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Argentine Senate votes 37 to 30 to freeze utility rates; Macri expected to veto the bill

Thursday, May 31st 2018 - 09:01 UTC
Full article 6 comments
Allegedly Macri had already drafted the veto, which if signed will sour a political relation with a divided opposition Allegedly Macri had already drafted the veto, which if signed will sour a political relation with a divided opposition
Economy minister Nicolas Dujovne said the freeze would cost the Treasury over US$ 3bn this year and over US$ 4bn next year Economy minister Nicolas Dujovne said the freeze would cost the Treasury over US$ 3bn this year and over US$ 4bn next year

Following twelve hours of heated and at time acrimonious debate the Argentine Senate on early Thursday voted, 37 to 30, to freeze utility prices. President Mauricio Macri had anticipated that if the bill was passed he would veto it because there is no way the budget can stand an additional 1% of GDP deficit.

Allegedly Macri had already drafted the veto, which will sour a political relation with a divided opposition, that still has a majority in Congress and feel the president has been strongly weakened following the run to the dollar and his request of financial support from the International Monetary Fund.

Government sources said that although Macri has ten days to veto the bill, agreed by an unified Peronist opposition, including the Kirchnerites and non Kirchnerites which are a majority, the president planned to do it immediately to ensure the way is clear for the ongoing negotiations with the IMF for a credit support, reinforcing the international reserves of the Central Bank.

According to the approved bill all utility rates (drinking water, power and gas) will be frozen to their last November level and can only be raised in line with the increase of salaries.

However the bill has a limited impact: the freeze applies to all gas supply since this is a national distribution; however for drinking water and power it does not necessarily apply because they depend from the provincial governments, with the exception of the capital Buenos Aires, and part of the Buenos Aires province, also under a privatized national concession.

Under the twelve years of the Kirchner couple governments, utility rates were frozen and financed by subsidies, generating huge budget deficits and lack of investments, with serious consequences for the whole raft of services.

When Macri and his administration took office, one of their first tasks was to improve utility services, promoting investments, but this meant an increase in the rates, triggering growing disenchantment, in part because of the gradualist approach by the new government.

Economy minister Nicolas Dujovne said the freeze would cost the Treasury over US$ 3bn this year and over US$ 4bn next year, when the government is committed to bringing down the budget deficit, the source of domestic inflation and high dependency of international borrowing.

However the divided opposition is not solid, and although the Kirchnerite group is full ahead against the Macri administration, other groupings argued the utility rate increases were excessive, and believed it was above all a political blow for the president, even among members of his own coalition.

In effect once the bill is vetoed, the Argentine congress needs two thirds in each house to resurrect the initiative and the opposition does not have those numbers. So the problem is not the bill but rather future relations in the Legislative.

The heated debate ignored a last minute initiative from the administration to lower the VAT on utility rates, and turned into an open clash particularly with the Kirchnerite group and their twelve year legacy of non financeable subsidies.

Members of the ruling coalition recalled that when the Kirchners reached government, Argentina exported more than US$ 6bn in oil annually, and ended importing over US$ 8bn. “This is the real reason behind the increase in the utility rates”.

Categories: Economy, Politics, Argentina.

Top Comments

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  • Marti Llazo

    “. ...electricity and gas bills have increased 1,295 per cent ...”

    Silly reekie, as always.

    The earlier rates were so low as to be essentially free. Heavily subsidised for everyone, including high-income users. The subsidies are largely responsible for the enormous budget deficit and contribute to both high inflation and the present crisis. And the 21 percent IVA doesn't come close to covering the gap.

    The government is expected to pay something like US$4.3 billion in subsidies this year just for natural gas and electricity for consumers. Meanwhile, Argentos still pay some of the lowest utilities bills in the region, even after the increases.

    The civilised nations have long practised energy conservation measures. It's time that Argentina did, too.

    There is no free lunch, reekie.

    May 31st, 2018 - 08:01 pm +3
  • Marti Llazo

    It's unlikely that ridiculous reekie will ever understand the simple economic issues here, but for those who might, let's look at the numbers.

    Argentines pay the lowest rates in the region for their utilities. But judging by the yuge demonstration today, Reekie and the Peronchos still expect essentially free services, presumably to be paid for by the simple expedients of printing more paper money and enduring the resulting high taxation and inflation.

    Argentine per capita energy consumption is also a great deal more than that of the neighbours. Could it be that when goods and services are heavily subsidised, that certain wasteful behaviours result? Why consider energy conservation or efficient building practices when your energy is essentially free? Don't even attempt to explain the economic implications of this to reekie.

    Average residential electrical consumption in Argentina 345 KwH per month.
    In Chile, less than half of that, at about 166 KwH per month.

    Average middle class electricity bill in Argentina: about US$33 (yes, essentially free - it's about US$60 in the UK). In Chile, average middle class electricity bill: about US$47. In Uruguay, about US$59
    (The Macri government provides highly subsidised special rates for low-income households, something lacking in the last peroncho government ).

    July gas consumption/household in Bs As: about 122 cubic metres
    In Santiago CL, about 67. In Montevideo, about 67.
    And of course this is imported gas, for which the government pays premium prices. Prior to the Kirchner government, the Bs As natural gas was produced domestically. No matter- heavy subsidies result in higher consumption and waste in Argentina. (Chilenos are charged an average of 3 times as much per cubic metre for their natural gas, which is also imported - compared to rates in Argentina).

    Explain some of this to Free Lunch Reekie.

    Jun 02nd, 2018 - 04:34 am +2
  • chronic


    What are the comparative energy rates in N Korea?




    Jun 03rd, 2018 - 02:50 pm +1
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