Tuesday 30 December 2008, San José, Costa
Rica
VENEZUELA: The Cost of
the World’s Cheapest
Gasoline
By Humberto Márquez
CARACAS (IPS) - The
world’s most inexpensive
gasoline is sold in
Venezuela, through a
longstanding subsidy
programme that benefits
car owners while
depriving the oil
industry of a large
source of funds for
reinvesting.
"What’s the problem? I
suppose if we produced
wheat or tractors they
would be very cheap
here. If we have oil,
then gasoline should be
cheap," 38-year-old
Alexis Santana, who has
been driving a bus since
he was 22, told IPS. The
argument may seem
logical in a country
that is one of the
world’s biggest oil
producers.
For the past 10 years,
gasoline has cost
between three and four
cents of a dollar per
litre. Soft drinks cost
20 times more, a bottle
of mineral water 25
times more, and an
espresso in a local café
30 times more.
Customers often leave
more in tips to service
station attendants than
what they actually pay
in gas.
"Gasoline is practically
given away here for
free," said Finance
Minister Alí Rodríguez,
who has done stints as
energy minister,
secretary-general of the
Organisation of
Petroleum Exporting
Countries (OPEC), and
president of the state
oil monopoly PDVSA.
"It is obscene to sell
our gasoline this way.
We might as well give it
away!" President Hugo
Chávez said in a January
2007 speech, when he
ordered studies to be
carried out into the
possibility of raising
domestic gas prices.
However, such a move
would be almost
tantamount to political
suicide in Venezuela.
PDVSA and the state
heavily subsidise the
price, mainly to the
benefit of the owners of
the four million private
vehicles circulating in
this country of 27
million.
"According to our
numbers, Venezuela
consumes nearly 750,000
barrels a day of liquid
fuels, 70 percent of
which is gasoline, and
the difference between
domestic prices and
prices paid in net oil
consumer countries will
amount to 26 billion
dollars this year,"
economist Asdrúbal
Oliveros with
Ecoanalítica, an
economic consultancy in
Caracas, told IPS.
If Venezuela were to
sell fuel at cost on the
domestic market, the
subsidy would still
total 17 billion
dollars, said the
analyst.
When the price of
Venezuelan oil stood at
116 dollars a barrel in
July, former Central
Bank chief economist
José Guerra estimated
the annual subsidy at
around 19 billion
dollars. But by
mid-December, the price
of oil had plunged to 31
dollars a barrel.
According to official
figures, the vehicles
circulating in Venezuela
consumed 400,000 barrels
a day of gas and diesel,
which meant a subsidy --
based on the difference
between domestic and
export prices -- of 12.5
billion dollars
It costs PDVSA two cents
of a dollar to produce
one litre of gas, which
it sells domestically
for three cents.
"By giving away more
than 3,000 dollars a
year away to every car
driver, PDVSA has been
left without money that
could be reinvested with
a view to improving the
domestic system of fuel
distribution,
stimulating other
sectors, or reducing the
company’s debt," Ramón
Espinasa, who was PDVSA
chief economist from
1992 to 1999, told IPS.
And although Venezuela
is a major oil exporter,
it is facing growing
purchases of oil
derivatives, including
50,000 barrels a day of
gasoline blending
components, according to
José Suárez Núñez, a
veteran journalist who
specialises in the oil
economy.
PDVSA purchased 2.59
billion dollars in oil
derivatives in 2006 and
4.03 billion in 2007,
according to its
reports.
The low price of
gasoline "is essentially
a regressive subsidy,
because most of the fuel
is consumed by private
vehicles belonging to
the middle and upper
classes, while the poor
use the deficient public
transport system," said
Espinasa.
"Eighty percent of the
gasoline is used in
private vehicles, which
transport just 20
percent of the
population, while 80
percent of citizens
depend on public
transport, which
consumes 20 percent of
the gasoline. It is a
backwards case of Robin
Hood," said economist
José Luis Cordeiro.
High economic growth
rates, low domestic gas
prices and government
incentives like the
Family Vehicle Programme,
which exempts certain
cars from the value
added tax, have fueled a
buying spree of cars,
with new records set
each year since 2004,
until reaching a total
of 400,000 new cars sold
in 2007.
However, restrictions on
imports reduced sales to
252,000 cars between
January and November
2008, according to the
Venezuelan automotive
industry chamber.
"Small service stations,
on the other hand, are
hurt because with these
prices, the cash flow is
small and it’s not worth
investing in
installations, we cannot
seek large loans, and
our employees are poorly
paid," José Costa, the
manager of a gas station
in Caracas, commented to
IPS.
Through its broad range
of social programmes,
the Venezuelan
government has made
public spending not only
the engine of economic
activity but of improved
living standards as
well, based on soaring
oil prices. For that
reason, it must feel the
burden of the heavy
subsidy for domestic gas
prices, said Oliveros.
