- Diesel for industries raises to $1 per gallon from zero
- Govt has been pushing to halt losses on cheap fuel since 2020
Fabiola Zerpa, Bloomberg News
EnergiesNet.com 07 07 2023
Venezuela will start charging large businesses for a type of fuel it previously delivered for free in its quest to phase out fuel subsidies, helping the government halt millions of dollars in losses and raise urgently needed cash.
Starting Thursday, the country’s state-owned oil company Petroleos de Venezuela SA is set to increase the price of diesel for businesses to $0.32 per liter, after three years delivering it for free, according to people familiar with the situation and documents seen by Bloomberg. Diesel subsidies are to remain in place for health institutions, according to documents. PDVSA did not immediately reply to a request for comment.
The measure reverses a PDVSA policy in place since 2020 that exempted businesses from paying for diesel that use large amounts of the fuel to run power plants and agricultural machines and other equipment.
Despite sitting atop the world’s largest crude reserves, Venezuela’s refineries can’t meet domestic demand for fuel due to years of disinvestment, mismanagement and US sanctions. Venezuelans have for years faced fuel shortages, with drivers spending hours or even days in line for gasoline in some areas of the country. Those who can afford higher prices are paying as much as the equivalent of $3 a liter in the black market.
While the price hike will impact consumers and inflation, it may ultimately help the economy, said Henkel Garcia, director of economic analysis firm Econometrica. “If the increase translates into a more reliable supply of fuel, it can benefit the cost structure of the companies as it can reduce sales in the black market and even bring down its prices,” he said.
It remains to be seen, however, whether PDVSA can provide enough fuel to satisfy demand in the country.
PDVSA did not charge for the fuel at its distribution plants for private intermediaries, but it let them charge transportation and freight fees to final clients. The new price of roughly $1 per gallon is the first hike in subsidized fuel for businesses since June 2020. Then, the government rolled back a decades-long policy of selling cheap gasoline to drivers and public transport, making it one of the cheapest in the world.
Even after Thursday’s increase, a gallon of diesel in Venezuela will still cost just a fourth the going rate in the US or half as much as in Colombia. Still, it will revert millions of dollars in losses and supply fresh money to the government.
— With assistance by Nicolle Yapur
bloomberg.com 06 05 023