In the next few hours, the new increases in electricity and gas bills will be made official, which will begin to take effect this month. This time the increases will be explained by a reduction in subsidies that will mainly impact residential sectors classified as medium and low income according to the current rate segmentation.
The Government seeks a fine tune between fiscal balance and supporting the slowdown in inflation, at a time when energy prices are usually higher. That is why they are also preparing a new monthly indexing system.
The keys to understanding the new increases can be summarized in the following axes:
It is important to understand that the strong increases in the first quarter, around 350%, occurred in two components of the bill: energy transportation and distribution. As made official last week through Decree 465/2024, the Ministry of Energy of Eduardo Rodríguez Chirillo will advance the percentage that users pay of the generation costs, which for electricity is known as the Seasonal Energy Price (PEST) and for natural gas is the Point of Entry to the Transportation System (PIST).
It is at this last point where the subsidies paid by the Argentine State are channeled on the difference between the “real cost” of energy and what users pay. The Treasury compensates the generators with transfers made through Cammesa, the administrator of the Wholesale Electricity Market.
It happens that according to the current segmentation scheme, not all users pay the same for that cost. The residential areas are divided into N1 (high income), N2 (low income) and N3 (middle income). Only N1, businesses and industries should pay the full price of energy on their bills.
On the other hand, to take into account, 7 out of 10 users (N2 and N3) pay 3% to 4% of the real cost of electricity and between 15% and 20% of natural gas, as revealed by the Interdisciplinary Institute of Political Economy (IIEP) from the UBA and Conicet. The Government now wants to move forward in reducing that difference.
The IIEP economist, Julian Rojo, graphed what the subsidies represent for these segments in the case of electricity: “It must be taken into account that 2 out of every 3 households would have to multiply the final electricity bill by 8-10 times to not receive subsidies. Paying 25% would be an increase of $2,200 in the wholesale price for those homes against about $70,000 needed to cover the cost.”
In winter, in the May-September period, energy prices are usually more expensive than in the summer period. Therefore, those differences will be even greater. The Government delayed the publication of the Pist and Pest, which is what it will advance in the next few hours.
Distributors and transporters (Edenor, Edesur, Metrogas, Naturgy, Camuzzi, TGS, TGN, among others) remain dissatisfied with the decision to postpone their increases again, a measure that the Minister of Economy had also taken, Luis Caputo, for May. In addition, work is being done on a change in the monthly update system that had been defined in the last public hearings as confirmed. Infobae with market sources.
An alternative is to use the future inflation expectations published by the BCRA in its Survey of Market Expectations (REM). The income that companies do not receive for May and June would only be recognized by the State next year.
It happens that the strong increases in electricity and gas that occurred in the first four months were to restore the income of distribution and transportation companies to the average 500%, after the freeze applied by the previous Government. Therefore, this did not imply a reduction in subsidies.
Through Decree 465/2024, the Ministry of Energy led by Eduardo Rodríguez Chirillo was authorized to increase the amount that N2 and N3 users pay in the price of energy, as confirmed Infobae with official sources. There, a transition scheme is proposed between June and November, with the possibility of extending it for six more months, to advance towards the implementation of the a Basic Energy Basket (CBE).
Energy has not yet specified what the magnitude of the subsidy reduction will be and, therefore, neither what percentages will be the rates by which they will increase. Anyway, there were some important definitions.
N2 consumption is fully subsidized regardless of how much electricity or gas they use. They hope to implement a system of consumption caps with state assistance, but higher than the N3 and with steps.
Regarding this, we will seek to avoid the overlap of other subsidies such as the social rate, benefits for cold zones, jugs, among others. There will also be new exclusion criteria that will be more restrictive than the current one, such as car ownership, prepaid bills or the purchase of dollars.
The segmentation that Fernández launched in 2022 contemplated that the increase in rates for the N2 could not exceed 40% of the CVS of the previous year and for the N3 the limit was 80% of what the variation of the indicator would show.
Chirillo’s aspiration was to resolve this front with the implementation of a new subsidy allocation scheme based on the CBE, where the subsidies would be the difference between a certain percentage that the rates represent in a household’s income depending on the area. geographical location in which it is located.
First it was going to be applied in April, it went to May, then to June and now it was postponed until at least November. Meanwhile, progress will be made in this “transition scheme.”
