Argentina orders oil companies to cut fuel prices

Argentina’s government, which has long been fighting a losing battle against inflation by trying to control prices, on Tuesday ordered oil companies and petrol stations to restore fuel prices to their levels at the end of July.

Petrol and diesel prices have soared by as much as 30 per cent so far this year without the government stepping into what is supposed to be a free market.

But Guillermo Moreno, the pugnacious internal trade secretary, who has been known to negotiate with a pistol on the table and last week whipped out a pair of boxing gloves at a meeting with paper executives, said he was preparing to enforce in the fuel sector a 1970s-era ‘law on supply’, which allows the government to set maximum prices.

The price cut effectively only applies to Royal Dutch Shell, the Anglo-Dutch giant with which the government has been at loggerheads since it tried to hike prices in 2005. Néstor Kirchner, then president, urged a boycott of Shell, and the company has been out of favour ever since.

Daniel Montamat, a former energy secretary, said Tuesday’s order appeared to try to make a scapegoat out of Shell, which has twice increased fuel prices by a few cents this month. There was no immediate response from the company.

“All prices are going up, not just fuel,” Mr Montamat said. “Trying to attack prices is like trying to treat the symptoms of an illness, and they are symptoms that the government itself has caused through its monetary and fiscal policies.”

Rosario Sica, president of a filling station federation, said fuel prices are likely to go higher yet after pay rises of some 24 per cent in the sector. Private economists estimate Argentine inflation will be 25 to 30 per cent this year and say the official July rate of 0.8 per cent was about half the real level, which could be more than 2 per cent in August.

“The government has been accepting fuel price rises but now it’s worried about the level of inflation in the third quarter,” said Mr Montamat.

In reality, Argentina’s whole energy market suffers severe distortions. A litre of super petrol is close to the $1 mark in Buenos Aires, where fuel is far cheaper than in the provinces and neighbouring countries, but around half of that is made up of taxes. The domestic price of oil, meanwhile, is officially $42 to $47 per barrel, depending on the grade. That is nearly half current world prices, and the government keeps the difference.

“In reality, the government doesn’t want to realise there are problems throughout the chain – production, refinery, filling stations,” says Emilio Apud, another former energy secretary.

He noted more than 2,500 petrol stations had shut in recent years, hydrocarbons exploration and reserves were declining and there had been no expansions to refineries which are operating at full capacity.

Bottlenecks caused by the government’s energy policy spark huge gas supply problems every winter and summer, when demand for heating and air conditioning peaks, and the government has been rationing energy to many factories for weeks now.

To help make up the shortfall, Argentina is expected to import nearly twice as many boatloads of costly liquefied natural gas this year than in 2009. Unless there is an increase in investment to boost reserves, it is expected to become a net energy importer within a decade.