• Utility tariffs have been largely frozen for the past decade
  • Tariff increases aim to decrease fiscal deficit of 7 percent

Argentina’s utility companies jumped after President Mauricio Macri fulfilled his promise to increase rates, paving the way for a reduction in government subsidies for consumers.

Shares of transmission operator Cia. de Transporte de Energia Electrica en Alta Tension Transener SA jumped 5.7 percent at 2:02 p.m. in Buenos Aires to the highest since Jan. 11. Energy distributors Pampa Energia SA and Empresa Distribuidora y Comercializadora Norte SA each rose at least 4 percent. Macri had promised to eliminate subsidies in the electricity sector as part of a strategy to reduce a fiscal deficit estimated to be at 7 percent.

Macri is undoing policies by his predecessors that throttled foreign investment and in his first month in office has also removed currency controls and restarted talks with creditors leftover from its 2001 default. Utility tariffs have been largely frozen since the country’s economic crisis of 2002 after the previous administration prohibited companies from raising prices, saying that lower bills benefited the economy by boosting consumption.

"The market is positively responding to this first step towards dismantling the complex subsidies situation that the energy sector is in," said Christian Reos, the head of research at Buenos Aires-based brokerage Allaria Ledesma & Cia.

Tariffs in Argentina are about 10 percent of the average in Latin America, Livio Gallo, a director of Enel SpA, which runs Buenos Aires-based electricity distributor Edesur, said at a conference on Dec. 3.

The government announced an increase to the reference wholesale prices in a resolution published in the official gazette. The changes take effect Feb. 1 and are effective until April 30. They may be followed by tariff increases by distributors to be announced next week, Clarin reported.

Reos added that it’s unclear at this point how the new tariffs and subsequent subsidies removal will affect utility companies’ quarterly earnings and ability to generate cash.

"It’s likely that the companies will increase their tariffs further later in the year to be able to increase their investment in the country," he said.

Some residents in the Argentine capital pay as little as 45 pesos ($3.35) every two months for electricity bills because of subsidies.

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