President Alberto Fernández’s decision to order the YPF state oil company to halt a five percent increase in petrol prices, due to kick in at the start of this week, has created uncertainty among producers and suppliers.
Following negative feedback from the sector, which argued that prices were running 10 percent behind inflation, the government decided to accompany this price freeze suspension by simultaneously deferring a petrol and diesel tax increase from this month to the next via Decree 103 (the last of the year 2019) – published Tuesday in the Official Gazette.
The presidential decision to continue freezing fuel prices was especially controversial because far from reversing a policy of his predecessor Mauricio Macri, he was taking issue with his own choice to head YPF, Guillermo Nielsen.
The latter had been consistently critical of Macri’s freeze immediately following his PASO primary meltdown last August in a partially successful bid to retrieve his political fortunes. In Nielsen’s view the hike (taking petrol prices up to 56-64 pesos per litre) was urgently necessary in order to send a positive signal to potential investors in Argentina’s world-class Vaca Muerta shale deposit and other energy sources.
However, after evaluating the likely impact of a hike on inflation, Fernández had second thoughts and ordered his YPF chief to drop the move hours before it was due to come into effect, even if the firm and the energy sector in general felt that price curbs so early in the new presidency could stall future investment.
In partial compensation, President Fernández decided to defer two taxes which had already been postponed by Macri (one on liquid fuels and ther other on carbon dioxide emissions) totalling three percent of the final price, delaying their implementation from this month to next. But despite this reprieve the sector’s tax burden had already been increased by a previous decision to up the statistics fee from 2.5 to three percent.
Decree 103, signed by Fernández, Cabinet Chief Santiago Cafiiero and Ministers Martín Guzmán (Economy) and Matías Kufas (Production), argues that the Law of Social Solidarity and Productive Revival in the Framework of Public Emergency mandates stable fuel prices, which would be rendered impossible by a tax increase.
The decree also stipulates that there should be no future updating of the tax without first consulting the inflation data compiled by the INDEC national statistics bureau.
Last year petrol prices were increased a total of nine times (including twice after the August freeze), all during the preceding Macri presidency. The latest increase of 5-6 percent came at the start of last month.
Even if world oil prices barely rose 15 percent last year, Argentine levels still lag well behind – chiefly due to a 62 percent devaluation taking the dollar from 38.85 to 63 pesos in the course of last year. The sector is further concerned over the new government’s intentions to de-dollarise the economy, pointing out that even nominal price increases might fail to attract investment if they fall behind in dollar terms.
The net effect of these latest moves with the subsequently suspended price increase and the delayed tax increase has been to leave the sector in a state of uncertainty as to exactly where the Alberto Fernández presidency is heading.
“We didn't have anything and they didn't confirm us in one way or another; we do know that on January 1, an update that the Macri government had postponed should have been done,” Gabriel Bornoroni, the president of the Confederation of Hydrocarbons and Allied Trade Entities (CECHA), told Infobae this week.