July 23, 2014
Report: Gov’t to OK electricity rate hike
Report claims Edenor and Edesur will be allowed to almost double prices by the end of the yearEdenor and Edesur, the country’s largest electricity distributors, will be allowed to almost double their electricity prices under a new plan to reduce subsidies which would be announced soon by the federal government, two officials briefed on the plan who asked not to be identified told the Bloomberg news agency yesterday.
Edesur would increase its prices to 175 pesos per megawatt-hour gradually before the end of the year from 95 pesos currently. The new arrangement would be announced next month once the remaining four provinces agree to cap prices, the officials allegedly told Bloomberg.
This move would come after a cut in subsidies on natural gas and municipal water of between 17 and 80 percent that was announced last month for residential and commercial users. The industrial sector was exempted from the cuts that will ultimately increase final water bills between 70 and 400 percent, while gas prices will rise between 100 and 284 percent.
“It’s highly likely the government will announce a cut in electricity subsidies soon,” Jorge Lapeña, a former Energy secretary during Raúl Alfonsín government who is critical of Kirchnerite policies, told the Herald. “It seems like the government is trying to freeze electricity prices in all the provinces except on the metropolitan area in order to authorize an increase later.”
Authorizing Edenor and Edesur to raise their prices would allow the government to reduce subsidies sent to both companies by an average 25 percent, according to Bloomberg. Last year, the government’s spending on energy subsidies far outweighed other economic subsidies, receiving 84.4 billion pesos, a 47 percent increase from 2012.
“It’s a necessary measure in order to make electricity costs fairer in all the country,” Alejandro Robba, economist and director of the Economy career at the Moreno National University, told the Herald. “Nevertheless, it should be a gradual process and all subsidies shouldn’t be eliminated. An analysis has to be made to establish in which areas bills should rise and in which they shouldn’t.”
Despite their political differences Sebastián Scheimberg, energy research in the PRO think-tank Fundación Pensar largely agrees with Robba on the need to cut subsidies. “After announcing a subsidy cut on gas and water, the government has to do the same with electricity. If they don’t, people could choose to start using electricity as a power source to their appliances instead of gas, which will now be more expensive,” Scheimberg told the Herald. “Not cutting energy subsidies makes no sense.”
Anticipating a cut in electricity subsidies, last month the government began offering as much as 200 million pesos for infrastructure project funding to each province, asking for a freeze in power distribution prices for a year at December 31 levels. The average rate per megawatt-hour paid to provincial distributors is 200 pesos, one of the officials told Bloomberg.
There are now 19 provinces that have agreed to freeze rates in exchange for federal government funding of infrastructure works: Santiago del Estero, La Pampa, Jujuy, Chaco, Formosa, Entre Ríos, Tucumán, Córdoba, San Juan, La Rioja, Río Negro, Santa Cruz, Catamarca, Corrientes, Misiones, Mendoza, Neuquén, Buenos Aires and Tierra del Fuego.
The most expensive
Of all the public utilities, electricity subsidies, which mostly benefit those living and working in Buenos Aires City and its suburbs, are what costs the government the most money. And it is the subsidy that is in most evident need of change after more than a decade in which rates have been practically frozen. Almost two-thirds of residents in the Greater Buenos Aires area have not seen their electricity rates increase since 2001.
Of the 84.4 billion pesos spent on energy subsidies last year, the largest recipient was the wholesale power sector regulator, Cammesa, which received a total 33.9 billion pesos, while state-owned Enarsa received around 31.2 billion pesos, according to an analysis by the non-profit Argentine Association of Budget and Public Finance Administration (ASAP).