RE: CAMMESA23 Nov 2020 08:41
A mix of high inflation, a depreciating peso and frozen end-user prices have led Argentine energy subsidies to skyrocket in 2020.
According to economy ministry data, in July energy subsidies rose by 33.7% when compared to the same month of last year, an extra expense of 12bn pesos (US$163mn).
Subsidies during the month totaled 65.4bn pesos, with 47.6bn pesos going to energy and the rest to transport.
The trend highlights a growing risk in Argentina’s power sector, which has come under strain in a period when rising end-user prices are deemed impractical by the governing authorities.
Energy subsidies were mostly directed at assistance for wholesale market administrator Cammesa, binational dam Yacyretá and state-owned company Ieasa, which oversees the contracting of international LNG supply.
According to Argentina’s General Mosconi energy institute, subsidies reached 169bn pesos during the first half of the year, a 102% increase over 1H19.
Cammesa has been responsible for most of that increase, as it required 240% more, or 125bn pesos, to stay afloat.
The dire situation of the wholesale market administrator can be understood by mapping out Argentina’s unusual way of dealing with power sector payments. Cammesa, which was created as a grid coordinator, in practice manages transactions between power distributors and producers.
Argentina’s power prices have been frozen since the price adjustment process was suspended in April 2019. But since some of the costs associated with power generation (natural gas and financing most prominently) are in dollars, and the peso has depreciated since then, the cost of generation has skyrocketed comparatively.
According to state-controlled YPF Luz, the average cost of generation during H1 was US$58/MWh, while users paid US$26.6/MWh, with the gap being filled with state subsidies. The company said that subsidy levels in the first half were 48% of the total generation cost, and in June the indicator reached 55%.
The issue has been further compounded by reduced collection by power distributors due to the pandemic. Although revenues for the biggest power distributors plummeted at the height of the crisis, they have seen a steady recovery since then.
Argentina has faced similar problems before. Energy subsidies grew so much between 2002 and 2015 that they represented an expense of 2.8% of GDP at their peak in 2014.
The policies that facilitated this situation, while similar to those favored by the current government, were not accelerated by an event comparable to the global pandemic, so subsidies rose slower than today.
The previous administration of Mauricio Macri made reducing the subsidy load a top priority, and it implemented an aggressive and highly unpopular policy of end-user price hikes. As a result, in 2019 energy subsidies made up 1% of GDP.
While current officials have said they see value in adjusting end-user prices in the coming years, they also made it clear that do
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