Americas Quarterly – Venezuela’s Oil Tale

Americas Quarterly – Venezuela’s Oil Tale.

“Venezuela has the world’s cheapest gasoline. But what does this subsidy mean for Venezuelan society? And who is the principal beneficiary? For 2011, the domestic gasoline price is 2.1 cents per liter, or 8 cents per gallon at the official exchange rate (half that if using the nonofficial exchange rate). The international market price is 63.6 cents per liter.”

“Recently, Chávez declared that PDVSA has more than 90 percent of its refining cost subsidized, estimating the subsidy at $1.5 billion a year. This calculation is incorrect. Instead, it is necessary to compare the domestic price of gasoline with its opportunity cost (that is, its export price). Basically, every liter of gasoline Venezuelans sell domestically is one liter not sold on the international market. And since the domestic price of gasoline has remained practically constant in nominal terms, the total subsidy has been increasing with the devaluation of the currency, the increase in the price of oil and the ever-increasing rate of consumption. Assuming 17.6 billion liters of annual domestic consumption, the total gasoline subsidy amounted to $9.4 billion, or 4.6 percent of GDP, in 2010.”

“The implicit gasoline subsidy in 2010, compared with what is established in the 2011 National Budget Law, represents 2.9 times what the national budget has earmarked for health care, 70 percent more than allocated for education, and almost four times more than proposed spending on universities.”

” As expected, gasoline consumption increases disproportionately the higher one climbs the social strata; in other words, the gasoline subsidy is regressive. The 25 percent of the population that is in the highest income bracket consumes almost nine times more gasoline than the 25 percent in the poorest bracket. Dividing the subsidy among the populations of each of the strata and multiplying by the average family size shows that Venezuela gave to the richest families $3,318 in gasoline subsidies in 2010, while the 25 percent in the poorest bracket received only $479.”

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