Oil-price subsidies hit 4% of Venezuela's GDP in 2011
Petrol exports fell from 226,000 bpd in 1998 to 46,000 bpd in 2011
The growth of the domestic hydrocarbons market has been fostered by frozen petrol prices since 1998 in Venezuela.
Simultaneously, oil prices have grown tenfold, taking the value to nearly USD 11.83 billion by 2011, according to a research titled "More Than Just Cheap, It's a Gift" prepared by economists Luis Oliveros and Domingo Sifontes and published in Gumilla Center's SIC magazine.
State-owned oil company Pdvsa has reported increasingly higher figures of the revenues it misses out on because of the opportunity cost incurred by selling highly subsidized fuel instead of exporting it at international prices.
In their research, Oliveros and Sifontes indicate that in 2011 the value of the subsidy times the income USD 11.83 billion plus the value of the subsidy times production cost, approximately USD 750 million, results in roughly USD 12.5 million in petrol subsidies. This amount is equivalent to 4% of Venezuela's GDP for 2011.
Their study claims that "in a situation in which oil prices are at a high and gasoline consumption rises, it is no surprise that the opportunity cost of the subsidy on petrol prices becomes increasingly higher because,as oil prices climb, so do the revenues that would have been attained from selling oil abroad."
Pdvsa's case is illustrated by the evolution of exports and prices. Gasoline sales to international customers fell from 226,000 barrels per day in 1998 to 46,000 barrels per day in 2011. At the same time, the average price of the Venezuelan basket rose from USD 9.37 to USD 101 per barrel.
Oliveros and Sifontes underline that "gasoline has two costs: an operating cost (its actual cost) and opportunity cost (the amount not earned).
It would be normal for prices to adjust to changes. But those adjustments have not been approved in Venezuela. The authors point out that "for the period under analysis (1998-2011), the country's consumer price index rose 1,270%, Pdvsa's barrel production costs rose 111% and gasoline barrel costs rose 163%."
The issue of raising petrol prices has been a taboo in discussions on Venezuelan politics and economics despite government authorities having acknowledged price difference. Luis Oliveros and Domingo Sifontes wonder "what is the use of having the world's cheapest gasoline when there is no suitable infrastructure?" and add that the subsidy on production costs of nearly USD 2.2 billion from 2005 to 2011 "could have been invested in improving the infrastructure or lowering Pdvsa's long-term debt."
They also bring to light the changes in Iran, where energy subsidies represented 10% of that country's GDP in 2010, so the government determined that 70% of petrol subsidies benefitted only 30% of the population with higher income. In response, Iran will gradually eliminate subsidies until 2015 and will provide social assistance to families.
Oliveros and Sifontes conclude that another harmful aspect of the subsidy is related to the environment, energy savings and diversity of energy sources.
Translated by Félix Rojas Alva
President Nicolás Maduro is not only the heir to the throne, but also to an economic crisis which demanded urgent measures to rectify the course. The crisis showed up in two aspects: a 50% inflation estimate, and shortage of staples ranging between 70% and 98%. These issues might hit the President's poor popularity; considering his feeble electoral victory of 1% over his challenger.