BCN-01-02How far can Venezuela go in raising price of world’s cheapest gas?

284

ZCZC

BCN-01

VENEZUELA-OIL-PETROL-ECONOMY

How far can Venezuela go in raising price of world’s cheapest gas?

CARACAS, Aug 5, 2018 (BSS/AFP) – In Venezuela’s inflation-hit economy, a
single US dollar can buy 3.5 million liters of gasoline — an absurdity that
the government says it will tackle with a hike in the cost of state-
subsidized fuel.

But just how far can President Nicolas Maduro go without getting his
fingers burned?

– Subsidized gas –

Maduro announced on July 29 plans to adjust the price of gasoline and
regulate sales based on the so-called “fatherland card,” an electronic card
that provides access to subsidies. As a first step the government began a
census of motor vehicles, set to end on Sunday.

A liter of 91-octane gasoline currently costs one bolivar, while 95-octane
gas costs six. By contrast, a single egg in Venezuela’s hyperinflation
ravaged economy — estimated by the IMF at one million percent in 2018 —
costs 200,000 bolivars.

A dollar on the country’s black market is currently trading at 3.5 million
bolivars.

Experts say the retail price of gasoline covers just between two and four
percent of its cost of production.

Maduro has kept details of the fuel price adjustment under wraps, but he
said that “we are paying to throw it away … we need to move to a rational
usage.”

Yet talking openly about cutting the gasoline subsidy has been a taboo
since the 1989 riots known as the “Caracazo,” which were triggered by a rise
in fuel prices and left 300 people dead in Caracas and towns surrounding the
capital.

Even though the iconic late leader Hugo Chavez questioned the rock-bottom
prices of state-subsidized fuel during his term in office between 1999 and
his death in 2013, even he never touched them.

In 2016, Maduro authorized the first price hike in 20 years, but only by
between 1.328 percent and 6.566 percent, which made no impact on the derisory
prices.

The new adjustment will come at a time of profound stagnation, in an
economy that has not stopped shrinking since 2014.
MORE/HR/0918

ZCZC

BCN-02

VENEZUELA-OIL-PETROL-ECONOMY 2 LAST CARACAS

– Inflationary subsidies –

Fuel subsidies have cost the Venezuelan government $10 billion a year
since 2012, petroleum expert Luis Oliveros told AFP.

That has created a such a gaping hole in the budget that the government
has tried to fill by printing more money, which in turn has created even
higher inflation, Oliveros said.

“It is a lie that increasing the price of fuel is an inflationary
measure,” he said. “The subsidies are hyperinflationary.”

The situation has only been made worsen by the drop off in oil production
from 3.2 million barrels a day in 2008 to 1.5 million in 2018.

That is why the operating capacity of refineries has fallen and gasoline
imports have risen.

In a perverse twist, there has been a decrease in the demand for fuel
because 90 percent of Venezuela’s public transport vehicles are out of
operation because there cannot buy spare parts to keep them on the road,
according to unions.

Venezuela imports 33,600 barrels of gasoline and 36,000 barrels of diesel
a day from the United States, according to the US Energy Information Agency.

Maduro has yet to explain what happens to consumers who do not have a
state-issued “fatherland card.”

With wages ravaged by hyper-inflation, it is unlikely prices will get
anywhere near international levels. If they did, however, filling a gas tank
would cost a Venezuelan two years of their minimum-wage income.

“Prices are so far behind that no matter how big the increase in terms of
percentage, they will still remain low,” said Henkel Garcia, director of the
Econometrica consultancy group.

– Social ‘blackmail’ –

Economist Luis Vicente Leon said the government will use greater subsidies
in the “fatherland card” system to ensure that fuel is affordable for all
cardholders.

According to the opposition, this card is designed for the Socialist
government to broaden its support base, which has been weakened by the
economic crisis and longstanding shortages of food, medicine and basic goods.

The 12 million Venezuelans with the cards — a third of the population —
systematically receive food vouchers.

“If they are already using food and medicine as a form of blackmail, then
why not gasoline?” said Oliveros.

BSS/AFP/HR/0920