, the rates for that third of households should rise by 170%.

Finally, if you want 40% to go through some kind of “segmentation”, you will have to raise the ballots by 133%.

“This is for residential rates taking into account inflation, the exchange rate and the rise in labor costs for this year,” says Sigaut Gravina. “And trying to apply some segmentation criteria.”

In gas, the distribution and transportation of gas represents $3.5 for every $10 on the bill. If the need to lower subsidies -which implies an increase of 35%- and the desire of the distributors and carriers, which entails another increase of more than 30%, are met, bills should go up 65%.

The Executive Branch spoke of an increase of between 17% and 20%. In the sector they suspect that he was only referring to the margins for the distribution companies. It would be less than requested, but triple what they had in 2021 (6% increase).

The bulk of the subsidies are intended for customers to pay less than what it is worth for gas. One more detail: the government’s calculations were made based on a provision from Bolivia, which that country could not meet. It would have to be replaced with imported LNG, which is more expensive, and would raise the cost of gas already estimated by Energy.

Alejandro Einstoss and Julián Rojo, from the Mosconi Institute, predict that there may be problems with the implementation of the removal of subsidies at the judicial level. And that the “average” increase should be between 60% and 72% so as not to further increase the need for funds to keep rates low.

By Editor

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