Rate segmentation: the Government announced the gradual removal of subsidies and new consumption quotas



The Government detailed the scheme for the gradual removal of tariff subsidies
The Government detailed the scheme for the gradual removal of tariff subsidies

Secretary of Energy, Flavia Royon, announced this Tuesday the new rate scheme, with the gradual removal of subsidies and consumption quotas, which will be applied in the coming months to electricity, natural gas and water services. “This segmentation has been based on social justice and equity. We have proposed that the subsidy reach those who need it most and that the population with the highest income can accompany the tax savings, ”said Royón at the beginning of his presentation.

From the registry of users who asked to maintain the subsidies, the Government was able to identify three categories by income levels. Level 1, higher income users and people who did not request their registration with some 269,000 households. Level 2, low-income registered users (provisionally beneficiaries of the social rate will be included) with more than 2.8 million households. And Level 3, middle class, with 2.6 million households.

There were 4 million users who did not sign up. The Secretary of Energy pointed out that the registry will remain open and that work will be done to identify users who did not register but would be entitled to have a social rate or subsidies. “This measure contributes to an efficient and orderly State. We are going to work to concretize the population on the efficient use of the resource”, said Royón.

Segmentation for the gas rate

In the case of gas, for Level 1, a total reduction of the subsidy will be applied for all consumption, in installments until December. For Tier 3, middle income, a volume equivalent to 70% of the average of the minimum and maximum thresholds of each category and subzone is subsidized. The surplus to these ceilings —which vary according to the area of ​​the country— will not have a subsidy.

The increases for Levels 1 and 3 will be applied gradually in three bimonthly periods (from the consumption of August, October and December 31). Level 2 users are kept at the current rate.

For example, if the value of an average consumption is taken, in the case of the highest income level (Level 1), with a bill of $1,650 in June, it will increase $338 in September, $468 in November and $649 in January 2023. This would be a $1,455 increase in total and the final bill in January will be $3,105 (88% more than June)always in average values.

In March 2022, an increase of 20.1% was applied to the average bill for residential users due to variations in the remuneration for the gas transportation and distribution service. In June 2022, an increase in the price of gas at the entrance to the transport system (PIST) was authorized for users who were not beneficiaries of the Social Rate, which meant an impact on the average bill of 18.5%. These increases are applied gradually every two months starting in September (after November and January), implying an average increase of close to $500 per month per step and $1,500 per month accumulated in the three bimonthly periods.

From the Ministry of Energy they clarified that the amount of gas demanded by households is not related to the level of income and is directly linked to climatic conditions, number of participants in the household, construction characteristics of the home and the efficiency of domestic equipment.

The consumption of gas through networks in homes located in the coldest regions of the country doubles that of temperate regions. In more extreme cases, as is the case between the province of Santa Cruz and the City of Buenos Aires, the difference is 11 to one.

Quotas for electricity

“This plan has tried to have a vision as federal as possible, which contemplates the reality of each one of the Argentines having such a vast country with so many different circumstances. It’s not that if you go over the top, you lose everything, due to the progressiveness of the increment to the top, the subsidy will be removed,” said Royón.

In the case of electricity rates, the consumption limit for the rate with subsidies will be 400 kWh per month per household. But for localities that do not have natural gas through networks, the cap will be increased to 550 kWh.

water rates

In the case of water service, for the users of the Aysa company, the removal of subsidies will be total from November for residential users and land located in areas classified as “high” income. Meanwhile, users who already have a social and community rate will be exempt from segmentation and will not lose the benefit.

The rate quota with subsidy for energy will be 400 kWh and will be broader in areas without access to natural gas
The rate quota with subsidy for energy will be 400 kWh and will be broader in areas without access to natural gas

For users located in areas classified as “medium”, the removal of subsidies will be done in three stages: they will have 40% from November 1 to December 31, 2022; then, 20% from November 1, 2022 and until February 28, 2023. And finally, the elimination of the subsidy from March 1, 2023

For users located in areas classified as low, the schedule will be: 45% subsidy from November 1 to December 31, 2022. 30% subsidy from November 1, 2022 to February 28, 2023 And 15% subsidy from March 1, 2023.

How will the three levels of users be determined? Currently, the company has 11 defined zone coefficients, which have different rate loads according to the regulatory framework. For the removal of subsidies from November, this division will be simplified into three levels.

Segmentation and removal of subsidies, a long way

The system of energy subsidies had its origin in the “emergency” measures adopted by the Government after the 2001 crisis, when it decided to “pesify” the rates of public gas and electricity services and eliminate the indexation mechanisms . Due to the extension of the emergency and the price freezes, the State took charge of the costs of energy production and imports.

These subsidies, according to a report by the General Mosconi Argentine Institute of Energy, they went from representing 0.4% of GDP in 2005 to 4.1% of GDP in 2015. Its reduction through segmented rates was a plan designed several times, with a lukewarm attempt during the last Government of Cristina Fernandez de Kirchner –the so-called “fine tuning” – which covered only the neighborhoods with the highest purchasing power in the City of Buenos Aires, but never materialized widely for all users.

In February of this year, the former Undersecretary of Electric Power Frederic Basualdo and ENRE officials presented a geographical segmentation work, removing subsidies to 13 neighborhoods of the AMBA. That scheme was discarded and the segmentation was finally designed by Santiago Lopez Osornioformer Secretary of Energy Planning and Guzmán official, based on user income and with a new tool: a “voluntary form” to request to maintain the subsidies.

With the departure of Guzmán and the arrival of Silvina Batakis to the Ministry of Economy that scheme was maintained and in recent weeks more than 9 million users completed their data. In his first speech as minister, Sergio Massa announced that savings will be promoted among the households that asked to maintain the subsidy of consumption through consumption quotas for the subsidized rate.

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