Argentina extends utility price freeze until year-end

Argentina has postponed any end-user price updates for electric power, natural gas and water utility services for six months until December.

Through an emergency decree signed by President Alberto Fernández, the government said the effects of the pandemic made it impossible to move ahead with the implementation of a new price-setting mechanism for the time being.

The decree also extended a previous ban on cutting utility services to vulnerable users. While the previous version prevented companies from cutting off users with up to three unpaid monthly bills, the new regulation overs six unpaid bills.

For internet and telephone providers, the decree extends companies' obligation to provide non-paying users with a basic service with reduced capabilities. This also applies to users with pre-paid plans that have not topped them up.

The move is consistent with a widespread perception that the government would not risk the political fallout related to rising utility prices given the times of crisis. Rising utility payments had a high political cost for Fernández’s predecessor Mauricio Macri, who reduced subsidies but then froze utility prices in a bid to recover public support after he overwhelmingly lost the primary elections last August.

It also raises the prospect of prices staying frozen for longer, given the past behavior of Kirchnerist administrations. The new regulation would imply prices will be frozen for around a year and a half at least. And given the potential prolonged economic effects of the current crisis, it is unlikely the government will attempt to update price-adjustment regulation going into 2021.

Under previous presidents Néstor Kirchner and his wife Cristina Fernández, power and natural gas prices were frozen between 2002 and 2015. The rising costs for companies, amplified by inflation, forced the government to provide massive subsidies to keep distributors afloat. At their highest point in 2014, energy subsidies amounted to 2.8% of GDP, widening the country’s fiscal deficit.

Macri created a new price adjustment mechanism known as RTI, but the effects of the pandemic have worked to quickly unravel some of the gains. In particular, payments to wholesale market administrator Cammesa by distributors have plummeted after companies’ revenues fell significantly as a result of the health crisis, as BNamericas reported previously.

Chile, meanwhile, recently passed legislation to forbid utilities from cutting off the 60% most vulnerable users and essential service providers, such as fire departments, who do not pay their bills during the state of catastrophe.

The decision has sparked controversy in the power sector, as some players argue it could hurt the industry’s chain of payments, although the law has yet to be promulgated.