Argentina’s tariff freezes spark industry warnings

OREANDA-NEWS. August 09, 2016. Energy companies in Argentina are warning that a series of judicial decisions effectively freezing recent rate hikes for natural gas and electricity would undermine their investment plans and operations.

A federal judge in Buenos Aires province issued a preliminary injunction last week suspending power rate hikes instituted in February, less than a month after a separate court blocked an increase in gas prices.

Locally held midstream company Transportadora de Gas del Sur said it has stopped receiving payment from gas distributors because of the uncertainty over tariffs.

"Unless it receives some form of economic assistance from the government to compensate for the loss of revenue from the tariff increase at the beginning of the year, the company's economic and financial situation as well as its investment plan would be seriously affected," TGS said.

TGN, Argentina's other pipeline operator, was not available to comment but has previously alerted regulator Enargas that it would have to suspend investments if the tariff freeze remained in place.

Spain's Gas Natural Fenosa, which operates the second-largest gas distributor in the country, has also echoed the warning. "This situation immediately affects the company's payment chain and if it continues over time, the committed investments and the operation of the distribution system would be seriously affected," GNF said.

President Mauricio Macri implemented the controversial rate hikes as part of a sweeping adjustment package aimed at slashing the fiscal deficit after years of below-market rates that dried up investments.

The future of the gas hike is now in the hands of the supreme court after an appeals court in the Buenos Aires province capital of La Plata last week granted a request from the government to take the issue to the country's top judges.

Electricity distributors have also warned about the effect of the tariff freeze imposed last week by a judge who also said the government was required to carry out public hearings before increasing rates, a contention the government has long denied.

The Adeera association of electricity distributors said the tariff freeze drives up the risk of service cuts. "If this situation is not reversed, the supply of the public service and its quality will be compromised in the short term across the country, directly hurting those (the judicial decision) sought to protect," Adeera said.

The country's two largest distributors, Edenor, a subsidiary of local energy group Pampa Energia, and Edesur, which is controlled by Italian firm Enel, said the decision would unravel investment plans.

The two distributors serve the capital and its suburbs and had their rates largely frozen for more than a decade before the increase earlier this year.

"Within a question of weeks we will run out of money, meaning we will not be able to pay salaries, we will not be able to pay costs," Edenor chief executive Ricardo Torres said today.