After much debate and many rumours doing the rounds, the government introduced a new model of fuel distribution and marketing [on June 1]. In summary, the model includes a subsidised mechanism with fuel costing 5,000 Bolivares (BsS) per litre [US $0.025] with a monthly quota per vehicle, a full subsidy for public transport which is to be discussed in the future, and 200 private fuel stations where fuel is sold at US $0.50 per litre.
While it is not yet known what consequences the new model will have, in this editorial we throw gasoline into the spotlight and explore some issues concerning this controversial topic.
The cheapest and most expensive fuel at the same time
One (unexpected) consequence of the US government’s threats against Iranian tankers [which brought fuel to Venezuela in May as part of a gold-for-fuel swap program] was to hamper this public debate. For a good while, people focused instead on a possible clash between imperialist arrogance and the exercise of sovereign cooperation between two allied and attacked countries.
Independently, drastic changes were being made to the Bolivarian government’s fuel policy. In the hours devoted to the topic, analysts speculated about possible future scenarios after Maduro announcement that this newly imported fuel would need to be “paid for.” Some defended the introduction of international fuel prices, while others proposed to charge just enough to cover production costs (which are still unknown). So what would happen to “the world’s cheapest fuel”?
The most important issue here is that the advertised price of 5,000 BsS per litre is still highly subsidised, and continues to be the cheapest in the world. By contrast, the US $0.50 per litre price in the private stations, despite being a little cheaper than in neighbouring Colombia, for example, is contradictorily the most expensive fuel in the world when compared with Venezuelan wages. So we have the cheapest and most expensive fuel in the world coexisting without any middle ground.
Return to the past?
It is almost inevitable to draw an analogy between the new fuel model and CADIVI [the government-run subsidised foreign currency scheme which existed between 2003 and 2014 with the intention of enabling foreign travel and subsidising imports] or the various incarnations of currency controls in Venezuela.
Without diverting too much from the main topic, it is important to clarify that there is no natural law that establishes that it is impossible to regulate an exchange market. Foreign currency was, and continues to be, obtained by the state, so setting a fixed exchange rate is perfectly possible as long as control is exerted over imports and wages are set appropriately. The existence of a parallel (artificial) rate is irrelevant as long as that market is marginal and fails to influence the cost of living of the majority.
However, foreign currency allocation was always an opportunity for corruption, which was more profitable the larger the gap between official and parallel rates became. Just as speculating on foreign currency became much more profitable than using it to produce or import, now the same may happen with gasoline. There is a risk of creating an internal “smuggling” scheme, in which subsidised fuel is uncontrollably resold at private stations.
Of course, a truly socialist model requires more than just regulating market logic, but in Venezuela’s case, a quick look at currency exchange policies shows that the trend has been quite the opposite. In this sense, the comparison between the new model of gasoline marketing and currency controls becomes relevant as it sets an important precedent.
As of November 2018, and as part of the Economic Recovery Plan, the government’s official exchange rate began to furiously “pursue” the parallel rate. It only took a few months for currency controls to be completely eliminated, granting the responsibility of setting exchange rates to the banks, in other words legalising the “black market.” Another similar example is consumer price controls, which were gradually eliminated until completely disappearing.
In this case, it is not hard to imagine a scenario which sees less and less subsidised fuel being made available, until the model finally ends up completely migrating to the private sector.
Questions about the private sector
The issue of foreign currency is also relevant when analysing the new private players breaking into the fuel market.
Even if the price is set in US dollars, and dollarization continues to progress quickly, the amount of “greenbacks” circulating remains very low and wages continue to be in bolivars.
In addition, the government recently indicated that the private businessmen of these 200 allocated stations are directly importing gasoline. The question is, where does this foreign currency come from? Historically, the Venezuelan bourgeoisie has never invested its own resources and the trend has rather always been of capital flight.
It is also important to note that importing gasoline is not the same as importing tomato sauce. Fuel requires a whole infrastructure, such as specialised ports. In Venezuela, the hydrocarbon storage and transport structure is only available to [state-run oil corporation] PDVSA. Under what conditions will “private” fuel transit this infrastructure? What are the taxes on the profits of this new business? Is state infrastructure being privatised for this distribution? There are a number of relevant questions that have yet to be answered.
The growing role of private entrepreneurs has grown, both in words and deeds, in the shadows of the state, and nothing suggests that it will be different with fuel. The state ends up playing a paternalistic role to allow businessmen to make a profit at the lowest possible risk. The Venezuelan bourgeoisie, because of its class status and the rent-based context in particular, remains much more parasitic than “revolutionary“.
Prelude to other measures
The new gasoline model may be the prelude to a number of changes in the Venezuelan oil industry. A document from the presidential commission to reform PDVSA, which was leaked to the press [in May], revealed a number of plans for the country’s principal industry.
One of them is precisely the phasing out of fuel subsidies. Others include the return to service contracts in oil fields, greater private capital participation (national or foreign) in mixed projects and the elimination of royalties.
It is also important to consider the impact of new fuel prices on different economic actors. For example, there was no mention of a subsidy to the campesino sectors, nor to popular power organisations.
The most likely consequence will be an even greater trend towards capital concentration. Large entrepreneurs have the most capacity to absorb these new costs, as well as access smuggled subsidised fuel. The new prices will not only have an impact on the consumption capacity of the majority, but also on small producers’ survival.
‘Self-regulation’ in times of a blockade
While personal interests and corruption are important aspects to consider, it is key to analyse the political direction revealed by these measures, in other words, the class interests to which they respond.
In a context of crisis and an increasing US-led suffocation, the government’s response has been to tip the balance more and more in favour of capital. The reasoning is that sanctions increase the “cost” of investment in Venezuela, and as such, better conditions must be offered. This argument is embodied in the document of the restructuring of the oil industry, which concludes that the Venezuelan state offers too many benefits and that this scares off investment.
At the same time, the measures have been accompanied by a discursive adjustment that lauds the “self-regulation” of the market. This is perhaps the greatest ideological illusion. With relentless aggression and the current state of the economy, the crisis is not going to be solved by making everything “profitable,” especially when either the old or emerging bourgeoisie’s profits continue to depend on the state.
It is clear that under the weight (or excuse?) of sanctions, historical achievements are being dismantled and Chavez’s socialist horizon is being blurred, with oil sovereignty being one of the greatest achievements of the Chavista program, both symbolically and materially.
In this sense, we are left with the dilemma of whether the attacks against the country demand taking a step backwards, even using historical examples to justify it. However, presenting an obvious step backwards as progress is a completely, and much more dangerous, issue, just like presenting it as the only alternative.
The views expressed in this article are the author’s own and do not necessarily reflect those of the Venezuelanalysis editorial staff.
Translation by Paul Dobson for Venezuelanalysis.