Energy Minister Juan José Aranguren today appeared before a special committee comprised of representatives from the Chamber of Deputies to justify the steep increases in utilities, collectively known as tarifazo.
Speaking before 114 deputies — roughly half the chamber’s members — Aranguren began by explaining how, according to his reports, the country is caught in an “energy emergency” due to what the Macri administration calls the “K [Kirchner] inheritance” (or what it considers to be the “dismantled” state it received from the former administration, the result of what it deems to have been economic mismanagement, corruption, etc.).
“During the last 12 years, Argentina’s energy went from being abundant and cheap to expensive and scarce. Prices were distorted and set at will. [We found] there were distribution issues; high subsidies; obsolete infrastructure; prices below the costs needed to generate energy; prices that had artificially been kept low. As a result, the quality of the service kept deteriorating as time went by,” Aranguren began.
In fact, according to La Nación, electricity, gas and water subsidies represent “roughly 75 percent of the large fiscal deficit left by the former administration”: “Another 10 percent is explained by subsidies to other companies while only 15 percent is applied to welfare plans,” the article adds.
According to Aranguren, these “artificial prices affected the investments needed to provide a better service” and that the lack of a coherent price system led to “subsidizing wealthier populations to the detriment of the most vulnerable ones, as well as subsidizing the City and Province of Buenos Aires to the detriment of the other provinces.”
“Starting in 2003, there was a continuous drop in production and a rise in imports. In 2010 we imported all our energy, despite being the second country in the word in terms of oil and non-conventional gas reserves,” Aranguren said.
Aranguren went on to say that this policy led the Kirchner administration to increase the fiscal deficit to keep artificially low prices, “something that led to more taxes, higher inflation and less investment in infrastructure, which resulted in low quality service.” He provided the following figures to justify his statements:
- “Over US $24 billion and US $52.4 billion were spent on gas and electricity subsidies during the last 12 years overall. Look at the Central Bank’s reserves [which usually oscillate around US $30 billion] to understand the subsidies’ magnitude.”
- “In 2004 users on average suffered four power outages a year. That number rose to nine in 2014. In 2004, each power outage lasted an average of six to nine hours. In 2015, they lasted between 27 to 34.”
- “He have determined that there was 1,600 percent accumulated inflation throughout the last 12 years. Electricity bills rose by 40 percent, while gas bills rose by less than 200.
Moreover, the minister said that the increases are far from representing a shock policy, as “subsidies went down from representing 89 percent of the cost to generate electricity in Argentina to 70 percent.” By this, he was assuring he actually implemented economic gradualism, which consists of, as its name indicates, gradually applying economic policies aimed at fixing perceived problems while avoiding hurting people in the process. In contrast, shock policies are the equivalent of ripping off a band-aid.
According to figures from the Energy Ministry, 87 percent of users’ bills increased by less than 500 percent and, out of that 87 percent, 83 percent had to pay less than AR $500.
Aranguren defended his administration’s actions by saying that, even with the increases, Argentines would still pay way less for their utilities than neighboring countries: “In regards to electricity, Argentines pay US $11 per kilowatt per month, while [neighboring countries] pay an average of US $46. When it comes to gas bills, we pay about 18 percent of what Uruguayans, Chileans and Brazilians pay,” the minister finished.
At the moment this article is being written, deputies are taking turns presentig their questions to Aranguren. According to the special committee’s president, Luciano Laspina, the whole process could take six hours.
The Supreme Court is set to issue a definitive ruling over the utility bill increases. Let’s recall that Argentines currently don’t have to pay their electricity or gas bills after various members of the judiciary banned the increases throughout the country.
The most important decision the court will have to make, should it approve the increases, is whether they will be retroactive to the moment they came into effect.
Why? If increases were to be retroactive, people would have to pay several months of non-applied increases. The Macri administration could allow people to pay in installments, but this would likely also be met with general discontent, considering people would suddenly find themselves in rather large debt. If they aren’t retroactive, however, the government will be the one in financial trouble, because it will have subsidized energy consumption for a large part of the year, something that wasn’t in its plans. Should the increases be annulled, the Macri administration will need around AR $80 billion to face this new expense. Much of the government’s economic plan will be defined this week.