In the 1990s, a World
Bank study on subsidies
in Latin America showed
that with the four
billion dollars that the
Venezuelan state shelled
out to gasoline
consumers, "41,000
primary schools or 7,000
secondary schools a year
could be built," said
Cordeiro.
PDVSA contributed nearly
14 billion dollars to
the government’s social
programmes in 2007,
according to the
company’s annual report.
The social programmes,
or "missions", include
literacy training,
primary health care
provided by Cuban
doctors in the slums,
food for the poor at
subsidised prices, soup
kitchens for low-income
women and children, free
eye operations, dental
care, microbusiness
loans, support for
cooperatives,
scholarships at all
educational levels, and
stipends for the
unemployed who agree to
take training courses.
According to the
National Statistics
Institute (INE), the
poverty rate was reduced
from 43.9 percent in
1998 -- when Chávez was
first elected -- to 28.5
percent in 2007. And the
Planning Ministry
reports that the
proportion of households
under the poverty line
has now shrunk to 23.4
percent, while the
proportion of households
in extreme poverty has
dropped to nine percent.
But with the price of
Venezuelan oil plunging
to one-quarter of its
high of over 120 dollars
a barrel, the country
will be hit hard by the
current global crisis.
"The fiscal situation
could become so critical
that the government will
turn to measures like
devaluation, hiking
taxes or increasing the
price of gasoline. But
what it is not likely to
do is cut spending,"
said economist Emeterio
Gómez.
Subsidies, whether
direct or indirect,
usually translate into a
comparative advantage
that boosts the
industry’s
competitiveness.
"But that is not the
case in Venezuela,
because the advantage of
cheap gasoline is
cancelled out by price
controls on other
products, exchange
controls, traffic jams
and the poor state of
the roads," said
Oliveros.
Because of the lack of
road transport
corridors, a truck
hauling merchandise from
the Colombian border in
the west to industrial
or consumption centres
in eastern Venezuela
must drive through
Caracas and other large
cities.
The low gas prices also
stimulate contraband
with Venezuela’s
neighbours -- Colombia,
Brazil, and to a lesser
extent, Guyana --
estimated at 25,000
barrels of fuel a day by
the Energy Ministry,
which at an average
price of 90 dollars a
barrel in 2008 would
represent 800 million
dollars a year.
Investigative reports by
the local press
estimated that some
80,000 families in
northeastern Colombia
depend on smuggling of
fuel for all or part of
their income. The fuel
is carried across the
border in plastic
containers and jugs on
bicycle or by foot, or
in trucks that form part
of large-scale smuggling
rings.
"The problem is the
difference in prices,
because fuel in
Venezuela is 20 times
cheaper (than in
Colombia), and if this
problem is not resolved,
it will be impossible to
combat smuggling," said
Lino Iacampo, president
of the association of
gasoline distributors in
the border state of
Táchira.
"And people in Táchira
are often angry because
they can’t find gas, or
because it is rationed
out," he added.
In the United States,
young people become
independent when they
move into their own
place; in Venezuela,
middle-class youngsters
become independent when
they get their own car,
says Oliveros.
The cult of owning one’s
own car has become so
entrenched that
municipal authorities in
Caracas are requiring
that in certain lanes
during rush hour, each
vehicle must carry at
least one other person
besides the driver.
During rush hour traffic
jams, cars carrying an
average of 1.2 people
move at an average speed
of five kilometres an
hour.
But as Oliveros and
other analysts point
out, the lack of safety
on buses, where there
has been a rash of armed
robberies, and in taxis
has led people to
desperately seek to
purchase a car of their
own.
Nearly all major
arteries in Caracas are
packed from dawn till
late at night. Aliana
Giménez, who lives in
the commuter city of
Guatire, east of the
capital, told IPS that
"my life has been
reduced to sleeping on
the bus, working,
getting home, showering
and changing my clothes,
taking what amounts to a
little nap at night, and
setting out for Caracas
again before the sun
comes up."
Economists say the first
step towards a solution
could be gradually
increasing gasoline
prices to the halfway
point between the
domestic and export
prices.
"But that measure would
only work if economic
policies are modified to
keep inflation down;
otherwise it would cause
more problems," said
Oliveros.
Venezuela has the
highest inflation rate
in the hemisphere:
around 35 percent a
year, and over 50
percent for foodstuffs,
which in this country
are transported mainly
by road.
But in the past,
gasoline price hikes
have sparked severe
social protests, the
worst of which was the
1989 "Caracazo", in
which hundreds of people
were killed in the
brutal crackdown by
security forces.
In Venezuela, such a
move could be extremely
costly in terms of votes
and support.
And Chávez -- who has
not touched the price of
gasoline since he took
office in 1999, and who
has held elections of
some kind nearly every
year -- may be planning
an early 2009 referendum
to seek a constitutional
amendment that would
make it possible for a
president to run for
indefinite reelection. |
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