UPDATE 2-Argentina hikes electricity rates to cut subsidies

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By Hilary Burke

BUENOS AIRES, July 30 (Reuters) - Argentina on Wednesday raised residential electricity rates in Buenos Aires for the first time in seven years, targeting households that consume the most power to reduce state spending on energy subsidies.

Planning Minister Julio De Vido said the tariff increase will affect the 24 percent of users who consume half the residential power in and around the capital. The price they pay for electricity will rise by 21 percent on average.

At the same time, a 10 percent average increase on power rates will apply to industrial and commercial users, which De Vido said should not stoke overall inflation.

"One hundred percent of these rate increases will be used to fund investment plans that the (power) companies have already presented us," De Vido told a news conference.

He said the investments would surpass $2 billion by 2018, doubling energy distribution capacity.

The move comes as government energy subsidies surge, threatening to shrink the primary budget surplus. Argentina has the region's lowest prices for natural gas and electricity thanks to a complex set of price caps and subsidies.

A net exporter of energy, Argentina has had to boost imports of Bolivian natural gas and Venezuelan fuel oil in recent years to help keep power plants running during periods of high demand.