Tariff increases: Not before November

Gas and electricity tariffs in Argentina are not expected to increase until November at the earliest, and possibly not until next year, industry sources told BNamericas. With provincial elections scheduled for October, President Nestor Kirchner's government is unlikely to discuss unpopular tariff increases before then. "If you increase tariffs today, you will lose the election," a source at local energy company Petrobras Energia told BNamericas, adding, "After November, it's another issue." Others disagree, and one analyst who asked not to be named said that tariff increases are simply not on Kirchner's agenda. Another analyst, Fitch Rating's Jason Todd, agreed that nothing would happen before the elections and said that tariff increases "probably won't happen this year," as the government has said that it will work on the issue through December 2004. It is widely acknowledged that emergency tariff increases are necessary to maintain the level of service, with many companies defaulting on debts and cutting already-low investment in gas production. A senior industry source said that the Neuquen basin could continue to meet contracted demand for the next 11 years even at today's investment levels, but Fitch's Todd said that gas supplies could fall to levels where there would be shortages in the next southern hemisphere winter. In the power sector, generators are only just managing to make fuel purchase payments, and blackouts are a real possibility "within months," Todd added. The Petrobras Energia source said that tariff increases in the power sector would likely be 15%-18% for industrial clients, about 10% for commercial or large-scale consumers and zero for low-income residential customers in line with the government's idea of a social tariff. Industrial clients are able to afford higher tariffs because today electricity is absurdly cheap, the source said. "There is an over-use of electricity by major consumers in Argentina at the moment, because at US$10-11/MW, it's almost free," the source said. "It has to be a tariff increase that differentiates industrial and commercial clients from residential clients who don't have the resources to pay," the source said, adding, "This way people with limited resources will not be affected, but it will liberalize the electric market in some way." An increase in power tariffs would have the immediate effect of allowing generators to meet fuel purchase payments, and in the gas sector the turn around time between a rates increase and more development would likely be around a year. "What is sure is that no tariff increases for anyone won't work in the long-term because there won't be any electricity," the Petrobras Energia source said, adding that differential tariffs is "not an ideal solution, but it's an emergency solution."