An Argentinian think tank has warned that a freeze on electricity prices in the country could see the cost of subsidies rise to 2.4% of GDP by 2022.
This year, 626 billion pesos ($ 6.63 billion) are expected to be spent on energy subsidies, representing 1.7% of GDP, and that figure could reach 905 billion pesos next year if it is not There is no price increase, according to a report from the General Mosconi Energy institute.
The figures imply that Argentina will likely spend much more than it budgeted for grants at the start of 2021 – some 442 billion pesos. By the end of this year, the subsidies are expected to cover 70% of the total electricity production costs, a higher share than initially forecast by the authorities.
Electricity prices have largely remained frozen since 2019, with the mismatch increasing rapidly as runaway inflation increases the cost of generating electricity. President Alberto Fernández’s administration implemented a localized and controversial 9% electricity price hike earlier this year in a bid to reduce the burden on public coffers.
The question of adjusting electricity prices is said to have sparked an intense debate within the government, pitting Finance Minister Martín Guzmán against Energy Under-Secretary Federico Basualdo due to the latter’s reluctance to approve of further price increases.
General Mosconi warned that if no new measures were adopted, Argentina would face a price difference of nearly 80% for both electric power and natural gas.
Fernández has repeatedly said his administration should implement a segmented pricing system for electricity and natural gas where better-off users pay more.
Electricity price subsidies are currently managed system-wide through the country’s wholesale market administrator, Cammesa.
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