Argentina raising energy tariffs to fund investment

BUENOS AIRES Fri Nov 23, 2012 12:12pm EST

BUENOS AIRES (Reuters) - Argentina's government will raise long-frozen utility tariffs to fund improvements for over-stretched electricity and natural gas infrastructure in the energy-hungry South American country, officials said on Friday.

The energy sector in Latin America's No. 3 economy has been beset by surging demand and limp private investment, which many analysts attribute to low government-imposed tariffs since a 2001-02 financial crisis.

Energy shares rallied in Buenos Aires following Friday's announcement of increases to gas and electricity prices that have been virtually frozen for the last decade.

Deputy Economy Minister Axel Kicillof said utility companies would not benefit from the higher price to be paid by consumers, however.

"(We want to) create a fund that's sufficiently large to sustain not only the maintenance of the supply networks, but also the demand created by the accumulation of capital in Argentina," he told a news conference, referring to years of brisk economic growth and rising salaries.

"This isn't going to end up with the companies. It's going to appear on consumers' bills (and) it's going to constitute a fund for electricity and a fund for natural gas, which will be used solely to improve infrastructure in both sectors," Kicillof said.

The deputy minister, a leftist economist, masterminded the nationalization of the country's biggest energy firm, YPF (YPFD.BA), this year.

HEFTY SUBSIDIES

Kicillof and Planning Minister Julio De Vido said tariffs would rise from 0.4 percent to 72 percent for household electricity users in and around Buenos Aires depending on how much they use.

Consumers in the densely populated Buenos Aires area pay much less than in other parts of the country, increasing the cost to the state of hefty subsidies.

The increase will mean monthly domestic bills rise by between 2 pesos ($0.40) and 75 pesos ($15.60), De Vido said.

Gas bills will rise by between 21 percent and 37 percent across the country. Business and commercial tariffs will also go up.

They pointed to relatively low natural gas and electricity prices in Argentina, where the government heavily subsidizes utility bills for most domestic consumers and many businesses to encourage consumer spending.

The government wants to "sustain low tariffs to foment competitiveness and boost salaries (and) sustain investment in the sector", Kicillof said.

He said demand for energy had risen 41 percent in Argentina between 2003 and 2011.

A tariff increase has long been demanded by Argentine utility companies such as Edenor (EDN.BA) and Edesur, which is controlled by Endesa (ELE.MC), a subsidiary of Italy's biggest utility, Enel (ENEI.MI).

The government fined the two companies $33 million this month over a huge power cut in the capital during unusually hot weather.

Edenor shares rose almost 10 percent following the announcement but later pared their gains to trade up 5 percent at 0.649 peso apiece in Buenos Aires.

($1 = 4.8225 pesos)

(Additional reporting by Juliana Castilla and Jorge Otaola; Writing by Helen Popper; Editing by Dale Hudson and Kenneth Barry)

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