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Argentina to scrap gas and power subsides for the rich, and big companies

https://www.chemnet.com   Nov 17,2011 Platts
Argentina plans to eliminate subsidies on natural gas and power supplies for wealthy residents and also scrap 100% of the subsidies paid to the biggest companies in oil refining, biofuel production and natural gas processing, senior government officials said Wednesday.

The move will do away with subsidies for the 40 biggest companies in these sectors, saving the state Argentina Pesos 3.5 billion ($820 million) a year, starting December 1, Economy Minister Amado Boudou said at a press conference.

Another Pesos 500 million/year will be saved on the elimination of gas, power and water subsidies for the rich, starting January 1, 2012, he added.

This is the latest round of cuts to subsidies as the government tightens its belt in the face of slower economic growth. The economy is expected to slow to about 4% expansion in 2012 after growing by an average of 8%/year between 2003 and 2011.

The government made a first round of cuts on corporate subsidies at the start of the month to shave off Pesos 600 million from the total subsidies bill, estimated at Pesos 70 billion/year.

Boudou said the eliminations will not affect the final price of biofuel, fuel and gas for consumers.

Planning Minister Julio De Vido said at the same conference that the scrapping of residential gas and power subsidies, which cover about 40% of the final rate, will start in the wealthy neighborhoods of Barrio Parque and Puerto Madero in Buenos Aires and gated communities across the country.

The effort will be rapidly extended elsewhere for residential users with higher incomes, said De Vido, the country's top energy strategist.

He said this does not imply an increase in the final rates for these products, but shifts full payment to the consumer.

"The state won't pay anymore, the consumer will," he said.

The poor will continue to receive the subsidies, he added.

Oil and gas companies have been pressing for an increase in prices to encourage investment to turn around sagging output and increase refining capacity. Argentina has some of the world's lowest energy prices and this has been blamed for a plunge in oil and gas production and a surge in gas, diesel and fuel oil imports.

Oil production this year of 560,000 b/d is down more than 30% from a peak of 847,000 b/d in 1998, while gas is down by 13% to 124 million cubic meters/d -- in line with average consumption -- from a record 143.1 million cubic meters/d in 2004.

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