July 10, 2014
Cheap gas nears end of road in Venezuela
Fifty percent annual inflation, budget deficit force Maduro to raise price
CARACAS — Gasoline is so dirt-cheap in this country that the comparison undervalues dirt. Or, for that matter, almost any other element Venezuelan drivers can think of.
“It’s cheaper than water,” said one motorist, pointing out that bottled water costs far more than the 95-octane gasoline gushing into his Ford Explorer.
“Cheaper than air,” said the driver of a Chevy Tahoe, after paying more to fill a tyre than the tank.
“The cheapest in the world,” a third SUV owner boasted. “We could wash our hands with it.”
And why not? Venezuela sits atop the world’s largest oil reserves, and its government sets the price of premium gasoline at about US$5 cents a gallon. Its real price — adjusted to the soaring street value of the US dollar — is half a penny per gallon.
Unlimited access to virtually free gasoline has become something of a Venezuelan birthright over the years, and raising prices is considered the third rail of Venezuelan politics. Deadly riots broke out in 1989 at the mere possibly of a price hike. Not even Hugo Chávez, who died last March after 14 years in power, dared to mess with the pumps.
But with annual inflation topping 50 percent and the government burning through hard-currency reserves at a furious pace, Chávez’s handpicked successor, Nicolás Maduro, appears to have no choice. The government is spending more than US$12 billion a year to subsidize domestic gasoline sales, Venezuelan energy officials say, and the gravy train is coming off the rails.
The projected price hike is likely to push gas closer to 17 cents per gallon, at unofficial exchange rates.
Global energy surveys rank Venezuela’s proven oil reserves at nearly 300 billion barrels — even bigger than Saudi Arabia’s. Venezuela is the world’s 13th-largest producer, and 40 percent of its shipments go to the United States, despite more than a decade of strained relations.
Maduro said that he favours a gradual price increase and that Venezuelan drivers deserve continued access to cheap gas because of the country’s hydrocarbon bounty.
“But it has to be an advantage, not a disadvantage,” he said. “What converts it into a disadvantage is when the tip you give is more than what it cost to fill the tank.”
An increase represents a risk for Maduro, who was narrowly elected last April and hasn’t been able to lower spiralling inflation or end shortages of household staples such as milk, flour and sugar. Because there are no federal or local elections scheduled this year, analysts say, the timing is right for Maduro to make politically unpopular moves.
“He’s up against the wall,” said Pedro Mario Burelli, a former board member of Venezuela’s national oil company, PDVSA, noting that the country is paying more and more to import components needed to make gasoline, making the subsidies “increasingly painful” for the government.
Burelli, a private consultant based in the United States, helped implement the last price increase in Venezuela, in 1996. That time, there was little controversy. “No one even remembers it,” he said. “All we did was plan transitional prices on public transportation.”
Many drivers here say gas prices are so low that even a large hike wouldn’t register in their wallets. They know that their cheap gas fosters pollution, traffic, contraband fuel smuggling across the Colombian border, and a wider culture of waste and inefficiency.
Far more worrisome are the eroding public safety and sky-high murder rate in this country of about 30 million.
Maria Osorio, the owner of a small, fuel-efficient hatchback, said that the extra mileage is nice but that she has another reason for preferring a modest car. “I have an SUV at home, but I’m too afraid to take it out because I might get carjacked,” she said, explaining that she has been robbed at gunpoint five times in the past two years.
Still, steeper prices could fall more heavily on Venezuela’s poor if increased transportation costs for food are passed along to consumers. The government says it won’t raise public transportation prices, but many low-income Venezuelans get to work on buses owned by private companies that would probably raise fares.
It was bus fare increases that originally sparked the rioting of 1989 known as the “Caracazo.” Hundreds were killed, and the bloody episode helped launch the political career of Chávez, then a young paratrooper, who would cite the episode as an inspiration for his attempted coup three years later.
The attempt failed, but Chávez won the presidency in 1998 and kept gas prices frozen.