Venezuela May Phase in Gasoline Price Increases Over Three Years

Venezuela may raise gasoline prices over three years as it contemplates the first such increase in almost two decades to boost state revenue, President Nicolas Maduro said yesterday on state television.

South America’s largest crude producer must correct its gasoline price “distortion” without hurting the economy and the people, Maduro said yesterday. Additional revenue from a price increase could go to social programs including housing and education, Maduro said.

“We should have the advantage of paying special prices for hydrocarbons relative to the international price, but it has to be an advantage, not a disadvantage,” Maduro said at a meeting with opposition elected officials. “It becomes a disadvantage when people tip more than the price they pay.”

Maduro, whose party won the most votes in national elections for mayors Dec. 8, is seeking measures to boost state revenue amid a decline in international reserves to a nine-year low and Latin America’s widest budget gap.

Venezuela’s expanded public sector deficit will narrow 3 percentage points to 11.5 percent of gross domestic product in 2013, according to Francisco Rodriguez, chief Andean economist at Bank of America Corp.

Vice President Jorge Arreaza, speaking in an interview on the Venevision network Dec. 9, proposed the gasoline price increase, saying it would be submitted to a national debate. The inflation rate has more than doubled since Maduro took office in April, reaching 54 percent in October, the world’s fastest.

Maneuvering Room

Maduro’s leadership now has the “space” after local elections to make economic adjustments that have been postponed, Barclays analysts Alejandro Arreaza and Alejandro Grisanti wrote in a Dec. 9 note to clients.

In Caracas, Octane 95 gasoline costs 0.097 bolivar a liter ($0.06 a gallon) at the official exchange rate, the cheapest in the world, according to data compiled by Bloomberg.

It costs Venezuela $5.3 billion annually to maintain the gasoline subsidy, said Asdrubal Oliveros, director of Caracas-based consulting firm Ecoanalitica. He said the opportunity cost of not exporting and selling that gasoline at international prices was about $32.1 billion.

Venezuela will make the biggest devaluation of its currency since 2010 by the end of March in an effort to boost revenue and narrow the budget gap, all analysts surveyed by Bloomberg forecast.

The country weakened the currency on the Sicad alternative auction system this week. Oil investments and tourist dollars will enter the country at the auction rate, which the government has not made public, instead of the official rate of 6.3 bolivars per dollar, Oil Minister and Economy Vice President Rafael Ramirez said Dec. 16.

Balancing Act

Former President Carlos Andres Perez increased gasoline prices in 1989, leading to the Caracazo riots, while late President Hugo Chavez briefly floated the idea in 2011 before deciding against the move.

The country last increased gasoline prices in 1996.

Venezuela consumes about 700,000 barrels of oil a day, Ramirez said in October. In recent years, the country has increased imports of gasoline components amid stagnant oil production and bottlenecks at local refineries.

The country needs to charge higher prices for its fuel, while taking care that a price increase doesn’t “generate additional inflationary disturbances,” Maduro said.

To contact the reporter on this story: Jose Orozco in Caracas at jorozco8@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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