Governors Set to Challenge Executive on Gas Subsidy Cuts Amidst Unfulfilled Pledges

Governors are once again taking center stage in the legislative agenda, emerging as key players after their influence was instrumental in the downfall of a chapter in the private property law that sought to raise maximum limits for foreign land sales. This week, they are poised to draw a clear line for President Javier Milei concerning what they perceive as an executive breach of commitment, specifically targeting Economy Minister Luis Caputo. The focus of this renewed assertiveness is a proposed reduction in gas subsidy schemes for "cold zones," a measure that stalled in the Senate after gaining approval in the Chamber of Deputies with the crucial backing of "dialogue-oriented" governors. These same provincial leaders, however, are now holding the project in limbo, citing the national government’s failure to honor commitments made during the negotiation process.

The initiative, which was sent to the Senate on May 22nd, has seen no legislative progress since. Investigations by LA NACION reveal that discussions between the government and allied governors have stagnated due to the government’s lack of response to two primary provincial demands. Firstly, provinces requested a reduction in electricity costs for warmer regions as compensation for the cuts to gas subsidies. Secondly, they sought the inclusion of provincial electricity distributors and transporters in the debt regularization scheme with Cammesa (Compañía Administradora del Mercado Mayorista Eléctrico S.A.).

During the debate in the Chamber of Deputies, the government pledged to implement a benefit for the provinces of Salta, Jujuy, Tucumán, Catamarca, Chaco, Misiones, and Santa Fe, which stand to lose some advantages from the "cold zones" subsidy regime. The Ministry of Economy reportedly promised tax exemptions on electricity for these regions. However, nearly three months after the preliminary approval in the lower house, this measure has yet to be formalized.

Unfulfilled Promises Fueling Gubernatorial Stand

Within the ruling party, there is a prevailing argument that the compensation will be formalized once the law is approved. Conversely, the governors insist that this guarantee must be in place before they will permit the bill’s treatment in the Senate. In fact, during the debate in the Chamber of Deputies, they attempted to incorporate this commitment directly into the text of the law, but their proposal was rejected by the Executive Branch.

This lack of concrete definitions has prompted the governors to imbue their demands with independent significance. On August 12th, they are scheduled to convene a summit of leaders from the "Norte Grande" (Great North) region in Posadas. A central theme of this meeting will be the promotion of a differentiated electricity tariff for the provinces within this region, intended as a counterbalance to the government’s proposed reform of the "cold zones" subsidy system.

Juan Pablo Valdés, the governor of Corrientes, has confirmed his participation in the meeting and indicated that this will be a focal point of the deliberations. The proposal aims to legally establish the concept of a "warm zone" tariff, a demand that, to date, has not received a tangible response from the national government.

"For us in the north, it is crucial to receive some positive news regarding the ‘warm zone’ because we are heavily reliant on electricity. We will see what happens in the Senate," a regular interlocutor for one of these provinces in Congress confirmed to LA NACION.

The Two-Pronged Provincial Grievance

The second major point of contention revolves around the regularization of the wholesale electricity market. The current government proposal outlines an exceptional mechanism for federal distributors and transporters to settle their debts with Cammesa through compensations derived from credits accumulated during years of tariff freezes.

However, provincial and municipal electricity companies have been excluded from this arrangement. For these entities, the initiative merely mandates that local jurisdictions calculate their corresponding credits, with the clear stipulation that any outstanding balance must be absorbed by each respective province or municipality, without direct intervention from the national government.

"There is a significant compensation for federal transporters and distributors, but it remains unclear what will happen with the provincial and municipal ones. We raised this issue in the Chamber of Deputies, but ultimately, it was not incorporated," summarized a political leader closely monitoring the negotiations.

The shift in political climate is palpable among legislators from Mendoza. While Deputies Pamela Verasay and Lisandro Nieri, both allies of Governor Alfredo Cornejo, supported the preliminary approval of the bill in the Chamber of Deputies, senators from the same political faction have signaled their intention to seek modifications to the project before granting their assent.

In June, Senator Mariana Juri stated that one of her primary objectives was to postpone the treatment of the initiative. "What cannot happen is that areas of Mendoza with colder temperatures than some in Patagonia are excluded from the subsidy," she asserted. She further added, "I want this to be an opportunity to build a new subsidy system."

Understanding the Proposed Subsidy Reform

The Executive Branch’s proposed legislation aims to move away from the current subsidy framework, which is primarily based on geographical location. It seeks to replace this with a system focused on household income levels.

In practical terms, this means that extensive areas incorporated into the subsidy regime in 2021 will cease to receive automatic tariff discounts. These areas include numerous localities in the interior of Buenos Aires province, southern Santa Fe, central and southern Córdoba, almost all of San Luis, and sectors of Mendoza, Salta, Jujuy, Catamarca, La Rioja, Tucumán, and San Juan. In these regions, only households that can demonstrate economic vulnerability will retain the benefit.

This is precisely the aspect that provincial leaders like Senator Juri are questioning. She argues that several towns in Mendoza experience more severe winters than other parts of the country, yet they risk being excluded from automatic subsidies solely due to the new criteria proposed by the law.

The bill does, however, maintain a special regime for areas of "effective climatic severity," such as the entire Patagonia region, the Malargüe department in Mendoza, and the Puna. In these locations, subsidies will continue to be available to all users, albeit with a reduced scope, covering only the price of the gas itself and excluding transportation and distribution costs.

The Broader Economic and Political Landscape

The confrontation over the gas subsidy reform highlights a broader dynamic at play between the national government and the provinces. President Milei’s administration has been actively pursuing a fiscal consolidation agenda, which includes significant reductions in public spending and the elimination of what are deemed "inefficiencies" in various sectors, including energy subsidies. The "cold zones" regime, introduced in 2021, expanded subsidy coverage to a wider array of geographical areas, a move that the current administration views as fiscally unsustainable and geographically indiscriminate.

The "cold zones" were initially defined by a legislative amendment that aimed to mitigate the impact of high energy costs in regions experiencing colder climates. This expansion, however, led to increased fiscal outlays. The government’s proposed reform seeks to re-center the subsidy system on income-based criteria, arguing that this is a more equitable and targeted approach.

The governors, particularly those from the northern provinces, argue that while they understand the need for fiscal responsibility, the proposed reform disproportionately affects their regions. They contend that the economic realities of their provinces, characterized by lower average incomes and a greater reliance on energy-intensive activities, necessitate a differentiated approach. The inclusion of provincial electricity distributors and transporters in the Cammesa debt regularization scheme is also crucial for their financial stability, as many of these entities face significant financial pressures due to years of regulated tariffs.

The upcoming "Norte Grande" summit is expected to serve as a platform for the governors to articulate a unified position and potentially explore alternative legislative strategies. Their ability to leverage their collective influence in the Senate will be critical in shaping the final outcome of this contentious legislation. The outcome of these negotiations will not only determine the future of energy subsidies but also signal the extent to which the provincial governments can assert their influence in the current legislative landscape, potentially impacting the broader reform agenda of the Milei administration. The political maneuvering surrounding this bill underscores the complex intergovernmental relations in Argentina and the ongoing tension between national policy objectives and regional interests.