Fuel bind, politics drive Venezuela border seal

OREANDA-NEWS. September 14, 2015. Unable to increase either pump prices or domestic fuel production, the Venezuelan government is essentially rationing supply with the controversial closure of its border with Colombia.

Eulogio del Pino, energy minister and chief executive of state-owned oil company PdV, says the country would save more than \\$2.5bn if the border stayed shut for a year.

The government estimates that 100,000 b/d of fuel is regularly smuggled out of the country, mostly to Colombia.

The fuel theft is driven by Venezuela?s near-giveaway prices, compared with market-based prices in most neighboring countries.

Del Pino, whose political influence has shot up in recent months, says preliminary energy ministry and PdV estimates show that combined gasoline and diesel sales in the Venezuelan border states of Tachira and Zulia have declined by up to 7mn liters per day, or around 44,000 b/d, since the closure.

President Nicolas Maduro ordered the Tachira border closed on 19 August, and expanded the measure to Zulia state on 7 September.

Gasoline shipments to PdV?s 113 Tachira service stations from 1 August-2 September dropped by an average of 1.5mn l/d in that state since the San Antonio-Cucuta border crossing between Tachira and Colombia?s Norte de Santander province was sealed, according to a graph released by Del Pino this week.

PdV expects gasoline shipments to Zulia will drop by up to 35,000 b/d or more than three quarters of the total estimated drop in local shipments to the two states.

PdV has focused its efforts to suppress fuel smuggling mainly in Tachira where it operates 11 special service stations that sell gasoline and diesel only to Colombian vehicles for about \\$1/USG at the official Simadi exchange rate of almost Bs200/\\$. In contrast, Zulia has only four special service stations that cater exclusively to Colombian vehicles.

Tachira state governor Luis Vielma Mora, a government ally, declared in early September that sharply lower retail gasoline sales to some 10,000 Colombian vehicles per day showed that Colombian smuggling gangs have been gaming PdV's special border fuel sales system.

Defense ministry anti-smuggling operations under way in Tachira since 2014 also have been a greater priority because the San Antonio-Cucuta border crossing accounts for 80pc of bilateral overland trade and the surrounding region is far more populous than the Paraguachon-Maicao crossing in Zulia.

But Del Pino's numbers suggest that fuel smuggling is more prevalent in Zulia than in Tachira.

So far the crackdown on the border and associated suspension of constitutional guarantees in 14 Venezuelan towns in Tachira and Zulia do not appear to have alleviated fuel shortages in other parts of the country, including Caracas.

The defense ministry tells Argus that additional troops likely will be deployed soon to Zulia to reinforce 3,000 army and national guard troops deployed since 7 September to the Paraguachon-Maicao area.

The defense ministry now has about 7,500 troops deployed in both states to enforce the border shutdown.

Western Venezuela is a traditional stronghold of the political opposition, which is seeking to challenge the government?s control of the national assembly in 6 December elections.

The UN office for the coordination of humanitarian affairs reported on 9 September that to date a total of 1,482 Colombian nationals have been deported from Venezuela and 19,952 have returned to Colombia as displaced refugees.

The last time the government sought to raise gasoline prices was in 1989, sparking deadly riots and ushering in a period of political instability, including two coup attempts in 1992.

Fuel production at PdV?s refineries, which have combined nameplate capacity of 1.3mn b/d, is stagnant at best. The refineries suffer chronic breakdowns, widely seen as a consequence of sparse maintenance and investment.

Venezuela consumed an estimated 600,000 b/d of oil products in first-half 2015, including diesel used in power stations.

The Venezuelan oil-based economy is estimated to shrink by 7pc in 2015, with triple-digit inflation and widespread shortages.