A gasoline revolution?

October 3, 2004

In 1993, then AD Presidential candidate Claudio Fermin inserted in his campaign program a proposal to subsidize having all public transportation vehicles convert to natural gas as a way of removing the price of gasoline from being a political issue. Once the change had been completed, then gasoline prices would be raised to international levels and PDVSA would not be subsidizing the gasoline for those that can afford a car in Venezuela, which are not exactly the poor. At the same time, public transportation would use natural gas that is mostly burned in Venezuela and sold cheaply.


Fermin lost the election, Caldera came in as President and two years later was forced to sign an agreement with the IMF after the financial crisis, which imposed the condition that gasoline prices had to be adjusted to the FOB price periodically (I canít remember whether it was quarterly or every six months). In this manner, every three or six months the price of a liter of gasoline was adjusted slightly and the issue disappeared from Venezuelan politics until Chavez won the election and froze gasoline prices again.


 


The math is fairly simple, a liter of gasoline costs 4.6 US dollar cents or 20 cents a gallon (3.5 cents and 15.4 cents at the parallel exchange rate). In terms of barrels, a barrel of gasoline goes for around US$ 48 per barrel and costs PDVSA about US$ 6.5 per barrel to produce. Since internal consumption is 240,000 barrels a day of gasoline, according to todayís El Nacional (page A-20), we are talking about a subsidy that costs PDVSA about US$ 9.96 million per day, which turns into US$ 3.6 billion subsidy per year!


 


I donít know how many public transportation vehicles there are in Venezuela, but I do know there are about 2.6 million total vehicles. If I assume that one million are for public transportation of any sort, and that the conversion to natural gas costs $1,500 (it used to cost $1,000), then for half of the amount that is being subsidized yearly, the Government could pay the conversion of every single public transportation vehicle to natural gas and eliminate the subsidy. The money thus saved could be used elsewhere.


 


Now, this would truly be revolutionary, no?

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