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Cablegate: Argentina: Electricity Tariff Increase: Welcome Sign Of

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.

--------------------------------------------- ------
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

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