Venezuela's President Nicolas Maduro has proposed raising the price of gas for the first time in 15 years...
A Gas Hike May Shatter an Old Venezuelan Illusion
CARACAS, Venezuela — Venezuela has the world’s cheapest gasoline, about six cents a gallon, so low that drivers often fill their tanks for less than a dollar and tip the gas station attendant more than the cost of the fuel pumped into their cars.
With the world’s largest estimated oil reserves, many Venezuelans consider cheap gas much like an inalienable right of citizenship — a coveted remnant of the boom days when Venezuela saw itself riding its oil riches to a first world dream of wealth and status.
But the illusion of inexhaustible wealth, which every citizen can tap into at the nearest gas station, may finally crash into hard reality. President Nicolás Maduro has called for what was once unthinkable: It is time, he has said, to raise the price at the pump.
“I am in total agreement that they should raise it,” said Luis Gelvis, 45, a warehouse worker, as he had stopped to fill his aging Chevrolet S.U.V. for 48 cents, less than half the price of a cup of coffee.
But when the gas station attendant pointed out that filling up might cost the equivalent of a few dollars if the price rose, the smile quickly disappeared from Mr. Gelvis’s face.
“No way! That’s too much,” he said. “If they raise it that much there will be strikes. We’ll have people blocking roads.”
Mr. Maduro has not said when or how much he will raise the price, which has been frozen for 15 years, but the urgency in this beleaguered economy is clear. By some estimates, the government is giving away $30 billion worth of gasoline, diesel and other fuels each year, a huge loss at a time when it is running a large deficit, forcing it to print money. The state oil company is borrowing millions from the central bank to keep running, the country endures chronic shortages of basic goods and last year inflation hit 56 percent, one of the highest rates in the world.
But raising fuel prices can be politically risky, especially for a president like Mr. Maduro, who has struggled for acceptance during his first year in office, often viewed as a pale shadow of his charismatic predecessor and mentor, Hugo Chávez. He narrowly won an election to replace Mr. Chávez, who died last year, and many ardent Chávez supporters said they only had voted for him out of loyalty to their beloved leader.
Even Mr. Chávez, who led Venezuela for 14 years and was critical of the fuel subsidies, never ventured to raise gas prices. Part of the taboo here is a common association between a gasoline price hike in 1989 and days of rioting in which hundreds of people died.
“The fact that a government that has been so reluctant to do this is finally saying they need to do this tells you how bad things must be,” Javier Corrales, a professor of political science at Amherst College, said of the economic situation in Venezuela.
The balancing act is a common one for developing nations, particularly those with wealth in natural resources. In Latin America, the Middle East and Asia, protests have erupted in recent years when governments have cut fuel subsidies. In Indonesia, a 30 percent increase in fuel prices in 2008 led to bloody rioting. In oil-rich Nigeria, protesters paralyzed the nation in 2012 over a roll back in fuel subsidies. In Bolivia, protesters laid siege to the capital in 2010, forcing President Evo Morales, a close ally of Mr. Maduro, to quickly abandon a gasoline subsidy cut.
Venezuelan officials have said the increase here will probably be gradual, with the goal of eventually charging enough to cover the costs of producing the gasoline.
“What is fair is to say that we have to charge for the hydrocarbons that we sell in the domestic market because we are paying for people to fill their tanks,” Mr. Maduro said this month. He denied that the government needed the extra income to balance its books this year and called for a national dialogue on the issue. But he has insisted that an increase will ultimately happen.
“Will it go?” he said late last month. “It will go.”
Rafael Ramírez, the powerful president of the state oil company who is also the energy minister and vice president in charge of the economy, said last month that the break-even cost of high-octane gasoline, which is what most people buy, would be the equivalent of $1.62 a gallon, a far cry from what it is now.
Venezuelans use about 323,000 barrels of gasoline a day, Mr. Ramírez said last year. And despite having enormous oil reserves, Venezuela has imported tens of thousands of barrels of gasoline a day from the United States over the last two years, according to the Energy Information Administration in Washington, because of problems at refineries. So in effect, the Venezuelan government has been paying market prices — which averaged about $2.70 a gallon last year — to import gasoline that it gives away almost for free.
“This is a crazy subsidy,” said Francisco Monaldi, a visiting professor of public policy at the Harvard Kennedy School of Government who studies national oil companies in Latin America.
He said that the lost income from fuel subsidies was more than what the government spends on education and health care combined.
Despite the socialist orientation of Venezuela’s government, the wealthy and middle class benefit greatly from the fuel subsidy because they are more likely to have a car, while the poor primarily benefit through the effect on mass transportation fares. Two researchers at the Harvard Kennedy School, José Ramón Morales and Douglas Barrios, calculated that the value of the gasoline subsidy for the top 10 percent of households in 2010 was about $3,755 a year, compared with $506 a year for the bottom 10 percent.
Mr. Monaldi said that many poor Venezuelans understood that the gasoline price was unsustainable and that they received relatively little benefit from it. And yet they generally opposed raising the price, even if the government pledged to spend the additional proceeds on social programs, because they do not trust politicians to deliver on promises.
That distrust goes to the heart of many Venezuelans’ attitudes toward cheap gasoline — in a country where roads are bad, crime is out of control and schools and hospitals are often in poor shape, the low prices are their most immediate link to the country’s oil riches.
“They think this is the only way in which they will directly receive part of the oil wealth,” Mr. Monaldi said.
Rubén García, 63, a dentist filling his tank at a gas station, said he was in favor of raising the gasoline price, with a caveat. “It depends what the government is going to do with the new income,” he said. “If they’re just going to line their pockets, it would be better to leave it like it is.”
Mr. Maduro has floated the possibility of earmarking the revenue from domestic gasoline sales for social programs like housing or education.
Many oil producing countries sell their citizens cheap gasoline, but Venezuela is an outlier even in such company. A 2012 survey commissioned by the German government found that Venezuelan fuel prices were the world’s cheapest, far below those of other major oil exporters like Saudi Arabia, where gasoline costs the equivalent of about 60 cents a gallon, and Nigeria, where it costs $2.35.
The cheap gasoline means that old gas guzzlers clog the streets of Caracas and other large cities, since Venezuelans have little incentive to change.
“The problem is that Venezuelans feel that they have the right to free gasoline,” said María Isabel Peña, director of the Urban Studies Institute of the Central University of Venezuela. The end of cheap gasoline, she said, could be “the start of making people understand the reality of the situation.”
