Court orders repeal of Argentina’s gas rate hikes

OREANDA-NEWS. August 19, 2016. Argentina's Supreme Court ruled that the government must roll back increases in residential natural gas prices, ratifying a lower court decision that mandates public hearings before utility tariffs are adjusted.

Notably, the court said hearings are needed for the entire tariff structure, including wellhead prices because they are not freely set by market forces.

When it increased gas rates on 1 April, the government almost doubled the wellhead price for most production to an above-market average of \\$5/mn Btu, while also ordering an increase in transportation and distribution rates.

The ruling is a blow to President Mauricio Macri's effort to cut energy subsidies that have sharply increased the fiscal deficit over the past decade.

But the effect on gas distribution is moderate because it is limited to residential users, who make up around 30pc of total billing.

"The ruling ends a period of uncertainty that has been generated in these past four months and we will be ordering the companies to issue new bills to customers in the coming days," cabinet chief Marcos Pe?a said today.

The government will officially call for public hearings tomorrow to take place in around three weeks, Pe?a added.

In its widely anticipated ruling today, the country's highest court said that "public hearings are an essential requirement to adopt decisions on tariffs."

The justices added that "it is not valid to use a hearing from 2005 as the basis for a decision that is taken in 2016," rejecting one of the key arguments used by the administration to justify the rate hikes.

"While the state continues setting that price, public hearings must also be carried out," the justices ruled.

Today's decision emboldens Macri's opponents who could use the upcoming hearings to galvanize support. Still, the hearings are non-binding, meaning the government would still be able to increase tariffs.

Shares in energy companies dropped on the Buenos Aires stock exchange after the ruling. Midstream company Transportadora de Gas del Norte was down 3.9pc, integrated energy firm Pampa Energia declined 2.6pc and Metrogas, the country's largest gas distributor, dropped 1.9pc.

A general increase in tariffs for public services was widely expected when Macri took office after years of soaring spending that saw energy subsidies rise from 0.2pc of GDP in 2005 to 2.9pc last year, according to the non-partisan Argentinian association of budget and public finance administration (ASAP).

The subsidies were part of broad state intervention in the economy that alienated many investors. Yet the abrupt and seemingly confusing way the price hikes were rolled out sparked criticism even from government allies.

The Macri administration initially said the average gas rate increases would amount to 300pc but some received bills with increases as high as 2,000pc. The government later capped increases to 400pc for residential users and 500pc for businesses.

The justices also rejected the government's contention that no public hearings were needed because the increases were temporary and in advance of a full review of the entire tariff structure.

The high court will now analyze a similar increase in electricity rates that has also been frozen by a lower court and has asked the attorney general to weigh in on the issue.