Chainsaw without teeth: energy subsidies could surpass the Massa era

The energy subsidies They are the Achilles heel of the national state’s expenses, to the point that last year they represented about 1.5% of the Gross Domestic Product (GDP) with its almost 10,000 million dollars. Javier Milei’s management came to government with the mission of dynamiting this waste and eliminating it almost completely, but it could be said that “things happened” since due to a series of factors Subsidies, far from shrinking, rose and they are aimed at matching the level of disbursements of the management of Sergio Massa and Alberto Fernández.

He plan prepared by the Secretary of Energy of the Nation, Eduardo Rodríguez Chirillo, was clear: first recompose the value of the rates to their real costsince the rates had been late for years.

Once the real cost of gas and electricity has been established, theThe second leg of the plan was the application of a new subsidy system called the Basic Energy Basket (CBE). through which a second chainsaw was passed to the State contributions, which promised not only to reduce the funds to be contributed to a minimum, but also to make them predictable, being a fixed amount to be assigned to a super-reduced universe of families to be subsidized.

But as former president Mauricio Macri said, things happened, and The plan, six months into the administration, not only remained lame, without being fully implemented, but on the contrary, subsidies skyrocketed and today they are proportionally higher than in December, when Milei took office.

According to the recent report of the Interdisciplinary Institute of Economics and Politics (IIEP) of the UBA-Conicet, In this month of May, the average residential users in the country only covered 17% of the cost in the case of natural gas and 14% in the case of electric energy with their bills, thus The subsidies must provide the remaining 73 and 76%, respectively.

chainsaw without teeth

The reasons behind the increase in subsidies There are several and they begin in the first days of Javier Milei’s government, when devalued the Argentine peso by 100%. This led to the portion of energy costs covered by users being liquidated, since practically all rates are dollarized.

Starting from that delay amplified by the devaluation The government launched its rate update planstarting in February with electric energy and in April with natural gas.

However, The second increase was due to take place on May 1st. in both services, which in the case of natural gas was more than important since it brought the PIST price – the basis of the invoices – to winter values, that is, from less than 3 dollars per cubic meter, to about 4, 50 dollars.

But this did not happen. It was not the Ministry of Energy but its mother ministry, that of Economy, which chose to put a handbrake on increases in an attempt to stop inflation and postponed, with no new date in sight, the updates of gas and electricity rates.

The evolution of subsidies was reflected in graphics by the IIEP.

In practice this led to sectors of society that today are paying only 4% of the real cost of energyas detailed in the IIEP report.

The case of the electrical energy is the most notable. In December last year, a user from the high-income group (N1) covered 100% of the cost, but in this month of May its rate covers only 65%. For a user in the intermediate segment (N3) the electricity rate covered 18% in December, and fell to 5% in May, with the freeze ordered by the Nation.

While for the lowest segment of society (N2) in December the electricity rate covered 15% and in May it only represented 4% of the generation cost.

In it gas segmentthe increase applied in April was proportionally much higher – 850% versus 300% in electrical energy – which allowed improving the coverage that users provide with their rates, but thatIt’s still a long way from the chainsaw that management was looking for.

of the cost of electrical energy is what users in the lowest segment pay. The rest is covered by subsidies.

In detail, N1 users went from paying 35% of the cost of gas to covering 51% with their rate. Those in the intermediate segment, which last December covered the 13%, now they cover 20%and the lowest segment went from covering the 10% to cover 14%.

Although this is progress, the concrete thing is that it is still The State continues to allocate subsidies for 73% of the cost of gassince in the best of cases – high-income users, businesses and industries – only cover half of the cost, even despite having had an increase in rates of almost 900%.

Inflation, wages and default

As mentioned, the government stopped rate increases this month in a clear prioritization of controlling the inflationin which it is estimated that only gas increases would have an impact of 4%. This meant relief for middle and lower class households who, despite the values ​​previously analyzed, have seen the incidence of tariffs increase on their income, which in most cases lags behind inflation.

While There is no clarity on whether the government will be able to move forward with the implementation of the CBE to reduce subsidies, the failure of attempts to pass on the cost of liquefied natural gas (LNG) to the distributors will lead the government to have to add hundreds of millions of dollars to subsidies just for that item.

In detail, Enarsa has already put out to tender two tenders for 20 shipments in total that they demanded 419 million dollars. The government’s goal was to pass on this higher cost to the distributors – about 12 final dollars per million BTUs versus the 2.90 that the rates contemplate today – but the companies rejected it due to the impossibility of being able to pass it on to the users. Put more clearlyThe Nation wanted the companies to absorb this more expensive gas at a loss, and failed in the attempt.

From the Economy and Energy consultant It was noted days ago that “in order to achieve fiscal and financial surplus, There was an artificial contraction in subsidies for the energy sector during the first quarter of the year, which were reduced by 63% compared to the same period last year.”

But it was warned that “The retraction of subsidies translated into an increase in the State’s debt with electricity generators and gas producers, among others”.

With a volume of energy subsidies that could once again escalate to 10 billion dollars, The default carried out by Nación on the debts of the Wholesale Administration Company of the Electricity Market (Cammesa) could also generate much deeper damage than thought.

He head of G&G Energy Consultants, Daniel Gerold, He warned in this regard that “it is very difficult to understand what the government is doing. It is a gigantic problem what they are doing and it is very unreasonable because precisely is contradictory to the message you are trying to send”.

And he warned that “there are officials from certain sectors, who evidently believe that investment is the same, that it is indistinct, and that is not the case.”

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