The federal government should not regulate utilities in AMBA - IDESA

Report Nº: 98628/10/2022

The federal government should not regulate utilities in AMBA

In order to avoid the collapse of the agreement, the IMF had to loosen the targets given the very high inflation. The main cause of inflation is the monetary emission demanded by economic subsidies. This will not be solved with the delayed segmentation of tariffs but with a reorganization of the State.

The IMF Board of Directors considered that the targets set in the agreement with Argentina were met in the second review as of June 2022. The technical document explains that this was possible because the targets were made more flexible in the context of higher inflation. For example, the original fiscal deficit target for June 2022 was AR$567 billion and the deficit observed was AR$800 billion. IMF staff agreed to adjust this target to AR$849 billion due to the increase in prices. With this change, the IMF was able to consider that the commitments had been fulfilled, thus avoiding the collapse of the agreement.

For the IMF, rising inflation is tolerable. But for the population, especially the most vulnerable, high inflation is becoming increasingly intolerable. This makes it a priority to reduce it. Although inflation is a multi-causal phenomenon, in the current context, monetary creation has a decisive central role. For this reason, and with no margin to increase taxes, it is urgent to lower public spending.

To identify the components of public spending that could be revised in order to mitigate inflation, it is useful to focus on economic subsidies. According to ASAP data, the following magnitudes can be projected for 2022:

  • Energy subsidies amount to 3.0% of GDP. 
  • Transportation subsidies amount to 0.7% of the GDP.
  • Subsidies to AySA, the water company of the metropolitan region, amount to 0.2% of the GDP.

These data show that economic subsidies are equivalent to 3.9% of GDP, more than the projected deficit for 2022, which is 2.5% of GDP. If these subsidies could be reduced, monetary issuance could be reduced and, with it, inflation. This is the reason why it is urgent to lower subsidies. In the face of this challenge, the segmentation of tariffs is unproductive. Both because its instrumentation is very complex and because it does not solve the problems. 

CAMMESA absorbs an enormous amount of public resources in the electric administration. Mostly because it buys energy at a higher price than it sells it to the distributors. But also, because the electricity distributors do not pay CAMMESA for the energy it sells them. So much so, that the 2023 budget foresees that the federal government will be able to deduct from the provinces the debts generated by their electricity distributors with CAMMESA. The logic is that, if a province regulates electricity prices below costs, it will be the province responsible for the loss, instead of socializing it by accumulating debts with CAMMESA. 

But in the AMBA (metropolitan region) it is the federal government that regulates electricity prices. Therefore, the mechanism proposed in the budget cannot be applied to the main debt generators with CAMMESA, which are the companies Edenor and Edesur. In other words, energy subsidies for the interior of the country are erased but maintained for the AMBA. A similar distortion is observed in the subsidies to urban transport, where most of the subsidies go to trains and buses in the AMBA and a smaller part to buses in the provinces. An extreme situation occurs with AySA (the water company in AMBA), which sucks an enormous amount of federal funds as subsidies.

Reducing subsidies is urgent and a priority. The general approach should be that tariffs should reflect costs and contemplate social tariffs for low-income families. The social tariffs should be administered by the provinces, not only because this is the distribution of competencies established in the national Constitution, but also because it is the only way to contemplate the particularities of each region in terms of climate, public services coverage, and social situation. But, for this, the federal government must cease to be in charge of the regulation and management of public companies in the areas of electricity distribution, urban public transport, and water in the AMBA.


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