Argentine piped gas distributors highlight shrinking margins amid subsidy scrutiny

Production has become the largest component of Argentine residential end-user gas bills while the shares corresponding to distribution and transport have fallen.

Gas production accounted for an estimated 39% of an average bill last year, up from 17% in 1992, Daniel Martini, director of local piped gas distributor association Adigas said in a presentation. Distribution accounted for 24%, down from 38%.

Last year taxes accounted for 27% and transport 10%.

On SME gas bills, the contrast is more pronounced, with the production element rising to 56% from 27% and the distribution component falling to 7% from 26%.

Martini spoke during a public audience held to discuss government end-user gas subsidies. The event took place as the country works to trim its hefty energy subsidy burden and advances in talks with creditor IMF, which has urged the cash-strapped government to address spending in this area.

This year, as things stand, the state will end up subsidizing, for priority users, 70.9% of the cost of gas produced under incentives scheme Plan Gas, according to a government report. Authorities would have to find an extra 81bn (US$771mn) to top up funds assigned in the 2022 budget. Total associated government outlay would reach 305bn pesos.

Priority users correspond chiefly to the residential sector.

So that funds earmarked in the 2022 budget would suffice, gas price subsidies for priority users would need trimming to around 44%, down from 70.9%. The other final bill component is taxes and other charges.

Nationally produced gas is forecast to account for 84% of supply geared to meeting domestic demand this year, with Bolivian piped imports at 7% and LNG 9%.

Martini urged authorities to implement any changes in the gas-production subsidy scheme via a pass-through mechanism and to ensure that distributors are not negatively impacted. He also reiterated a call by distributors for higher revenue, “so that the bills issued by each distributor reflect in a more balanced way the economic-financial needs of the different segments of the industry.”

Last year Adigas members distributed 31.7Bm3 of gas to around 9mn users. Investment in 1993-2020 was US$3.51bn.

Distributors have cited the impact of sub-inflation price increases on revenue and, in turn, investment. Gas transport companies have also made similar complaints.

A public audience was held this month to discuss the “temporary adjustment” of gas transport and piped-gas distribution rates

Against this backdrop, officials are working on an end-user gas price segmentation scheme as part of a wider push to reduce fiscal imbalances by trimming energy subsidies. Energy think tank the General Mosconi institute, citing data from budget and financial administration association ASAP, said overall energy subsidies from January-October 2021 were 850bn pesos (currently around US$8bn), up 138% year-on-year.

All eyes are on government-IMF talks and what commitments – including in the sphere of subsidies – are made to help restore macroeconomic stability.