Caracas Chronicles

If you want to know more about Venezuela’s economy, politics and history (and a little extra about Latin America), you should subscribe to the “Seis Por Derecho” videoblog.

This is an initiative of Daniel Raguá (@danielragua), a good friend of ours, who happens to be a terrific young economist from Venezuela.

Seis Por Derecho is a joropo rhythm that is difficult to understand, but easy to grasp if you explain it well… and according to Daniel, the economy is just the same.

The first video: “¿Qué implica que la gasolina sea tan barata en Venezuela?” or “What are the implications of Venezuela’s extremely cheap gas?”

You can also enjoy this videoblog via Prodavinci.com, Twitter, Tumblr and Facebook.

A friend of CC, Alejandro Gutiérrez (@_bolascriollas) translated the content of the video, so Daniel could add subtitles. Here’s the english transcript of the first video… enjoy!

“Venezuela has the cheapest gas in the world. To fill your tank with premium gasoline in Venezuela you have to pay Bs0.37 per gallon, just short ofUS$0.04. In other words, in Venezuela for the same price of a can of soda or a small coffee you can fill seven gas tanks of ten gallons each. In Colombia, for comparison, it costs 88,000 pesos, roughly the price of 44 cans of soda, to fill one such tank of gas. If the price of a tank of gas in Venezuela were the same as 44 cans of soda, it would be around Bs 1,320.

Is gas cheap only in Venezuela? No. It is so in other countries as well, but Venezuela is, without a doubt the cheapest. One of the countries with the cheapest gas in the world is Saudi Arabia, but even there, the price is 12 times that of Venezuela. For those who pay a lot of money for gas this sounds wonderful, but the story doesn’t end here.

Like we said before, the price of a gallon of gas in Venezuela is Bs 0.37. According to the Venezuelan ex-minister of energy, Rafael Ramírez, it costs around Bs 10.23 to produce a gallon of premium gasoline. This is 28 times the price of the same gallon at the gas station. To better understand this, when we fill a 10-gallon tank we pay less than Bs 4.00, but to Pdvsa –the Venezuelan oil company- it costs Bs 108 to produce those 10 gallons of gas.

Venezuelans not only pay little for gas, but we also buy it and use it like it’swater. While in 1999 the domestic consumption of gas was 321,000 barrels per day, today it is 765,000 barrels per day. And even considering population growth and increase in the number of vehicles, there is a philosophy of waste. In Colombia, -a country of 48 million people- domestic consumption of gas is 200,000 barrels per day. This means they consume less than half of what we consume in Venezuela although their population is almost twice as great.

Well, we have more oil than you can shake a stick at, so who cares? We all should care, and a lot. Pdvsa not only pays the bill for the gas we buy, but also, every gallon of gas sold inside of Venezuela is a gallon that is not exported to other countries where it would fetch a much higher price. For this reason, Pdvsa loses around US$ 12.5 billion a year. This is equivalent to the cost of building 6 new bridges over the Maracaibo Lake, or 96 hospitals like the Children’s Cardiology Center of Caracas, including all of the medical equipment.

In fact, gas is so cheap that a lot of people have made a living smuggling it. From Venezuela, everyday a thousand barrels of gas are smuggled into neighboring countries.

Who benefits from this subsidy?

According to the latest national census, most of the Venezuelan population uses public transportation. 56% to be exact. 28% use private vehicles, 12% use bicycles, and 4% use motorbikes. However, even though the majority uses public transportation, the reality is that those with private vehicles consume the most gas. Of all the gas produced in Venezuela, 53% is consumed by private vehicles, while public transport consumes 39% and cargo vehicles take 8%.

Who benefits from this subsidy? Well, the wealthiest. While it’s true that not all those who own a car are rich, most indeed are. The latest census reveals that of all the people who own a car in Venezuela, 62% are in the upper or middle-to-upper class.

A bus fare costs about Bs 8. With this amount of money, a car owner could fill two ten-gallon tanks of gas. It would be logical for a subsidy to try to benefit those who have less money. But the gas subsidy in Venezuela is what we call a “regressive subsidy”. It is called regressive because it benefits the wealthiest segment of the population instead of those it should, those who have less.

Some history: why don’t they increase the price of gas?

Last time there was an adjustment of the price of gas in Venezuela was a long time ago: it was 1996, during the term of ex-president Rafael Caldera.

Increasing the price of gas seems to be a Pandora’s box for politicians ever since 1989 when a price increase implemented as part of a series of economic measures carried by the government of president Carlos Andrés Pérez was interpreted as one of the causes of the strong generalized riots that came to be known as “The Caracazo”.

An increase in the price of gas could happen soon. The Ministry of Energy said this subject should be open to discussion, given that the current price “makes no sense”.

What price do you think gas should have? Leave us a comment.”