Argentina Government Reaches Price Ceiling Deal with Fuel Producers

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Written by Amir Richani for Industrial Info Resources (Sugar Land, Texas)--The Argentine Ministry of Economy and YPF S.A. (NYSE:YPF) (Buenos Aires, Argentina), Shell plc (NYSE:SHEL) (London, England), Axion Energy S.A. (Buenos Aires) and Puma Energy (Buenos Aires) closed a deal this week to raise fuel prices in the country between December and March. According to the agreement, fuel prices will increase by 4% in December, January, and February and then 3.8% in March.

This is part of the government's "fair prices" policy, where monthly product increases are set between the government and sectors as a way to prevent steep hikes and control inflation, according to the economy minister.

The Argentine government has introduced this mechanism amid high inflation rates and declining foreign reserves.

Economy Minister Sergio Massa said in a prepared statement that "having arrived at this program with a path to give people peace of mind until March helps to calm the Argentine economy, helps the government to strengthen the path of inflation reduction that we intend to follow and helps companies to give certainty to all their value chain."

Inflation in the South American country has been rampant, affecting the purchasing power of citizens and leading to labor disputes. According to Argentina's price index, consumer prices increased by 6.3% in October, while the year-on-year increase stood at 88% compared to the yearly accumulated price index increase of 76.6%.

The average price increase of fuels, gas, electricity, water and housing stood at 66.3% between October 2021 and October 2022. In the last year, fuel prices have increased by 60.5% in Argentine pesos, according to the prices published by the confederation of fuel traders known as CECHA.

Despite the fuel price increases, the devaluation of the Argentine peso, currency controls, and price controls have forced industries, such as the energy sector, to sell at prices below international standards, hurting the finances of companies and reducing profitability. This issue is not restricted to the fuel sector, as even the upstream oil and gas sector has faced similar challenges in the past, though Argentina's energy prospects have helped to prompt up the industry.

As part of the "fair prices" program, fuel companies will have special access to foreign currency from the Argentine government, especially for product imports, according to Massa. By joining this program, fuel companies will also see a reduction in the import tariffs of refined products in Argentina. The objective is to provide fuel companies with the incentives for the price ceilings.

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