2023-09-24 05:49:11
The policy that began in 2003 led the economy to lose energy self-sufficiency and ended up importing energy for a total of USD 125 billion in 20 years, in addition to accumulating a trade deficit in the sector of USD 36 billion since 2011.
The policy that began in 2003 led the economy to lose energy self-sufficiency and ended up importing energy for a total of USD 125 billion in 20 years, in addition to accumulating a trade deficit in the sector of USD 36 billion since 2011.
Most of the cost was financed by the State, granting subsidies of more than USD 150,000 million, due to the deliberate tariff delay that it maintained for two decades.
The magnitude to be financed generated a structural deficit in public finances and ate up a good part of the trade balance, in addition to the BCRA’s liquid reserves.
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The tariff segmentation that the Government agreed with the IMF to reduce subsidies and exit this scheme only reached a small part of the demand, leaving intact for the next government the mortgage of tariff delays, price dispersion and poor performance in targeting. of subsidies.
The next president of the Nation will once again have to dismantle energy populism. The recomposition of rates will not only seek to lower subsidies and balance public accounts, but also to remake the pricing system that allows attracting private investment, in addition to recovering the self-sufficiency lost these two decades.
The recomposition of rates by the next government will not only seek to lower subsidies and balance public accounts, but also to remake the pricing system.
The notorious productivity of Vaca Muerta provides the opportunity for the sector to be reborn, but it will only see the light within the framework of a new economic and energy policy.
The lower price of liquefied natural gas (LNG) in international markets allowed energy imports to be reduced by 40% in the first 8 months of the year, up to a total of USD 5.4 billion. It is expected that throughout the year they will total USD 7.9 billion, compared to the record of USD 12.9 billion the previous year.
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The lower price of energy led to a reduction in spending on energy subsidies. In the first seven months of 2023 they grew 68% year-on-year, compared to primary spending that increased 99% in the same period.
In real terms, primary spending fell 5% year-on-year so far this year, but energy subsidies decreased 19% in the same period.
According to the agreement with the IMF, energy subsidies should fall by 0.5% of GDP this year, to a total of 1.5% of GDP. But most of the decline responds to the international context. The tariff segmentation that the government began a year ago showed almost no macroeconomic impact.
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According to the agreement with the IMF, the Government should have issued a resolution in August, effective as of September 1, that contemplates new increases in the prices of electric energy paid by subsidized low- and middle-income users.
The National Executive Branch not only did not advance in the commitment, but also intends to “step on” rates until the elections, making it difficult to meet the objective of reducing subsidies in the amounts established in the agreement with the organization.
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Where there was no agreement was with the price of gas. At this point the IMF report mentions: “IMF staff and Argentine authorities also discussed the need to align natural gas prices with changes in production costs during the remainder of the year and agreed to return to the issue in the framework of the next review.”
The segmentation of subsidies has been in force for one year and perhaps the greatest achievement of this instrument has been to bring to light the inconsistency of the tariff policy of freezing and intervening prices and rates in an environment of high inflation.
Contrary to the world, which focuses subsidies on the vulnerable population, segmentation was responsible for searching and identifying 30% of households with high income or with the ability to pay the full rate. Result: 70% of low- and middle-income families will end 2023 paying electricity bills that will represent less than 10% of the cost of energy consumed.
Contrary to the world, which focuses subsidies on the vulnerable population, segmentation was responsible for searching and identifying 30% of high-income households.
In August, subsidy coverage for low- and middle-income households was close to 85%. In numbers, after tariff segmentation, a residential electricity bill with an average consumption of 300kws/month, without subsidies, amounted to $22,500 in August, while the same consumption, but in a bill with a subsidy, does not exceed $3,000 in the same period.
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Similar levels of subsidies are observed for natural gas.
The rates do not cover even 15% of the real costs for the majority of the population.
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The great tariff mortgage that segmentation will leave for the next administration will not only be the tariff delay, but also an enormous dispersion of energy prices, both in gas and electricity, which goes against the rational use of energy, the taking of investment decisions and any efficient subsidy targeting mechanism.
The debts of the electricity distributors with the Administrative Company of the Wholesale Electricity Market Sociedad Anónima would reach 0.4% of GDP, and experience shows that they will end up liquefying in very long-term payment plans and at interest rates below inflation.
Since Cammesa does not pay for all the energy it purchases, it accumulates debts with generators and gas and fuel suppliers. The debts of the State with gas producers are added, for compensation from the Gas AR Plan and those of gas distributors with producers.
Since Cammesa does not pay for all the energy it purchases, it accumulates debts with generators and gas and fuel suppliers.
These State debts not only put the system’s payment chain at risk, but at the end of the year they could accumulate 0.5% of GDP, and sooner rather than later, they will add to the final account of economic subsidies.
Therefore, to the energy subsidies account (almost 2% of GDP), 0.5% of GDP needs to be added for Cammesa’s debts.
More than 20 years have passed since the traumatic exit from the convertibility regime and the system of energy prices, tariffs and subsidies continues without being normalized.
Energy populism explains a large part of this period, and the results are evident: in the last 4 administrations alone, USD 150 billion were allocated to energy subsidies, energy imports amounted to more than USD 125 billion, and energy trade balance deficits amounted to almost USD 36 billion. .
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But tariff facilitation also has implications for infrastructure. Deficit in generation (30% of the generating park out of service in the last peak of electricity demand), deficit in electric transportation (which does not allow progress in the expansion of renewable energies), deficit in distribution networks (evident in the peaks summer consumption).
There is also a deficit in gas transportation infrastructure. Even with the inauguration of the Néstor Kirchner gas pipeline that will partially replace LNG imports, the reversal of the Northern Gas Pipeline appears as an essential work for supplying the center/north of the country in the coming winter, given the imminent cut of supply from Bolivia.
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The deficits in the energy sector are major challenges for the next administration since they affect the entire macroeconomy. To the fiscal accounts via subsidies, to the trade balance due to energy imports, to the possibility of accumulating BCRA reserves.
But even with a complex panorama, the potential of the sector is undeniable. The increase in oil and gas production was achieved only with minimal test tube investments to confirm the productivity of Vaca muerte, pending a better macroeconomic context to exploit it.
Even with a complex panorama, the potential of the sector is undeniable
To unleash the potential of the sector, the reform agenda does not necessarily involve new laws, tax benefits from uncertain tax expenditure or guarantees of access to an exchange market full of restrictions.
On the contrary, a stable macroeconomy, without inflation and with price rules aligned to border parities, normalization of the exchange market, reduction of country risk, tariffs that reflect production costs, export without quotas and a system of subsidies limited to vulnerable population, appear as unavoidable points of the energy economy for the next administration.
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