Fuel hikes may see Venezuela’s gas guzzlers go thirsty

As an economic crisis drains government coffers, President Nicolas Maduro is putting motorists on notice and taking on one of the nation's biggest sacred cows – almost free petrol.

Ruben Ruiz emerges from his 1975 Ford LTD station wagon in Caracas, where the steady roar of Nixon-era gas guzzlers is sounding a little less muscular. Fernando Llano / AP

CARACAS // Owners of the 1970s-era fuel-guzzling trucks and sedans that have long reigned over Caracas’ smog-filled roadways will soon have to pay a bit more to keep flaunting their energy-inefficient monsters.

As an economic crisis drains government coffers, President Nicolas Maduro is putting motorists on notice and taking on one of the nation’s biggest sacred cows: nearly free petrol. With cut-rate prices for fuel, Venezuelans have never felt compelled to buy smaller, more environment-friendly vehicles like motorists in many other countries.

Venezuelan fuel prices have been frozen for almost 20 years, with politicians hesitant to repeat the mistake of raising prices in 1989 that triggered days of deadly rioting. The late president Hugo Chavez once confessed it pained him to practically give away fuel to luxury-car owners, but during 14 years of rule he never dared to touch the subsidy that consumes upward of Dh46 billion a year in government income.

But all good things must come to an end. For Venezuelan motorists, to whom cheap gas is something of a birthright and fuel efficiency a foreign concept, that means having to pay more than the 18 fils a gallon (3.8 litres) that petrol currently costs.

For now, motorists seemed unfazed by the idea of paying more at the pump because it is not known how much prices will rise. Mr Maduro, meanwhile, is testing the political waters to see if Venezuelans already squeezed by 54 per cent inflation and a collapsing currency are willing to pay more to fill up.

Mr Maduro said last week he favoured raising prices gradually over three years, making sure it did not add to inflation.

“As an oil nation, Venezuelans should have a special price advantage for hydrocarbons compared to the international market,” the former bus driver said. “But it has to be an advantage, not a disadvantage. ”

Politically, it is now or never on raising fuel prices. Venezuelans are not scheduled to go to the polls again until late 2015, which gives Mr Maduro a rare opening to push unpopular reforms that analysts say are long overdue. Coupled with a devaluation of Venezuela’s currency, the bolivar, eliminating the fuel subsidy will help close a budget deficit estimated at 11.5 per cent of gross domestic product, among the world’s largest.

Unlike the well-maintained 1950s-era American automobiles gracing the streets of Communist Cuba, Mr Maduro’s staunchest ally, there is nothing majestic about Venezuelans’ beloved steel behemoths.

Most of their cars are clunkers, Dodge Chargers and Chevy Malibus from a bygone era. Some are held together with wire and rope, and driven as unregulated taxis that take the place of public transport in major cities.

Ruben Ruiz, 47, is the proud owner of one: a battered 1975 Ford LTD station wagon that keeps him gainfully employed transporting everything from eight passengers at a time to crates of fresh fruit.

Mr Ruiz bought the car new during the height of the oil boom known as Venezuela Saudita, or Saudi Venezuela, when a super-strong currency spurred frequent foreign travel and frenzied consumption.

He said modern cars do not afford the same heft or baggage space and, having paid for his initial investment several times over with the cheap price of petrol, he could easily afford to pay a little more to fill his 60-litre tank every two days.

Despite the mounting economic troubles and deep political divisions, it is hard to imagine a repeat of the deadly looting triggered in 1989 when the then president, Carlos Andres Perez, raised fuel prices as part of an austerity package pushed by the International Monetary Fund. The unrest, in which at least 300 people died, remains a powerful deterrent against policies affecting people’s wallets.

Mr Maduro himself has taken care to dismiss any parallels. “We don’t come from the neoliberal school,” he said, referring to free-market policies that Chavez rallied Latin American leaders to oppose.

Indeed, Mr Maduro is selling the price hike by promising to reinvest the savings to build schools and homes. It is a path pioneered by Indonesia, which cushioned the effects of a 44 per cent fuel increase in June with Dh3.3bn in cash transfers to the poor. In 1998, an IMF-mandated fuel increase sparked protests that toppled the three-decade Suharto regime.

But in Indonesia, prices at the pump are 50 times higher than what Venezuelans currently pay. Even if the government raises prices to the level it says is needed to cover production costs, a litre will still cost only about 2.50 bolivars, compared with 12 bolivars for a litre bottle of water

The distortions created by such a low price are easy to spot. Lines at petrol stations get longer every year as more cars come on the road, pushing up per capita gas consumption that is 40 per cent higher than in any other country in Latin America, according to Lucas Davis, an energy specialist at University of California-Berkeley.

The subsidies also contribute to pollution, encourage the smuggling of oil to neighbouring nations with much higher prices and handicap the state petroleum company’s efforts to develop the world’s largest oil reserves.

* Associated Press