January 27, 2016 / 1:31 PM / 4 years ago

UPDATE 2-Argentina to hike power rates, electricity stocks rally

(Recasts; adds power stocks rally)

By Richard Lough

BUENOS AIRES, Jan 27 (Reuters) - Argentina power company stocks surged on Wednesday after the government set new wholesale prices for electricity that would apply nationwide from Monday, paving the way for anticipated rate increases.

Power distributor Edenor’s shares rose 3.7 percent and power transporter Transener were up 5.6 percent. Meanwhile, the share price of Pampa Energia, which is engaged in the generation, transmission and distribution of electricity in Argentina, climbed 5.5 percent .

They ranked among the biggest gainers on Argentina’s stock market benchmark index, the MerVal, which rose 3.2 percent to a two-week high.

The power stocks rally followed Wednesday’s publication of an Energy Ministry resolution in the official gazette of new wholesale rates for electricity starting Feb. 1. The resolution did not specify how much the rates differed from the previous level, which varied by region.

Rates for clients of Edesur and Edenor, who live in the Buenos Aires metropolitan area, would be announced this week, officials from the two companies said. The state news agency Telam said the new wholesale price indicated rises of between 200 and 300 percent for the biggest consumers.

Buenos Aires area residents pay among Argentina’s lowest rates, with a monthly bill for a three-bedroom property typically about 50 pesos ($3.61), with rates nearly frozen over the last 13 years.

Edenor and Edesur officials said the increase in the wholesale rate reflected a sharp reduction in state subsidies. Those subsidies had allowed distributors to buy power cheap.

Slashing energy subsidies is a central plank of newly elected President Mauricio Macri’s strategy to tackle a primary fiscal budget deficit that widened to 5.8 percent of national output in 2015 under his predecessor Cristina Fernandez.

Some subsidies will remain in place for low income users, the poorest of whom will pay no power bill, and users who reduce their consumption, the Energy Ministry resolution said.

The hefty subsidies had ended up “increasing the cost of supply and disincentivising private investment”, it stated.

The power company officials said the new rates represented the wholesale component of the consumer’s tariff and said the final bill would also include fees to the power generator and local taxes.

“There will be a new tariff structure on Friday, once we’ve done the calculations with these new prices,” said an Edesur official.

Both Edenor and Edesur have posted losses in four of the past five fully reported financial years as power rates stayed rock bottom even as inflation surged. ($1 =13.8450 pesos) (Additional reporting by Maximilian Heath; and Juliana Castilla; editing by Chizu Nomiyama and W Simon)

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