July 24, 2014
Natural gas and water state subsidies slashed, rates hiked
Gov’t unveils decreases for natural gas, water that will see bills rise from 100%-400%
The government is moving ahead with the long-expected reduction in subsidies of public utilities, saying yesterday that the cut for natural gas and municipal water subsidies was 17 percent to 80 percent for residential and commercial users.
The industrial sector will be exempt from the cuts in subsidies that will ultimately increase final water bills between 70 and 400 percent, while gas prices will rise between 100 and 284 percent. But consumers will be able to avoid hikes, at least for now, if they manage to significantly decrease consumption as part of a broad anti-waste measure.
Even though no cuts were announced for electricity subsidies, economists told the Herald they are likely on the way.
“Subsidies were implemented for people to consume more and to make industry more competitive, but things have changed. Millions of Argentines now have jobs and have obtained higher wages year after year,” President Cristina Fernández de Kirchner said yesterday.
Fernández de Kirchner went on to defend the measure by saying that “this has nothing to do with a massive tariff hike.”
Speaking on national broadcast network yesterday, the president said “I feel like the mother of the country and of all Argentines.”
The government expects to collect between five and 13 billion pesos from the programme, funds that will be partly reassigned to the Universal Child Benefit (AUH) and Progresar social schemes.
The measure, which the government billed as a cut in subsidies by 20 percent, also seeks to encourage a decrease in consumption.
People who reduce their consumption by 20 percent in their bi-monthly bill compared to the same period last year won’t be paying higher bills, while those who reduce their consumption between five and 20 percent will see their subsidies increase by a lower rate, with a discount of up to 50 percent on the planned subsidy cuts.
Numerous sectors, including lower-income earners and people living in the extreme southern and northern provinces will be excluded from the measures.
The reduction in subsidies will be implemented in three stages, in April, June and August, thus increasing the values of public utilities gradually.
“This is not a price hike. It’s a reallocation of subsidies, because the extra funds will finance distribution companies and the AUH and Progresar programmes,” Economy Minister Axel Kicillof said yesterday at a news conference alongside Federal Planning Minister Julio De Vido. “Subsidies are still a key policy of this government, that hasn’t changed.”
Even though the industrial sector was excluded from the scheme, Kicillof warned yesterday that the sector could see its subsidies cut if “price hikes or shortages of products are observed.”
“It was absolutely necessary to do it and the government had postponed it for too long. They implemented the change with solid criteria, as people can still pay the same values as long as they reduce consumption,” Mariano Kestelboim, University of Buenos Aires economist, told the Herald.
About 45 percent of natural gas consumers will be affected by a 20-percent reduction to subsidies. For example, people who now pay 20 pesos every two months will start paying 40 pesos starting in August, while those who currently pay 30 pesos will from August pay 65 pesos. Higher increases will be seen in other categories of consumption.
When the three stages conclude in August, the commercial sector will see a reduction in gas subsidies of between three and 12 percent, a figure that represents increases of about 0.6 pesos per day for those who show low consumption and of about five pesos per day for the rest.
On the other hand, low-income neighbourhoods will experience a 30-percent decrease to water subsidies, middle-class neighborhoods a 60-percent drop, and high-income neighborhoods, 80 percent. People who live in Palermo or Recoleta, for example, who currently pay 32 pesos every two months will start paying 162 pesos, while those who live in La Boca will see their 27-peso bill increase to 73 pesos.
“By maintaining subsidies from 2003, we created a policy that boosted our economic growth,” Kicillof said. “People have more money to spend, and the industrial sector can create more jobs and boost its production.”
While an evaluation of electricity subsidies is pending, the reduction of subsidies to water and gas will help the government reduce expenditure, which has significantly grown in the last few years without necessarily benefiting lower-income sectors of society.
Last week, a report released by the Buenos Aires province Economy Ministry showed the wealthiest 20 percent of the population nationwide received 30 percent of subsidies, while the poorest 20 percent received just 12 percent.
In the case of gas, 32.7 percent of subsidies are concentrated among the wealthiest 20 percent of the population, while only 8.6 percent ends up benefiting the poorest 20 percent. A surprising gap was also detected in subsidies to water and sanitation, where the wealthiest 20 percent of the population receive 42.5 percent of subsidies and the poorest 20 percent, just 5.8.
“Energy is a more difficult issue since a large portion of lower-income classes use it a lot for heating their homes. It would have been too much to change that scheme as well,” La Gran MaKro economist Agustín D’Attellis told the Herald. “The idea is not to affect the most vulnerable sector but since electricity explains most of spending on subsidies, a change is bound to happen.”