Argentina raises Power Tariffs in drive to slash subsidies

Argentina's energy minister on Friday announced new power rates on the back of subsidy cuts that could see the bills of some consumers jump six-fold, saying that a near total freeze on tariffs in parts of the country had left the power grid "on the brink of collapse."

Minister Juan Jose Aranguren said the government of newly-elected Mauricio Macri targeted reducing subsidies by $4 billion this year as part of a drive to reduce a gaping deficit that widened sharply under the government of former President Cristina Fernandez.

"The subsidies for the generation of electricity in 2015 was around $10 billion, which is just under 2 points of gross domestic product," Aranguren told a news conference. "With our new tariff policy...we aim to save $4 billion."

The federal government only controls rates in the capital and its suburbs. Provincial governments outside of Buenos Aires set their own rates.

Aranguren said the old subsidy system had favoured residents of the capital Buenos Aires, who typically pay rates five times lower than in other provinces because rates there have been largely frozen for more than 13 years.

He said that a household in the capital which consumed 180 kilowatts per month would see its bill rise to 150 pesos ($10.74) from 25 pesos - a price the minister noted was roughly the same as a cup of coffee.

There will be cost-saving incentives for consumers who reduce their consumption from last year.

Leading utility firms Edenor and Edesur, which distribute power to metropolitan Buenos Aires have posted losses in four of the past five fully reported financial years as power rates stayed rock bottom even as inflation surged.

The new rate structure comes after the government set new wholesale prices for electricity that will apply nationwide from Monday.

Aranguren said that the rates would be reviewed again in six months time.

Argentina has spent $51 billion on power subsidies since 2003, Aranguren said. (Reporting by Buenos Aires newsroom; Editing by Diane Craft)