Venezuela, the oil producer with the world’s cheapest gasoline, is considering raising fuel prices for the first time in 17 years to boost state revenue.
“There have to be large debates in Venezuela about the price of gasoline and we will open this up for discussions with the entire country including organizations and private companies,” Venezuelan Vice President Jorge Arreaza said in an interview yesterday with the Venevision television channel.
Octane 95 gasoline costs 0.097 bolivars a liter ($0.06 a gallon) at the official exchange rate, the cheapest in the world, according to data compiled by Bloomberg. Venezuela loses about $1.4 billion a year to gasoline trafficking to Colombia, Oil Minster Rafael Ramirez said on Aug. 2. Gasoline across the border is about 70 times more expensive than in Venezuela.
“The measure would certainly help the economy, reducing gasoline imports and improving the budget,” David Smilde, a sociology professor at the University of Georgia who specializes in Venezuela, said in a telephone interview today. “Even doubling or tripling the price probably wouldn’t make a dent in people’s wallets.”
Venezuela consumes about 700,000 barrels a day of oil, Ramirez said in October. In recent years, the country has increased imports of gasoline components amid stagnant oil production and bottlenecks at local refineries.
President Nicolas Maduro, whose party won 44 percent of the vote in mayoral elections on Dec. 8, may use that political capital to implement measures such as raising the price of gasoline and devaluing the currency, said Smilde.
Maduro’s leadership now has the “space” to make economic adjustments that have been postponed, Barclays analysts Alejandro Arreaza and Alejandro Grisanti wrote in an Dec. 9 note to clients.
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.
“In Latin America, as well as in the U.S., high gasoline prices are never a popular thing for politicians,” Roger Tissot, a consultant with Tissot Associates, said in a phone interview from Vancouver. “The safe thing to do is to increase prices after the elections.” Raising gasoline prices may improve efficiency and reduce smuggling, he said.
U.S. exports to Venezuela in 2012 of total petroleum products, including finished gasoline and MTBE, averaged 85,000 barrels a day, according to the U.S.-based Energy Information Administration, and have averaged 87,000 barrels a day through September of this year. PDVSA suffered a deadly explosion at its 645,000 barrel a day Amuay refinery in 2012, which affected domestic supply. The refinery has yet to recuperate full processing capacity, said Ramirez, who also serves as the president of state oil company Petroleos de Venezuela SA.
The price difference between selling gasoline in Venezuela and abroad is about $32.1 billion, Asdrubal Oliveros, director of Caracas-based consulting firm Ecoanalitica, said by phone. It costs Venezuela $5.3 billion annually to maintain the gasoline subsidy, Oliveros said. The government would have to increase prices by 694 percent to eliminate the subsidy, he said.
The country last increased gasoline prices in 1996.
The yield on the Venezuelan government’s benchmark 9.25 percent dollar bonds due in 2027 fell 22 basis points, or 0.22 percentage point, to 12.85 percent at 2:49 p.m. in New York today, according to data compiled by Bloomberg.