Venezuela’s Petrol Price Debate

Though the debate around petrol prices proposed by the vice-president last week is only just getting started, Venezuelanalysis presents here a taste of the different perspectives already being argued. The points made in the following translations will likely turn out to be some of the key points in the debate, though we ourselves don’t necessarily agree with all of them. First is an opinion piece by Venezuelan economist, Victor Alvarez, second we have the perspective of oil minister Rafael Ramirez, and thirdly, a look at what the opposition’s reactions and approaches have been so far.

For now, VA’s contribution to the debate is the environmental factor of it. Many (but not all) users of petrol here see the resource as cheap and expendable, driving when it’s unnecessary, and worse, leaving cars and buses running for hours while they aren’t being used. Though an awareness campaign is clearly the more important solution to that issue, a debate around the price of petrol will also be beneficial. A possible short term negative to petrol price increases however could be that transport companies, food distribution companies and so on use it as yet another excuse to increase the prices of goods and services.

Victor Alvarez: Who benefits from the petrol subsidy? Published by Rebelion, written by Victor Alvarez

The president of the finances commission of the national assembly, legislator Ricardo Sanguino, announced in August that he would propose fiscal reform in order to increase tax collection. That leads us to reflect about inappropriate subsidies and free things that exert a lot of pressure on the fiscal deficit, and which therefore should be revised and corrected in order to evolve from the current rentier [petroleum income based] culture, towards a new fiscal culture.

When huge amounts of public resources are destined towards indirect subsidies that benefit the rich and the poor equally, there is a redistributive injustice because those who have the most don’t need anything to be subsidised. The petrol subsidy is a measure which apparently favours those who have the least, but in reality, it deepens the regressive distribution of income, which mostly benefits those who have, rather than the most humble people. The inappropriate free things, such as the elimination of public transport fares, and the perverse subsidiaries, such as for petrol, make the regressive income distribution worse. Those with more money, who have the economic capacity to buy a number of vehicles, are those who actually benefit.

While in Venezuela, filling a 60 litre tank of petrol costs a dollar, while in the majority of countries it costs $60. If you go to a service station once a week, that means a subsidy of $3,000 per vehicle per year. If the price of petrol were made more realistic, that would generate an extra $7.5 billion in income, which could be invested in modernising and broadening the public transport system. That would be a real measure of redistribution justice. Each time indirect taxes are paid through the price of petrol, it would be those who have the most doing it, contributing additional tax income to be invested in the broadening and modernisation of the public transport fleet, which is used as much by those with less money as by those who don’t have enough money to buy a vehicle.

If we want to overcome the rentier culture, which involves the elimination of tolls, and subsidies to petrol, gas, electricity, and water, hoping that petroleum will cover all of those costs, we have to evolve towards a new tax culture, and be aware of the need to transform these indirect subsidies into taxes. As compensation for those who would pay a higher price for petrol, a significant amount of the additional income should be destined towards the road infrastructure that they use, and in that way avoid accidents and mechanical damage to their cars.

In order to maintain road infrastructure in good state, the indirect petrol taxes should be higher in the big cities, and also in the service stations that line the highways. In this way the cost of fuel that vehicles entail would include the contribution that each person makes, in order to benefit from road infrastructure that is well paved and adequately lit up, with traffic lights, road assistance, and so on.

Minister Rafael Ramirez: The price of petrol is a discussion we need to have – Article by VTV, slightly abridged.

“Venezuela is the country with the cheapest petrol in the world. With what a bottle of water costs, you can buy 72 litres of petrol… for the good of the country, the price of petrol is a discussion that we need to have.”

This is what Minister Rafael Ramirez said, highlighting that 33% of petrol consumption in the country is of 95 octane petrol, which is the most expensive to produce.

He stated that this doesn’t have anything to do with any kind of [neoliberal] paquetazo measure, but is rather about general wellbeing, because at the moment Petroleos de Venezuela (PDVSA) pays for consumers to buy petrol.

He said that Venezuela is the only country in the world with such a cheap petrol price, including Saudi Arabia, which exports crude.

Ramirez maintained that in Venezuela 95 octane petrol costs Bs0.097/Litre, and 91 octane petrol costs Bs 0.07, while diesel costs Bs 0.048. “Statistically, Venezuela is the country with the cheapest petrol… not even Saudi Arabia, with such a high income, charges so little.”

He also said that in Venezuela vehicles with high petrol consumption are common. “Some $12.5 billion are lost per year in subsidies because of the difference between production costs and sales prices,” he said.

Ramirez also talked about how the national government is battling the trafficking of petrol. “We’re losing 100,000 barrels of petrol per day… that’s why we are fighting it very hard”.

Leopoldo Lopez: There is no social justification for increasing petrol prices – Article by El Nacional

The national coordinator of Voluntad Popular, Leopoldo Lopez, rejected the “red paquetazo”, which, in his judgement, the national government will implement with an increase of the petrol price. He alleged that there is no social justice in the measure, if the executive doesn’t end the subsidies of hydrocarbons to other nations, as well as the petrol trafficking on the country’s borders.

“It isn’t a secret for anyone that petrol costs less than mineral water, an adjustment to the price within the economy is necessary, but this isn’t the way; without adjusting aspects that are really distorted. For social justice and the distribution of the wealth of Venezuelans the increase doesn’t make any sense. The increase is unjustifiable while Venezuela’s subsidies for other countries continue, which total around $8 billion annually. The cost of giving petrol away in Venezuela is $2.5 billion,” criticised the progressive leader, while adding that “daily, on the border, around 70 to 100 barrels of gas are sold illegally, under the complacent watch of the Venezuelan authorities.”

The leader of Voluntad Popular emphasised that after ending with the “mistaken petroleum policy that the executive has adopted, and which has sunk Venezuela into a profound national crisis because it doesn’t have the necessary resources for the progress of the people,” the discussion of the new petrol price should be centred around what the destination of the additional income would be.

Along those lines, he stated, “The destination of these additional resources should involve the most needy sectors, such as health and education. We’re witness to how the money of the people is used for projects that don’t have anything to do with the progress of the people. It isn’t a secret for anyone that public money is used for electoral campaigns and to the benefit of a few and that it doesn’t have anything to do with the Venezuelan people”.

For Lopez, Venezuelans [sic] “have the possibility to be the strongest economy in the region, we have the petrol barrel at $100 and on the other hand we have the highest inflation in the world, an economy that is addicted to importing, with little capacity to generate employment and progress, and that is the fault of the national government”.

Lopez offered his declarations when foreign minister Elias Jaua opened up the XII Political Council of Petrocaribe-ALBA [on Monday]

Translation and compilation by Tamara Pearson for Venezuelanalysis.com