There is concern about the sharp increases in rates for essential public services such as electricity, gas, water and transportation, and rightly so. The new values are arriving just with the disorderly, and in cases uncontrolled, liberation of prices of goods and services. But, there was no alternative to balance the micro whose relative prices were completely distorted after years of Kirchnerist intervention.
It is difficult for people to immediately understand and accept utility adjustments, given the cultural shift introduced by energy populism over the past 20 years. This cultural change consisted of making the population, particularly in the AMBA, believe that public services were a right that could be accessed by paying much lower prices for them than their costs.
It was a fiction instilled by the Kirchnerist governments and accepted with pleasure by the majority of users of the services that paid off politically, but generating economic and social costs in the medium term, which are what we now have to assume.
The current administration has decided that rationality returns to services, assuming the emerging political costs whose magnitude will be closely linked to the degree of understanding reached by users, regarding the fallacy into which populism put them.
If we now concentrate on electricity and gas services, when receiving the invoices with the increases, it would be advisable that we take the time to see how they are made up and how much we consume, KWh and M3.
There is the “price of the product”, which is the value of the gas produced by the oil companies plus the imported gas, and that of the electricity generated by the plants. These “products”, with a certain “price”, enter the gas pipelines or high voltage lines to be transported to the distribution centers that take them to our meters.
The price, according to the law, is free and should depend on costs and the local and international market. I say should because they still have imperfections, a holdover from the interventionist past, which should be corrected since they make the product more expensive and discourage investment and competition.
This price of the “product” represents, on average, around 40% of the value of the ticket before taxes and is where the subsidies that will now be eliminated were applied. Next comes transportation and distribution, which represents between 30 and 35% of the amount we pay.
This segment of the rate is regulated by the State and the remuneration to the concessionaire companies responsible for the respective services is established through agreements with the gas Regulatory Entities, ENARGAS, and the electricity ENRE.
During the four K governments these entities were intervened, to be used at their discretion in setting arbitrary policies such as freezing prices.
The subsidies for energy production and the rate freeze applied for 20 years caused users to pay on average less than 20% of the economic cost of gas and electricity, while the State contributed only part of the difference and people suffered. the deterioration of services due to lack of investment. Then, supply fell, demand grew, encouraged by ridiculous prices, and the conditions for scarcity and deterioration in the quality of services were created.
Before 2003 there were no subsidies or distortions in regulated prices. You paid for gas and electricity, whatever it cost, there were no cuts or restrictions and the rates were the lowest in the region. But then, with the advent of energy populism, the money that people allocated to paying for electricity and gas was diverted towards other destinations - for example goods, services and savings - which it will now be difficult for them to give up.
But, beyond what we may think, rate increases are a reality, bills are already arriving with strong increases and we will have to pay them. The middle class will have to make a great effort, not only economically but also to change some of their habits. The level of subsidies to be allocated to the poorest segment of the population that is not in a position to pay for basic consumption of gas and electricity remains to be defined.
It is necessary to add here that the effort will not be in vain because it will significantly reduce inflation by eliminating subsidies, the quality and reliability of the services will be recovered because now the regulated concessionaires will have to invest and the entities will be able to require them to invest what was committed when setting the rate and favorable conditions for investment in the production segment will return.
But it would not be fair if the entire weight of the adjustment fell only on the already exhausted users. With the normalization of services, the other two protagonists of the sector will also benefit, the State and companies, who could mitigate, even somewhat, the effort of users.
The State will save billions of dollars by eliminating subsidies, but it will also increase revenue by maintaining the tax percentage, around 25%, on the new rates. I believe that, at least temporarily, it should reduce that percentage or establish, as in fuels, an adjustable value independent of the rate.
As for companies, which will regain profitability and repay debts, they should moderate their compensation transferable to rates, resorting to financing systems that allow them to be distributed over time.
Emilio Apud is a Consulting Engineer, former Secretary of Energy and Mining