Govt. cuts domestic subsidies

Monday, February 11, 2002

Mexico's government has cut power subsidies to domestic users, in a move it said would give power companies the resources to invest in generation, transmission and distribution, as well as investing in maintenance and modernizing existing resources.

Subsidies will remain untouched for the 16.5mn homes - 75% of the population - that use less than 280kWh every two months. Twenty percent of the population (4.4 million homes) that use 280-500kWh every two months will see a gradual reduction in subsidies, while 5% of the population (1.1 million homes) will see subsidies end immediately.

The rates do not affect irrigation and water pumping for agricultural purposes, pumping for drinking water and sewerage services, or street lighting.

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Reaction to the subsequent price rises was quick. Demonstrators were soon on the streets in many cities banging pots in protest at the rates rise, and consumers threatened to boycott payments and to paint meters to make them unreadable.

The moves "might be legal, but are immoral," federal district government head Andres Lopez said. Regional leaders too came out against the rises, and did not trust the federal government claims that the cuts would affect only those who consume the most power.

Parallel to the subsidy cuts, the government announced an energy efficiency program that makes financing available for the acquisition of more efficient air conditioning and refrigerators, insulation for houses, and the introduction of energy efficient lighting. It will also start a campaign to formalize illegal power connections.

The government is aiming for power savings of US$1.1bn, half of which would come from the end of subsidies, 40% from a special rate that it will pay for its own power consumption, and 10% from budget reductions at state power company CFE.