Venezuela Modifies Fuel Subsidies in Effort to Counter Extraction Smuggling

Homeland Card holders will continue to receive subsidies for gasoline, whilst others will have to pay “international prices.”

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Cars queue up to fill up their tanks in Venezuela, where fuel was effectively free for a long time. (Reuters)
Cars queue up to fill up their tanks in Venezuela, where fuel was effectively free for a long time. (Reuters)
By Paul Dobson
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Merida, September 5, 2018 (venezuelanalysis.com) – A new system of fuel subsidies was rolled out in Venezuela’s border regions on Tuesday, replacing the generalised and heavy fuel subsidy which saw gas being administered effectively for free.

The new mechanism installs a dual pricing system, in which holders of the social security Homeland Card (Carnet de la Patria) will continue to receive a state subsidy, albeit a lesser one, whilst others will have to pay “international prices.”

Despite opposition claims that the Homeland Card scheme is politically discriminatory, registration in the scheme is open to all in Venezuela and is not subject to any means test or political party affiliation. A recent registration drive of the Homeland Card brought the number of cardholders to 18.4 million (around 61 percent of the population). Fuel subsidies will be available for the 3.3 million vehicles and 2.6 million vehicle owners who registered their vehicles in a recent Homeland Card census.

Should an initial fifteen-day test prove successful, the new system ─ which looks to “cut the hands” off fuel extraction smuggling ─ will be applied across the country in phases.

The initial test is being carried out in 315 gas stations of 41 border municipalities across the border states of Zulia, Bolivar, Amazonas, Apure, Sucre, Delta Amacuro, Falcon, and Tachira.

The measure is part of a series of recent wide-reaching economic reforms which look to stabilise the economy, including a revaluation and relaunch of the national currency, tax reforms, currency controls overhauled, a gold savings plan, and wage increases.

Unofficial reports from the affected regions suggest that fuel prices for the highest quality gas have risen from 0.00000097 BsS per litre to 15BsS per litre (US $0.15 based on parallel market exchange rates) for those receiving the subsidy and 35BsS per litre ($0.35) for everyone else.

Until the scheme is applied in other areas, the rest of country will continue to pay current prices, which see US $1 (exchanged on the parallel market) buying 100 million litres of the highest quality fuel, or 200 million litres of diesel.

One of the stated goals of the new scheme is to undermine fuel extraction smuggling, which sees copious amounts of state-subsidised fuel taken to neighbouring countries and sold for local prices. One litre of fuel in the Colombian border city of Cucuta costs US $0.62. The Venezuelan government reports that such extraction smuggling costs the state-run oil firm PDVSA US $18 billion a year, of which 70 percent is taken to Colombia.

“They have stolen enough from us,” stated President Nicolas Maduro Tuesday. “The only way to do away with fuel smuggling is raising prices to international levels and overcoming the mafias which take our production to Colombia and the Caribbean,” he later stated on Twitter.

Only days after announcing the new fuel subsidy scheme in August, the Venezuelan president survived a dramatic drone-bomb assassination attempt which police claim was organised close to the Colombian border city of Cucuta. Last week, the government also reported the dismantling of a gang on the Colombian border which was falsifying Homeland Cards, presumably to enable smugglers to access greater quantities of subsidised fuel under the new scheme.

Tuesday’s shakeup of the border gas stations, in which fingerprinting and Homeland Card reader machines were installed, apparently occurred in an orderly fashion after some early delays, with only a few isolated problems being reported. Long queues at border gas stations were reported over the weekend as customers looked to take advantage of old prices.

“We have everything well prepared, well organised (…) all of the PDVSA personnel, the Bolivarian Armed Forces, the [youth program] Chamba Juvenil people are trained and prepared,” Maduro explained.

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Citizens register their vehicles in the national census held using the Homeland Card scheme (AFP).
Citizens register their vehicles in the national census held using the Homeland Card scheme (AFP).

Existing subsidies, which place sale prices well below production costs, are reported to cost the state-run oil firm PDVSA “several billion” US dollars every year.

Previous attempts to eradicate extraction smuggling of the subsidised good, including a 2014 price hike and the installation of quotas in border regions, have had little impact on the lucrative business, which apparently supplies 70 percent of Colombia’s border fuel needs and has entangled both Venezuelan and Colombian companies, citizens, and even military personnel.

A 2014 investigation by the New Granada Military University in Colombia also concluded that “Gas trading has become so profitable that criminal bands have left drug trafficking to dedicate themselves to fuel smuggling, which generates profits of more than US $1.4 billion per year. This is a lot of money without being followed by the [Colombia anti-drugs agency] DEA or Interpol, not having to sow nor process any crops.”

Venezuelan investigative news website, Mision Verdad, claims that 80 percent of the Colombian extraction smuggling on the Cucuta border is run by the large oil firms Vetra, Pacific Rubiales, Petromagdalena, and Ecopetrol.