Electricity, gas and fuel increases postponed

Sharp drop in gasoline and diesel sales

There will be a different May than reported so far, increases in rates and fuels remain on standby

Luis Caputo has the last word

In the energy sector, they were informed that it is appropriate to increase, based on polynomial formulas that were defined after the latest rate updates:

They would be 10.7% for electricity distributors, 12.5% for gas distributors and 12% for gas transportation.

The Minister of Economy, Luis Caputo, is the one who will have the last word when applying the increases. The companies involved –Transener, Transba, Edenor, Edesur, TGN, TGS, Metrogas, Naturgy, Camuzzi, etc.– They expected a transfer of around 5% in the final invoices. The question that remains to be answered is how companies will deal with the debt they have with Cammesa.

“The Government does not know what to do with electricity and gas rates”

This was said by specialized consultant Daniel Gerold, who stated that the increase shocks have already failed in the Macri government. And he explains why “today no one would want to buy YPF.”

The parliamentary snub to the so-called “omnibus law” project presented by Javier Milei may not mean much for the energy sector: with current regulations, oil production grew 30% since December 2019. The industry awaits other concrete measures from the Government, which seems to be moving in a minefield of always controversial rules. According to the view of Daniel Gerold, director of G&G Energy Consultants and one of the best-reputed consultants in the field, the adjustment of electricity and gas rates could be priceless and having a brake on Justice, the full marriage of local prices with the world will be a utopia, and an eventual sale of YPF, a complete failure.

-How does the failure of the omnibus law affect the energy sector?

-Not much. The reality is that there is no need for more laws for the sector but for those that exist to be complied with. With current legislation, hydrocarbon production in Argentina increased by 30%. The current regulations They do not prevent the industry from prospering.

-But the bill of Bases and Starting Points for the Freedom of Argentines included guidelines on prices and conditions for exporting…

-It’s true. The proposed law prohibited, for example, YPF, with a state majority, from selling fuels below the import value. That is, what it costs to buy it in the world. It reaffirmed the principle of import parity for fuels and export parity for crude oil. Something that the last DNU tries to consecrate.

-Exporting at an international price is what the industry demands, particularly the non-integrated industry (which does not produce fuels).

-Internal prices have to be aligned with international prices. But it is unrealistic to do so in the current conditions of the country. What will happen to fuel prices if there is a new devaluation or if the price of crude oil, which today is close to $80 a barrel, jumps? Would it be possible to continue increasing the price of gasoline in the local market in the same proportion? I don’t think so.

-But the price of gasoline is going to continue rising.

-Exact. Around 17% or 18% at the pump, because the value of the Tax on Liquid Fuels and the Carbon Tax must be adjusted according to the Consumer Price Index for all of 2023. And to that we must add some increase in the value of the biofuel with which the cut is made and which today costs twice as much as fossil fuels. But if there were another exchange rate jump, which would make the local price of oil more expensive, or if the barrel were more expensive in the international market, that would imply an even greater increase.

-Super gasoline has not yet reached the average value in the world of approximately $1.20 per liter that refiners consider appropriate.

-That gasoline has to cost 1 dollar or 1.20 dollars per liter it is a myth. In the 90s, oil It used to cost 18 dollars a barrel and now it costs 80. So?… Should we think that at some point there was an abuse of prices? It is not easy to sustain such linear reasoning.

-A senior executive from an oil company explained it by stating that a liter of gasoline cannot cost less than an empanada…

-That is an absurd and capricious analogy. Has no sense. I also don’t think we have to go to the Kirchnerist extreme of wanting to set the price of fuel. only based on local costs or updating only by the CPI. Not only because it is an industry with part of its costs dollarized but because the investments in the sector are resolved thinking in the long term and in dollars. There’s no other way. But these issues are not resolved with laws.

-And how are they resolved?

-The problem is that the laws are not followed. But no one goes to court to report this non-compliance. The current law already guarantees export parity for oil (that Argentine crude oil is sold inside and outside the country at the international market value). But it is not fulfilled. A law does not guarantee you anything. The industry is waiting for concrete measures.

-Wasn’t the omnibus law a concrete initiative in that sense?

-The project served to generate a debate between integrated companies and those that are not about export freedom (NdR: some refiners asked the Government to reserve the possibility of preventing oil sales abroad when they demand it). The Government is studying replicating the 90s model to set competitive prices for electricity and gas. But energy today is 4 times more expensive than in the 90s. How will they do it? I can’t find a possible scheme. What I see as positive about this management is that it does not set prices for YPF.

-The Ministry of Energy is also working on adjustments for electricity and gas rates, eliminating subsidies.

-I don’t know how they will do it. I am not a fan of tariff shockss. The correction scheme should be implemented gradually over time. (Juan José) Aranguren wanted to apply a rate update in six installments and it was impossible. Will Javier Milei’s government be able to do it in just three sections? Citizens will not be able to afford that expense. And I think the Government doesn’t know what to do. The N1 sector (with the highest income) has already had the cost of some public services multiplied by 4 and continues to protect 65% of the population, delaying the subsidy cut. The issue is complex to resolve and they do not know how to do it.

-Is there a risk that increases in Justice will be stopped?

-Sure. The CEPIS ruling—which enabled collective protection against rate increases during Mauricio Macri’s government—is deplorable but is still in force. Rate increases could end up in court.

-It seems that the official dilemma is to enable prices that are attractive to licensees and potential investors and, at the same time, digestible by consumers with impoverished incomes.

-In the case of the oil industry, it is capital intensive and we think in dollars. Argentina has oil service costs and operator salaries that are more expensive than in the United States. And inputs are imported at $970 per dollar and products are exported for just over $800. That is another challenge of local politics.

-Could a law to privatize 51% of YPF be dispensed with?

-Congressional endorsement is more of a political than a legal necessity. A potential buyer would want certainty that a next government will not reverse the operation. But today no one would want to buy YPF.

-Because?

—There is no certainty that it will not end up affected by Burford’s demand for renationalization, which already has a ruling in favor of 16,000 million dollars and is in a position to begin with embargoes. It is very possible that this group will appeal the decision to exclude YPF from the lawsuit and the company will end up subject to that obligation. Judge Loretta Preska’s ruling was lapidary. I read it in detail and it accuses Argentina of wanting to evade justice. The outlook is not good.