Free oil market to reign in Argentina, new energy minister says

BUENOS AIRES (Bloomberg) -- Argentina’s move to a free market for energy prices remains on track.

A recent decision to cap crude oil prices and limit fuel price gains in order to stem inflation was an outlier, according to Javier Iguacel, the nation’s new energy minister. Restricting crude price increases only extinguishes competition and, in turn, the possibility of cutting costs, he said.

“There’ll be no more agreements,” Iguacel said in an interview. “It’s a free market. Companies can set the fuel prices they consider best for business. And they shouldn’t expect a lower domestic oil barrel either.”

Investors had become jittery because of the agreement from May to July, which capped oil at $68/bbl this month and constrained fuel price hikes in a bid to shield Argentines from a peso devaluation and a rally in crude. Inflation is running at more than 25%. Argentina had moved to a free market in October after years of interventionism.

State-run YPF SA raised fuel prices at the weekend for July by more than was originally agreed with Iguacel’s predecessor, ex-Royal Dutch Shell Plc executive Juan Jose Aranguren. That demonstrates the free market already reigns, he said.

In a sign Argentina is committed to deepening its market shift, Iguacel confirmed the government will eliminate the role of a state intermediary in future power contracts, starting in September. Now, Compania Administradora del Mercado Mayorista Electrico SA -- Cammesa for short -- sets the prices power generators pay for fuel and natural gas, and sell electricity. But not for much longer.

“We’re going to get out of the current system,” Iguacel said. “Generators will buy direct from producers, and large-scale consumers and distributors will buy direct from generators.”

Completing the move to a deregulated power market will take up to 18 months. Companies will be able to use an auction process to procure the best prices.

In the utilities sector, however, plans to end most subsidies for natural gas and electricity consumption by the end of next year might extend into 2020, the International Monetary Fund’s deadline for the government to balance its books, Iguacel said.

President Mauricio Macri’s Cambiemos alliance will campaign for re-election in 2019 and the removal of subsidies has been unpopular.