Colombia to reform fuel pricing, encourage imports

Colombia's government is preparing long-awaited fuel market reforms anchored on a new pricing system and greater competition with imports.

The reforms will shift wholesale motor fuel pricing from export parity to import parity to reflect the growing domestic market imbalance, particularly in gasoline. In line with other Latin American countries, gasoline and diesel prices would move within a band designed to mitigate market volatility through an existing government-run fuel subsidy fund.

Speaking today at the Colombian oil chamber's annual summit, the mines and energy ministry's hydrocarbons director Jose Manuel Moreno said the reform will alleviate fiscal pressure while encouraging actors other than state-controlled Ecopetrol to import fuel.

"In the strict sense, imports are already open, but the way the institutional architecture works, imports are only carried out by one actor," Moreno said.

The new market-based mechanism will provide flexible price signals, replacing the current "hyper-regulated" system that does not adjust quickly to market conditions, he said.

Another reform aspect will encourage bilateral fuel supply contracts in the domestic market, which Ecopetrol -- Colombia's sole refiner -- continues to dominate.

Sharing a conference panel with Moreno were representatives of Colombia's leading fuel distributors, Chilean Copec subsidiary Terpel president Sylvia Escovar and Peruvian Primax Colombia president Yuri Proaño. Both weclomed the reform initiatives but urged the government to go farther.

Escovar noted the challenge of private-sector access to product pipelines, and storage constraints, particularly in the south.

In its latest pandemic crisis report, the mines and energy ministry indicated that Colombian fuel demand has bounced back from its lowest point in April. In the 1-13 November period, diesel demand jumped by 99pc, gasoline 174pc and jet fuel by 148pc compared with the April trough.

October demand for diesel was up by 4.5pc to 5mn USG/d (119,048 b/d) from a year earlier. Gasoline demand inched up by 0.7pc to 5.5mn USG/d (130,952 b/d) in the same period.

The average retail diesel price in October was 8,145 pesos/USG ($2.12/USG), down by 15.9pc from a year earlier. The retail gasoline price averaged 8,096 pesos/USG, a 13.6pc decline. Colombia's retail prices are based on monthly reference prices set by the government.

Biofuel challenges

Speaking on the same panel, former mines and energy minister German Arce pointed out the "huge price disparity" between diesel and biodiesel, "one with guaranteed supply and the other with no guarantee."

Colombia's biodiesel blend mandate will rise to 12pc from a current 10pc in first quarter 2021, Moreno noted, highlighting the critical role that oil palm cultivation plays in socially volatile areas such as Tumaco.

Palm oil is "an engine of formalizing rural employment," Moreno said. "One has to reconcile the Colombian state policy of fomenting agroindustry with the decision to provide fuel at efficient, timely prices."

The government is encouraging the voluntary use of higher biofuel blends. In Medellin, Primax is participating in a 20pc biodiesel test, in which participating vehicles are not subject to circulation restrictions. The higher blend has reduced emissions by 74pc and boosted consumption of local feedstock, Proaño said.

Terpel's Escovar urged the government to regulate biofuels separately and lower ethanol import duties. "Ethanol imports should be free. I believe in price signals, I believe in competition, which is good for the final consumer," she said.

She noted that ethanol supply logistics are complicated by the concentration of 70pc of production in one area of Colombia.

By Patricia Garip