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The cheapest gasoline in the world 21Jul09

At about less than 2 US cents a liter, or about less than one half of a cent per gallon at the parallel market rate; or at about 4 US cents a liter, or about 1 penny a gallon at the official exchange rate, Venezuelan gasoline prices have for decades remained the cheapest in the world. No other OPEC country sells gasoline so cheaply to its domestic market. Venezuelan inflation rate in the last twelve years has consistently ranged within the mid 2 figures, but the gasoline prices are still set at the same rate they were during Rafael Caldera's government in the mid 1990s. Gasoline in this country is sold almost for free, and this sales price does not even compensate for the fixed cost of operating a gasoline station. If we consider that Venezuela's market share within all OPEC sales has plumetted due to a stagnant production and the financial problems experienced by PDVSA, which was once the envy of the petroleum industry, and that the amount of cars used in the country have increased along with the population, it is very easy to conclude that this situation is unsustainable.

In many of my previous articles I have held a somewhat overoptimistic tone. Not in this case at all. I see no solution to this problem, I actually see it getting worse over time. In 1989, the first time when there was a decision to significantly increase oil prices, the population rioted and the crisis evolved to the impeachment of then President Pérez in 1993 and to the election of Chávez in 1998. The government is scared that if the gasoline prices are increased, a similar or worse popular riot could occur again. The supply of gasoline stations has dwindled as it is not much of a business to operate one anymore. Nobody has proposed a procedure to lift the gasoline prices to a realistic level. It just seems that the current prices will be maintained indefinitely or until some sort of major catastrophe gets into scene. It is interesting to note that cars are expensive because of tariffs, roads are not well maintained, spare parts are expensive and difficult to find, so that the little amount of money that is saved in gasoline prices is spent several times more in other car related products and services due to this chronic structural economic imbalance.

The most worrisome fact is that there are no attempts to educate the population on these contradictions, and Venezuelans feel it is their god given right to continue enjoying their cheapest gasoline price forever. The country seems at a ransom of either free gasoline or major population upheavals for many years to come. 

Rivero & Cooper, Inc.                              RROOPSTR