beyondbrics

You never quite know where you are with prices in Argentina. The inflation figures don’t inspire much confidence. Nor do price controls. This week the government has taken another spin on the roller-coaster of petrol prices.

As with much else, ordinary Argentines have taken the latest unfreezing of pump prices in their stride – so far. But production and investment in the energy industry are slumping. Industry participants describe the situation as a pressure cooker ready to explode.

The Argentine government doesn’t like market forces to be in play for very long at a time. Petrol prices were liberated in December but in February – after Royal Dutch/Shell actually tried to put them up – they were frozen again. Then on Tuesday the government relented once more and removed controls.

Not much happened.

“We heard about it on the radio,” said the supervisor of one Petrobras filling station in Buenos Aires, which had not yet lifted prices. “People aren’t asking about it yet. If they were worried, they’d be going crazy to fill up their tanks.”

Her station was selling a litre of super petrol for 3.979 pesos (62p, 98 US cents, 70 euro cents). Premium petrol was at 4.799 while premium diesel was 4.447, ordinary diesel 3.509 and vehicular gas, 1.349 pesos.

A nearby Shell petrol station had also received no order from head office to put up prices and was charging 4.419 pesos for super, 4.899 for premium petrol and 4.499 for premium diesel.

Nevertheless, news that companies are free to raise prices should be music to the ears of Juan José Aranguren, the head of Shell in Argentina. Shell fell foul of then President Néstor Kirchner in 2005, when it sought to hike prices and Mr Kirchner urged Argentines to boycott its products.

Asked about the right level for prices in an interview with business daily El Cronista Comercial this week, he said:

There’s no single answer. It will be the price needed in order to have sufficient supply. In Argentina, costs are continuing to rise. This is a pressure cooker and if the lid is not lifted in time, and intelligently, it’s going to explode in someone’s face.

He went on:

In the last 7 years, demand for petrol and diesel has increased 45 per cent. No new refinery has been built and 60,000 new vehicles have gone on the roads every month. Demand for petrol and diesel is growing between 7 and 8 per cent a year. That’s great, because it’s our business, but since there is not enough local supply to meet this demand, we have to import. These bottlenecks will continue to arise…

The government tightly regulates the energy market and domestic prices have long been below international oil prices, even when the latter are not at dizzying heights. That erodes companies’ ability to invest in exploration. The results are plain, as the following tables – taken from a report this month by eight former energy secretaries on the industry from 2003-10 – make clear:

Rosario Sica, head of a filling station federation, welcomed the price rises. She has warned that petrol stations have gradually been forced to close because of squeezed margins.

“We don’t have enough crude in the domestic market because there hasn’t been exploration. Risk capital doesn’t come to Argentina because there is no legal security,” she said.

Only last week, at the start of a four-day holiday weekend, filling stations in some parts of the country were facing shortages.

The prospect of rising fuel prices is unlikely to delight Argentines already expecting inflation of 30 per cent this year. And the fact that petrol prices here are some 40 per cent below those in Chile and Peru and 60 per cent less than in Uruguay and Brazil will be little comfort.