OLYMPUS DIGITAL CAMERAIn previous Argentina Strategic Briefs, we reported on ministerial resolutions that increased the prices of public services including electricity, natural gas and transportation. The transport and distribution of natural gas by pipelines is a natural monopoly and because of this, the prices charged for such services by the private companies that perform them are determined by the government.

By law, public hearings must be convened in order to inform all interested parties before any price increases can be put into effect. The government, however, is not bound to follow any opinion that might be expressed by those present at these meetings.

These hearings could have been convened in February, when hot weather and the summer holidays would have meant that there would have been limited participation. They would have drawn little media attention, and any criticism could easily have been disregarded, because all reasonable political actors and analysts agreed that the administrations of presidents Néstor Kirchner (2003-2007) and Cristina Kirchner (2007-2015) had kept prices at artificially low and unsustainable levels.

CEOs, however, tend to favour legal shortcuts that save time and eliminate procedural complications such as these public hearings, so the non-political wing of the current government wished to move quickly. As a result, debatable legal arguments were provided by government lawyers in order to avoid holding the hearings before the prices were increased.

Another similar preference for shortcuts turned against the government when an imaginative legal advisor convinced President Mauricio Macri that he could appoint Supreme Court justices by decree while Congress was in recess. Constitutional law experts were divided on the topic — coming out both in favour and against the constitutionality of the procedure — but all seasoned politicians realised that the move would set a very bad precedent. It would open up an avenue to tamper with the Court’s composition in a way that not even Cristina Kirchner had dared to do when she was in office.

The government backed down over the Justices, who were later appointed through the normal procedures, but it did not learn its lesson: hearings were avoided. Consequently the Supreme Court ruled in August on a number of lower court decisions that challenged the utility price increases. It annulled the rises for all residential consumers. On purely procedural grounds, the Court refused to extend the resolution beyond residential consumers, but it did not rule out the possibility of doing so if it received further petitions.

Furthermore, the Court also annulled increases in the price of upstream natural gas in spite of the fact that public hearings are not required for the establishment of such prices. Exploration and production of natural gas is not a natural monopoly and is, in fact, not a monopoly at all in Argentina, where numerous companies are engaged in the sector.

The Court, instead, did so by recognising the direct effect of a constitutional provision that grants consumers the right to have their economic interests protected by the state, and to participate through consumer associations in the regulatory agencies of public services. It equated the extraction of natural gas to the downstream sector of the industry on the grounds that prices are not free but are instead set by government resolutions.

The government has finally called for the public hearings to take place this month and has reduced the price increases. It is counting on putting into effect the new adjustment plan after the hearings without any further judicial obstacles. But it has already suffered a serious political blow, because the delay in implementing the new higher prices will entail more consumer subsidies and, therefore, a higher budget deficit.

This is an excerpt from an article in this month’s Argentina Strategic Brief – for more information please contact us at info@menas.co.uk.