Florencia Barragan 
Water, power, and transport subsidies are down 15% for the January-May period, compared to the same period last year.
The reasons behind the drop are mostly higher power and gas prices as well as the establishment of tariff segmentation based on users’ registered income. While the government will not fulfill the International Monetary Fund’s (IMF) fiscal goals due to the effects of the historic drought, it does aspire to over comply with the annual spending quota on power subsidies.
Energy subsidies have dropped 16.1% YoY in the January-May period, according to the latest report by the Tariffs and Subsidies Observatory of the Interdisciplinary Institute of Political Economy (IIEP) run by the University of Buenos Aires and the National Board of Scientific and Technological Research (Conicet).
Disbursements to power company Energía Argentina (formerly Enarsa) reached AR$466.9 billion, a 146% jump in real terms due to the advanced purchasing of ships carrying natural liquified gas.
However, payments to [power distribution company] Cammesa were issued for AR$ 440.3 billion, a 49% reduction in real terms. Tariff segmentation was still not implemented in the same period of 2022, when power prices reached record values due to the war in Ukraine.
With 79% of the total, the energy sector is the main subsidy beneficiary. Unlike 2022, there were no disbursements for the first three rounds of the production-boosting program Gas Plan in the first five months of this year, but the latest stage —Gas.Ar Plan— received AR$32.3 billion, an 189% increase in real terms compared to the previous year.
Water subsidies were down 28% for the January-May period, while transport fare reduction was 9.6%. Railway subsidies had the greatest increase in percentage terms (+34%). Until May, national airline Aerolíneas Argentinas had received no subsidies.
Most transport subsidies go to its infrastructure system fund, which finances subsidies on passenger transport: AR$112.7 billion, a 19% increase in real terms. Revenue managed to cover 11% of the service provider’s costs in January 2023, a number that is expected to climb to 17% in August, even when the Economy ministry has determined monthly rises in transport fares due to inflation.
The research center also highlights that floating debt in terms of subsidies has shrinked, and payments to Cammesa normalized in May. However, despite the Energy Secretariat setting seasonal prices until October 2023, not all distributors have applied them to their price lists; the report warns that the “mismatch” between the prices each distributor is charging and what they’re paying may have an effect on their debts with Cammesa.
Subsidies and the IMF
Subsidies are a key part of public finances. According to IIEP, they accounted for 12% of primary spending in the first quarter of 2023. That’s 2 points less than the same period for 2022, but “doubles the average amount seen in 2020 and 2019.” Subsidies have, in fact, accounted for 83% of primary spending.
Government sources said discussions over subsidies are not currently part of the negotiation with the IMF. “Thanks to the [Nestor Kirchner] gas pipeline, lower costs and higher temperatures, we will overachieve this year’s goal,” said a high source in the Secretariat of Energy, which is led by Flavia Royón. However, they will be monitoring the impact of inflation. A comprehensive tariffs review was set in motion this month, and a new public hearing is scheduled for November.
Although segmentation meant large increases for high-income users, the IIEP report states lower-income sectors experienced a heavy drop in their power bills. Tariffs are expected to go up for all sectors due to higher energy use in winter, but to a level that, when compared to other countries, is still way below what is paid in the rest of the region.
