The Government authorized a new increase in fuel prices and announced the removal of energy subsidies

The Government authorized a new increase in fuel prices and announced the removal of energy subsidies
The Government authorized a new increase in fuel prices and announced the removal of energy subsidies

While going through a deep economic recession, the national government advanced this Tuesday in a series of measures with a direct impact on the pockets of citizens by applying a fuel tax update and announce a schedule for the total elimination of subsidies on electricity and gas rates.

The projected numbers are particularly alarming, given that in 30 days gasoline prices could accumulate an increase of 30%.

After postponing the increase in the fuel tax corresponding to May to sustain disinflation, the Executive published this Tuesday in the Official Gazette Decree 466/2024 in which it established how the pending increases will be applied.

The rule established that as of June 1, the tax increases 8% ($11) and goes from $132 to 143 per liter, which increases the final price 1.2% for gasoline and 1.5% for diesel oil. But the value at the pumps could increase between 4% and 5%, because the increase determined by the oil companies based on their profitability will be added.

Likewise, the decree indicates that the updates corresponding to inflation for the fourth quarter of 2023 and the first quarter of 2024 will be made as of July 1.

At that time, the tax would have an increase of 115%, increasing from $143 to $306 per liter, and would promote a minimum increase of 16% in Córdoba, to which the increase in oil companies would also be added.

If these steps are followed, the value at the pumps can increase more than 30% in 30 days.

This projection is a threat to the pricing system since updates may be brought forward to address higher costs.

Light and Gas

On the other hand, the Government also announced a plan to completely remove subsidies from the middle class and lower-income sectors (users classified as N2 and N3) in less than a year.

Through Decree 465, it established a “Transition Period” that runs from June 1 to November 1 – extendable for another six months -, a period in which there will be no rate increases and progress will be made in the preparation of the Basic Energy Basket (CBE) and the design of the subsidy elimination program.

“The objectives of the new scheme are: to transfer the real costs of energy to users; promote energy efficiency; and ensure vulnerable residential users access to the essential consumption of electrical energy, gas through networks and bottled gas,” the Government stated in the foundations of the standard.

The Executive considered that “it is convenient to begin the transition towards a targeted subsidy scheme,

By definition, the CBE contemplates the basic electricity and gas consumption needs of households, for each month of the year, according to their geographical location according to the map of bioenvironmental zones.

On that basis, the government will try to design a much more limited state aid scheme aimed at the most vulnerable sectors.

The doubt lies in the speed at which these changes will be implemented and the tolerance of society given that in many provinces there were strong complaints about the current level of rates.

Accelerating this process can complicate the scenario during the second half of the year if economic activity does not recover, but moving it to 2025 can be a major obstacle in the face of the crucial mid-term legislative elections.

The decree annulled the limits regarding the wholesale price in the energy component, of N2 (40%) and N3 (80%) based on the Salary Variation Coefficient (CVS).

“These CVS limits prevented us from continuing on the path of price and rate correction promoted by this Government,” the Government stated.

The rule published today empowers the Ministry of Energy to generate the appropriate framework for “a gradual and orderly transition.”

The parameters set for this objective are:

* Establish caps on subsidized consumption volumes for residential users of all categories and segments.

* Set the level of discounts and bonuses for low- and medium-income users and establish the collection scheme for excess quantities consumed by users at wholesale prices, in accordance with the tariff tables approved by the competent authorities in each jurisdiction. .

* Review the maximums to be subsidized and the segmentation criteria for users who receive subsidies, with the objective of establishing a single category of residential users who require assistance to access essential energy consumption.

* “Invite” users to re-register in the Registry of Access to Energy Subsidies (RASE) and determine the mechanisms to compensate companies for the lower income produced by the subsidies.

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