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Will the fuel price increase in Venezuela?

Will the fuel price increase in Venezuela?

Posted by Dubraswka Aguilar on August 15, 2014

The Venezuelan government is threatening to raise the country’s gasoline prices – currently the lowest in the world at five U.S. cents a gallon.

President Nicolás Maduro first announced plans to raise prices back in December, but since then the government had remained quiet about its proposal. That is until last week, when Oil Minister Rafael Ramírez once again reiterated Maduro’s petrol pledge during talks with reporters.

Ramírez, however, declined to give any specific timeline for when the price hike would be implemented and said that the new price would still be nowhere near the high costs gasoline fetches on the world market.

"We will not put on the international price because that's not the idea, but it will be a price which is reasonable," Ramírez told Reuterswhile attending a celebration of the centenary of the discovery of oil in the country. "There has to be a discussion (about the price rise). It is cheaper to fill a tank than to buy a cigarette."

The cheap gasoline annually costs the state-run oil company Petróleos de Venezuela, S.A., or PDVSA, $12.5 billion in losses, according to figures compiled by the Venezuelan government. It costs PDVSA 28 times more to produce gasoline than its sales price; for diesel, the production costs are 50 times what consumers pay at the pump.

"We are the country with highest gas consumption per capita and we have the lowest gas prices in the world. It can't be justified," Ramírez said.

PDVSA – along with the rest of the Venezuelan economy – has hit some dire financial straits in the past few years. In an effort to relieve some of the financial pressure, PDVSA recently announced that it would sell the U.S.-based Citgo Petroleum Corp. if it could find a buyer willing to foot at least $10 billion for the company.

Citgo, the Houston-based subsidiary of PDVSA, owns three refineries capable of handling about 749,000 barrels a day in Louisiana, Texas and Illinois. It also sells gasoline through about 6,000 stations and donates heating oil to 200,000 low-income families during winters.

Fuel price is a sensitive topic in Venezuela. This is a country that has the largest crude reserves in the world and its citizens feel entitled to the cheap gasoline that is a vestige of late President Hugo Chávez.

“This sense of entitlement to gas is quite widespread,” said Harold Trinkunas, director of the Latin American Initiative at Brookings told the International Herald Tribune. “Venezuelans generally do not have a strong sense of the costs associated with the production of gas. And clearly Venezuela is selling gas far below even the costs of production.”

Most analysts view the Maduro’s cautious steps toward raising gasoline prices as a way to balance a shaky subsidy with a public already wary of the government. Earlier this year, widespread unrest wracked the capital of Caracas and many other parts of the country. Also, lawmakers still remember the violent protests in the early 1990s that left hundreds dead after the government doubled gas prices and pushed public transport costs up 30 percent.

“It is a legacy in Venezuela inherited by Hugo Chávez, and now [followed by] the Maduro government, but it’s unsustainable,” said Miguel Tinker-Salas, a professor of Latin American history at Pomona College. “Maduro is essentially testing the waters because this is something that many Venezuelans consider a birthright.”

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