Currency caps flummox Caracas fuel price hike plan

OREANDA-NEWS. March 19, 2015. Venezuelan transportation and public works minister Haiman El Troudi is expected to present a politically sensitive proposal to raise heavily subsidized fuel prices to the national assembly this week.

El Troudi will unveil results of government studies, polls and discussions with different "gasoline and diesel-intensive sectors" that were used in drafting a plan to raise prices for the first time since a minor adjustment in 1997, a presidential palace official told Argus.

President Nicolas Maduro said in December that a fuel price adjustment that reflects state-owned PdV's real production costs is overdue, but he took no immediate action.

Venezuela?s political leaders have been deeply reluctant to ease subsidies since a 1989 gasoline price hike triggered deadly riots in Caracas.

But Venezuela's severe economic crisis, weaker oil prices and the government's dire need for cash appear to be forcing its hand.

The latest government plan would raise prices for all refined products including gasoline, diesel, lubricants and LPG.

The plan aims to cover at least 100pc of PdV?s wellhead-to-pump costs of supplying 720,000 b/d to the local market, including about 600,000 b/d of gasoline and diesel.

A "minimum base price" that energy ministry planners used in drafting new prices included PdV's upstream/downstream costs, plus transportation and distribution costs and a 30pc profit margin stipulated by a Fair Prices Law that sets margins for all businesses.

The new proposal would increase pump prices for 95-octane gasoline to about \\$1.25/USG at the strongest official Bs6.30/\\$ exchange rate, a huge jump from the current price of 0.06/USG.

But the proposed higher prices are based on a government-controlled exchange rate that does not reflect real costs and prices in Venezuela's increasingly dollarized local market, an energy ministry official acknowledged today.

The government maintains a controlled three-tier currency exchange system. The weakest Bs187/\\$ rate in the new Simadi exchange is still far short of the current black market rate of about Bs268/\\$.

Applying the Simadi rate to calculate the proposed increase, the new price in dollar terms would actually go down to about \\$0.04/USG, the ministry official said.

"Venezuela still will have the world's cheapest gasoline priced in dollars, but Venezuelans will be paying much more in bolivars," the official said.

Critics say PdV should stop subsidizing oil exports to neighboring countries under PdV?s PetroCaribe program before it raises domestic prices.