January 27, 2021

The Argentine Government cancels a retroactive increase in gas due to devaluation

The Argentine Government cancels a retroactive increase in gas due to devaluation



The Argentine government today backed off with a controversial retroactive increase in gas to compensate the distributors for the effect of the devaluation of the peso, a measure strongly rejected by the opposition and for which a prosecutor had denounced the energy secretary.

This decision of the Executive occurred in parallel to a vote in the Senate in which it was unanimously approved to leave without effect the surcharge on gas consumed between April and September of this year (the austral winter), which was to be paid in 24 quotas from January 2019, with an average cost between 90 and 100 pesos (about 2.30 and 2.60 dollars) more in the invoice each month.

Now, the Argentine government will pay the distribution companies 20,000 million pesos (about 525 million dollars at the current exchange rate) in 30 installments from next October.

The National Regulatory Entity of Gas (Enargas) resolved last week to compensate companies for consumption between April and September, a period in which the dollar soared 98.5% against the peso, which made it more expensive to supply gas distributors, whose contracts with the producers are fixed by the State and are linked to the dollar.

The retroactivity of this increase, announced along with another update of future tariffs for inflation, was one of the aspects most criticized by the opposition, and the main argument by which a federal prosecutor filed a criminal complaint against the country's energy secretary, Javier Iguacel, for "abuse of authority" and "violation of the duties of a public official."

According to the prosecutor, an increase can not have retroactive effects, because customers have already paid for the service and "one of the effects of the payment is the total cancellation".

Before the measure was canceled, Iguacel justified that the energy companies are only obliged to buy in advance 50% of the gas they plan to use, while the other part can be acquired during the winter, but the law states that with these acquisitions companies "can not lose or win."

In this way, if the cost of purchases from the producers had been lower, the price to the consumer would have been reduced, but a higher cost would have to be passed on to the customers as well, the secretary said.

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