OREANDA-NEWS. Argentina's government scheduled public hearings starting on 12 September to make its case for increasing residential gas rates.

The non-binding sessions, summoned in accordance with an 18 August Supreme Court ruling that effectively repealed the rate hikes the government imposed on 1 April, will encompass the entire gas chain, including wellhead prices, transportation and distribution.

Argentina's gas prices have long been subject to heavy subsidies, a legacy the new government of President Mauricio Macri has been seeking to dismantle. The government says energy subsidies amounted to a fiscal deficit of 7pc of GDP passed on by Macri's populist predecessor Cristina Fernandez de Kirchner.

In its landmark ruling, the high court said hearings must be conducted prior to implementing utility rate increases for residential users, who make up around 30pc of total billings.

The ruling marked the biggest setback yet for Macri, who took office in December on a market-oriented platform, vowing to scrap more than a decade of heavy state intervention in the economy.

The administration is hoping to reinstate the residential rate increases in October, after the hearings are concluded. Private-sector gas distributors led by Metrogas say the rate hikes are essential to keeping their investment plans and service quality on track.

But Argentina's political opposition has already coalesced around the tariffs controversy. And the hearings could provide a big stage for opponents to galvanize support against Macri.

The business sector is leaning on the Supreme Court decision to say the limits on the hikes should not be restricted to residential users.

A day after the high court issued its ruling, the government ordered gas regulator Enargas to roll back residential tariffs to their 31 March levels, while maintaining the increases for commercial and industrial users.

The government increased wellhead gas prices for residential, commercial and compressed gas users by as much as 1,700pc on 1 April, accompanied by increases in transportation and distribution prices.

Wellhead prices rose to around $5/mn Btu, double the previous price for most production, with variations depending on basin and end use.

Argentina has long maintained artificially high wellhead prices for gas as well as crude, as way to stimulate domestic production and keep pipeline and LNG imports from rising.

Argentina's energy subsidies soared to 170bn pesos ($11.4bn) in 2015, contributing to a fiscal deficit of 225bn pesos, according to the Argentinian budget and public finance association (ASAP). In contrast, Argentina spent a combined Ps155bn on education, culture and health last year.

The gas subsidies are widely considered regressive, because Argentina's richest 20pc account for 32pc of the benefit, while the poorest 20pc get only 8pc.

But even those who have long warned of the subsidies' fiscal impact say the administration made mistakes in implementing the tariff increases, particularly for gas, at a time of accelerating inflation.