In Venezuela, cheap gasoline prices stir debate

Posted on Thursday, 08.28.14

In Venezuela, cheap gasoline prices stir debate

Venezuelan authorities recently said they were mulling increasing gas
prices. But with congressional elections looming and political
instability in the wings, some wonder if it will happen.
BY JIM WYSS
JWYSS@MIAMIHERALD.COM

BOGOTA -- When Venezuela recently announced it was consider raising the
price of the world's cheapest gasoline, it didn't spark a rush to the
pumps. Such threats have come and gone in the past and still it's
cheaper to buy a gallon of gas than a bottle of water.

Even as fuel subsidies cost the country an estimated $12-$15 billion a
year and have spawned powerful smuggling rings, the administration has
been reluctant to budge.

At the root of the inaction is the political cost for an administration
that has seen its approval rates plummet and told its followers that
cheap gas is a birthright in a country with the world's largest oil
reserves.

There are also fears that increasing prices might spark a repeat of the
1999 Caracazo riots, which were brought on, in part, by fuel and
transportation hikes, said Victor Álvarez, a researcher and economist at
the Centro Internacional Miranda think-tank.

In reality, however, the subsidies are benefiting smugglers and the
car-owning middle class even as they deprive the needy of resources, he
said.

"What's truly anti-populist and reactionary is to maintain a subsidy
that is hurting the poor," he said during a conference Thursday titled
"Gasoline prices: the need and consequences of an adjustment" broadcast
by the Ultimas Noticias newspaper.

Gasoline costs roughly five cents a gallon in Venezuela. A vehicle that
might cost $60 to fill in the United States could be tanked in the South
American nation for less than a dollar. By that calculation, a family
that fills its car once a week benefits from subsidies of more than
$3,000 a year, Álvarez said, even as "the people who really need it are
those Venezuelans who have to walk — not families with three, four or
five cars."

The debate comes as the administration is trying to deal with its
subsidy problem amid a flailing economy. The socialist administration
has price controls on a wide array of products, which has spawned
widespread smuggling. The government estimates that from 40 to 50
percent of all goods are spirited into neighboring Colombia where they
can fetch five times more money.

That's led to hoarding, speculation and shortages of even basic goods.
It's also contributed to the country's punishing 62 percent inflation rate.

On Thursday, the government said that since it stepped up its efforts to
crack down on contraband less than three weeks ago, it had seized 641
tons of food, 308 tons of cement and iron re-bar, and more than 100
gallons of fuel.

And more controls are in the works. The government plans to set up
cameras along the border and roll out thumb-print scanners at grocery
stores by November to cut down on hoarding. The plans for biometric
control have raised hackles and drawn charges that the socialist
administration wants to instate Cuba-style rationing.

But all those efforts will likely fail while the steep subsidies are in
place, the panelists said. About two years ago, for example, Venezuela
rolled out a computer-chip based system that limits the amount of
gasoline that vehicles can purchase along the border. Still, fuel
smuggling is rampant.

"We can set up any system…we can have border guards every five meters
but the incentives to smuggle will still be there," Álvarez said.

On Thursday, the administration said it had arrested 183 people for
smuggling in recent days, including 15 Bolivarian National Guard members
who were caught repairing an illegal border crossing into Colombia that
had recently been destroyed.

Venezuela's gasoline prices haven't budged in 17 years, but rumors about
an imminent increase are frequent. The latest round of speculation began
early this month when the head of the state-run PDVSA oil company Rafael
Ramírez, said the president was considering a "national debate" about
raising prices.

"We're the country that consumes more gas per capita in the world and we
have the cheapest prices on the planet," he said at the time. But
Ramírez also assured the nation that prices would not match
international levels.

Álvarez, the economist, said a "fair" price for gasoline, including
refining and distribution costs, and a 30 percent profit for PDVSA,
would be about 4 bolivars per liter, or $2.42 a gallon.

Not surprisingly, many polls show that Venezuelans don't favor a gas
hike, particularly as the government sends some 243,000 barrels per day
in subsidized fuel to Cuba and other allies that are part of PetroCaribe.

Maduro has vehemently defended the petrol diplomacy, but Ronald Balza, a
researcher and university professor, said it was time to question the
international cooperation.

"Everyone in Venezuela knows we have [economic] problems," he said at
Thursday's event, "and I'm sure our colleagues in other countries would
understand that also."

With National Assembly elections slated for next year and Maduro's
approval rating already in the dumps, some believe the gas hike isn't
imminent.

"The government is unlikely to undertake politically difficult policy
measures, including a gasoline price hike, given its fears over
associated political costs," Risa Grais-Targow, an analyst with the
Eurasia Group, wrote in Thursday's edition of the Inter-American
Dialogue's Latin America Energy Advisor. "The government has already
started to tone down its rhetoric about a possible hike with Maduro
suggesting that the government is not in a hurry to raise gasoline
prices…Even if they do hike rates, it would likely be a very gradual
increase."

Emiddio Palumbo, the president of the transportation association of
Guaira state, said his organization would welcome a fuel hike if the
money would be used to end food shortages and insecurity, and improve
infrastructure. He said drivers often missed work because they had to
scour the city looking for aspirin or groceries.

"We're willing to make sacrifices," he said, "as long as the increase is
used to solve all the social problems."

http://www.miamiherald.com/2014/08/28/4314961/in-venezuela-cheap-gasoline-prices.html