Current gas subsidies to be removed completely by April

The system will be replaced with a model based on a basic energy basket and household income, Energy Secretariat says

Energy subsidies

In the first public hearing of Javier Milei’s presidency, the government announced that it will remove gas subsidies over the next three months. A completely new scheme will take effect from April, and details will be provided in a new public hearing in March. 

Distribution and transportation companies also requested increases of over 500% during the hearing. The final impact the measures will have on home energy bills remains unclear.

For the first time, the government provided details on the future of gas tariffs. During Monday’s public hearing, Energy Secretary Eduardo Rodríguez Chirillo explained how the subsidy removal would work. “The gradual total transfer of the gas price component from the final rates for the progressive adjustment of subsidies is proposed,” the Economy Ministry wrote in a presentation about the matter. 

It referred to gas prices as calculated at the point where it is extracted and enters the transmission system, which are known as PIST prices in Argentina.

The gradual transfer of PIST (which varies depending on the exchange rate) will be broken down as follows: 33% from February 1, 33% from March, and 33% from April. All users’ subsidies will be removed, irrespective of their income category under the current system. While the subsidies are being removed, the current segmentation will remain in effect.

From April 1, a completely new subsidy scheme will be implemented based on a family’s total income, Chirillo said. The authorities will determine a “basic energy basket” of electricity and gas covering people’s basic needs. This will be announced in the next public hearing in March. The energy basket details will consider consumption in different regions of the country.

Based on these two factors, the Energy Secretariat will “compare the cost of these quantities with the income of the cohabiting group and limit the impact of that cost to a percentage of income, subsidizing the difference,” a source in the secretariat said. “The subsidy provided by the state will be the difference when the price of the basic energy basket exceeds a certain percentage of the total income of the cohabiting group.”

This way, the subsidy will shift from supply to demand. The precise mechanism for this — whether through a cash transfer to families, a card, or another method — was not disclosed. During the hearing, Chirillo was highly critical of how energy subsidies are currently granted: the current strategy was implemented by his predecessor, Flavia Royón. He is now on the Economy Ministry team with her, since she is now Mining Secretary.

To understand the impact on the final gas tariff, several details remain to be known. Currently, users pay 17% of the total PIST gas price, or US$0.7 per unit. Paying 100%, without subsidies, would thus mean paying six times more for gas. But this is not the only component of the final rate. It remains to be seen how much the government will allow transport and distribution companies to increase rates, and they have requested increases of over 500%.

Moreover, the current income-based segmentation system means each component of the bill is weighted differently depending on the household’s category. The gas price represents around half of the total price, so the removal of subsidies will hit the component that has the largest impact on the final tariff. 

In this transition between subsidy removal (January-April) and the implementation of the new scheme (from April 1), the greatest increases will occur in the most vulnerable sectors, whose bills are currently subsidized the most.

Originally published on Á


All Right Reserved.  Buenos Aires Herald