VZCZCXYZ0001
RR RUEHWEB

DE RUEHBU #1053/01 2131228
ZNR UUUUU ZZH
R 311228Z JUL 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1656
INFO RUCNMER/MERCOSUR COLLECTIVE
RHMFIUU/HQ USSOUTHCOM MIAMI FL

UNCLAS BUENOS AIRES 001053 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ENRG AR
SUBJECT:  Argentina: Electricity Tariff Increase: Welcome Sign of 
GoA Focus on Costly Subsidies 
 
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Summary 
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¶1. (SBU) The GoA has announced scaled 10-30% increases on 
residential electricity use in the greater Buenos Aires metropolitan 
area, the first such increase since 2002.  The move is designed to 
maintain rates for low-use/low-income clients at current levels. 
Planning Minister De Vido declared that the tariff rate increases 
were designed to "eliminate subsidies, improve wealth distribution, 
and encourage the rational use of energy."  This is the first 
announcement by a senior GoA official that clearly articulates that 
limiting the drain on fiscal coffers caused by burgeoning GoA 
subsidies is a government priority.  End Summary. 
 
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Scaled Residential Tariff Increases 
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¶2. (SBU) On July 30, one day after President Cristina Fernandez de 
Kirchner inaugurated a new electricity generation plant in Salta 
(Septel), Planning Minister De Vido announced the first increase in 
residential electricity tariffs since 2002 for GoA-regulated 
electricity transmission monopoly Transener and three electricity 
distribution companies that serve the Greater Buenos Aires region: 
Enenor (serving 2.5 million customers and owned by Argentine energy 
investment fund Pampa Energy); Edesur (serving 2.2 million customers 
and owned by Italy's national energy company ENEL); and Edelap 
(serving 300,000 clients and owned by U.S. energy major AES).  De 
Vido declared that the tariff rate increases were designed to 
"eliminate subsidies, improve wealth distribution, and encourage the 
rational use of energy." 
 
¶3. (U) Tariff increases will be made retroactive to July 1, 2008.  A 
base "social" tariff on the first 650 Kilowatt hours (Kwh) used 
every two months will be maintained at current levels.  Rates for 
incremental bimonthly use will increase by 10% (for amounts between 
650- 800 KwH) and jump to a 30% increase for consumption over 1201 
Kwh.  De Vido emphasized that 76% of Greater Buenos Aires area 
residential clients (some 3.2 million customers), who account for 
50% of residential consumption, use less than 650 Kwh and will not 
see their rates change. 
 
¶4. (U) Electricity rates in the greater Buenos Aires area remain 
among the lowest in Argentina.  Consumers pay an average of APR 59 
for 650 KwH of use in a bi-monthly period, while Mendoza resident 
pay ARP 110, La Pampa residents pay ARP 142, Cordoba residents pay 
ARP 169, and Santa Fe province residents pay ARP 174.  International 
comparisons are also telling.  According to GoA figures, residential 
clients in Asuncion, Paraguay pay the equivalent of ARP 176 per 650 
Kwhs bimonthly, Montevideo, Uruguay residents pay ARP 343, Santiago, 
Chile residents pay ARP 490, and Rio de Janeiro residents pay ARP 
¶560. 
 
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Tariff Revenues Dedicated to New Capital Investment 
--------------------------------------------- ------ 
 
¶5. (U) A Planning Ministry release said that all incremental revenue 
gained by the three electricity distribution companies would be 
dedicated to ARP 6 billion (roughly US$ 2 billion) in capital 
investment to both improving existing infrastructure and doubling 
distribution capacity over a 10-year period.  A list of transformer 
stations, substations, and high-and low-tension transmission lines 
were detailed. 
 
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Comment 
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¶6. (SBU) Even when tariff increases are applied, residential 
electricity rates in political bellwether Greater Buenos Aires will 
remain among the lowest in all Argentina - and well below rates paid 
by consumers in neighboring Southern Cone capitals  Nevertheless, 
this GoA move is being well received by markets and the three 
Greater Buenos Aires electricity distribution companies directly 
affected.  Despite the GoA's pledge that incremental revenues from 
the tariff boost would be dedicated to new capital investment, AES 
representatives note that there is no/no written agreement between 
the GoA and electricity distribution companies to that effect. 
 
¶7. (SBU) De Vido's statement that the tariff increases will serve to 
limit burgeoning state subsidies to the electricity sector is 
important.  It constitutes the first statement by a senior GoA 
official in the CFK government that recognizes the importance of 
limiting the drain of burgeoning subsidies on fiscal coffers.  It 
also challenges the current conventional wisdom that last week's 
departure of Cabinet Chief Alberto Fernandez leaves statists like De 
Vido free to adopt anti-market policies with no internal GoA 
opposition.  Local economists will celebrate the tariff increase as 
 
a sign the GoA is getting serious about sustaining its primary 
fiscal surplus. 
 
WAYNE