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ARGENTINA: Companies Pocketing Gas Subsidy for the Poor

Marcela Valente

BUENOS AIRES, Nov 17 2008 (IPS) - Companies that produce and distribute liquefied petroleum gas (LPG) in Argentina are benefiting from large government subsidies aimed at bringing down the price of the fuel, which 40 percent of the population depends on for cooking and heating.

But a 10-kg "garrafa" or LPG cylinder, widely used among the poor, cannot be found at the subsidised price because caps were not set for retail sales. IPS asked around in different neighbourhoods where gas cylinders are commonly used, and found that in many cases, the price was double what it was supposed to be under a recent agreement negotiated by the government.

"The supplier still sells me a 10-kg garrafa for 35 pesos (just over 10 dollars)," Norma Gutiérrez, who lives in Villa 31, a Buenos Aires slum neighbourhood, told IPS. "I told him that on TV they said the price had been lowered to 16 pesos (4.80 dollars), but no luck."

Gutiérrez runs a soup kitchen that serves lunch to 150 children a day. "I buy between two and three gas refills of the garrafa per week," she said, adding that she had no idea how to find a 16-peso refill.

That was the price set for sales of LPG to the public in an agreement reached on Sept. 19 by the Secretariat of Energy and companies that distribute the fuel, which in exchange are receiving hefty subsidies.

Consumer defence organisations estimate that the government will spend some 150 million dollars on subsidies to keep the price at 16 dollars a unit through late 2009. But the funds may not serve the stated purpose.

The agreement on keeping the price of gas cylinder refills stable was signed by the national government, the Argentine Federation of Municipalities (FAM), and the oil companies and other firms that produce, bottle and distribute LPG.

The FAM signed the pact with the aim of guaranteeing that the fuel was sold to the public at the agreed price. But most municipal governments do not have safe warehouses for storing the cylinders or trucks to distribute them in the poorest neighbourhoods in their districts.

The text of the agreement, which was seen by IPS, underscores that LPG "is a source of energy used by the lowest income sectors," and states that the aim of the new fund is "to subsidise household consumption of LPG" by keeping the price down.

As a result of the agreement, oil companies like the Spanish-Argentine firm Repsol-YPF, the U.S.-based ESSO, Brazil’s Petrobras and the BP-controlled Pan American Energy are selling LPG to the gas bottling plants at a price of 30 cents of a dollar for 10 kgs, while receiving a 1.60 dollar subsidy.

The bottling plant, which pays 30 cents of a dollar for 10 kgs, sells the cylinders to the distributors for 1.51 dollars, while receiving 1.66 dollars per cylinder in compensation from the government.

And the distributor, who pays five pesos per 10-kg cylinder, sells them to the retailer for 16 pesos.

But the price paid by consumers varies widely.

In this South American country, 40 percent of households use 10-kg LPG cylinders for cooking, heating and heating up water. In four northeastern provinces, where there are no natural gas pipelines, that proportion climbs to 100 percent.

Since 2001, the price of a 10-kg refill of an LPG cylinder has risen fourfold, while the price of natural gas piped directly into the home – the system used in middle and upper-income neighbourhoods – has been frozen since then by the government.

The gap between the price of piped natural gas and bottled LPG has grown, and by the middle of this year, studies showed that consumers of piped gas were paying seven to 10 times less than people who use cylinders, for an equivalent amount of fuel.

The studies also point out that a large proportion of the subsidies actually end up financing better-off sectors of the population, and that the difference in prices has aggravated inequalities.

In March, at the end of the southern hemisphere summer, when consumers who depend on gas cylinders began to worry about the rise in prices, the distributors of piped gas in Buenos Aires began to offer their wealthier clients special water heating deals to keep their swimming pools warm year-round at a low cost.

In September, the government authorised an increase in rates for customers with middle to high levels of gas consumption, and allowed oil companies to raise the wellhead price. It also signed the agreement for the drop in the price of gas cylinder refills.

The growing subsidies that the government has shelled out to the private sector in the energy, transportation and food industries since 2002 could total 35 billion pesos (10 billion dollars) this year, according to the EcoLatina consulting firm.

"It is doubtful how much of a redistributive impact the subsidies have had," according to the consultancy.

One of the frequent formulas used by the government to transfer public funds to the private sector is through fiduciary funds. Some 96 million pesos (equivalent to 96 million dollars at the time) were channeled through such funds in 2001, compared to six billion pesos (1.8 billion dollars) in 2007.

A portion of the funds raised through the rise in rates for piped gas that was authorised in September goes into the fiduciary fund for residential gas consumption, created to finance the expansion of the natural gas network and to compensate for the reduction in the price of gas cylinder refills that was agreed with the companies.

According to the national budget office’s mid-year report, the gas fiduciary fund should hold around 63 million dollars in 2009. But as a result of the price agreement, the total will be higher than that.

There are about 600 gas distributors around the country that sell gas refills to retailers for the agreed-on price of 16 pesos. But it is the tens of thousands of businesses that sell a total of four million 10-kg cylinders a month that have benefited from the reduction in price, rather than the consumers, Pedro Busetti, with the non-governmental consumer defence organisation Defensa de Usuarios y Consumidores (DEUCO), told IPS.

Furthermore, the price is double for home deliveries.

"The price of home deliveries is not regulated; it depends on the distances involved and other factors like safety levels" in the different neighbourhoods, Osvaldo Spanu of the Chamber of Liquefied Gas Distributors, which signed the price agreement, told IPS.

Spanu said the agreement established a mixed commission to monitor compliance with the 16-peso price. But a source with Enargas, the government gas regulatory agency, told IPS that the commission "is just now being set up."

Busetti said the gas subsidy "is not reaching those who need it the most."

"It only benefits the gas producers, who control the entire production chain, up to the distributors," Susana Andrada, with the Centro de Educación al Consumidor (CEC) consumer protection group, remarked to IPS. And the distributor itself raises the price when it delivers directly to people’s homes, she said.

In the province of Jujuy, at the extreme northwest tip of Argentina, Rosario Andrada with Warmi, an indigenous women’s organisation, told IPS that in the provincial capital, the price of the gas cylinder refill had dropped from 30 to 22 pesos, for customers who go to pick up the cylinder at the city government warehouse.

"For people who live in towns, it’s easier, because the municipal governments are having the cylinders trucked in, and some customers even go to pick them up by bicycle. But it’s harder to feel the benefits of the price agreement outside of the towns and cities, where gas cylinder refills still cost 32 pesos (10 dollars)," said the social activist.

In the northeastern province of Chaco, opposition legislators are demanding that the provincial government cover the cost of trucking in the cylinders, in order for consumers to benefit from the agreed price reduction negotiated by the central government.

A driver from Chaco, Juan Magallanes, told IPS that gas refills cost 33 pesos in his province. "Out at the YPF plant, you can get a cylinder for 16 pesos, but it’s located seven km from Resistencia," the provincial capital, he complained.