Venezuela eyes strict local fuel rationing

Spanish Market: Oil products
12/10/18

Venezuela's government is drafting plans to ration local motor fuel supplies following the operational failure of a national electronic payments system launched less than three weeks ago, government officials with direct knowledge of the matter tell Argus.

The new electronic payments system for local motor fuel sales launched on 24 September already has collapsed, forcing the government to pivot towards strict rationing mechanisms that are still being defined, energy ministry and palace officials said.

The failed electronic payments system relied on special government-issued homeland identity cards that drivers must present at service stations to purchase motor fuel at subsidized prices. This system was designed to rationalize local motor fuel consumption and curb illegal fuel smuggling mainly to Colombia and other nearby countries. Over 3.2mn homeland identity cards have been issued, the palace said.

Drivers with valid homeland identity cards would receive direct subsidy transfers from the treasury to their bank accounts to ensure they "continue enjoying the world's cheapest gasoline," President Nicolas Maduro said last month. Drivers without homeland identity cards would be compelled to pay the "full international price," Maduro added.

The failed electronic motor fuel payments system uses Chinese-made QR scanners and biometric fingerprint readers installed at more than 2,700 service stations nationally to scan identity cards and confirm the driver's identity and legal ownership of the vehicle being fueled. Since the system launched officially on 24 September, less than 10pc of the QR scanners and biometric fingerprint readers have been able to establish consistent uplinks with the government's homeland card and fingerprint registries.

Energy ministry and palace officials blamed the system's failure on poor Internet connectivity nationally, frequent power outages throughout Venezuela and operator unfamiliarity with the Chinese-made technology service station operators now are required to use.

The biggest single factor in the swift demise of the payments system is the government's failure to announce new international fuel prices for the local market, ministry and palace official acknowledged. The Maduro government has delayed posting new local motor fuel prices in line with international prices "because the numbers that ministry economists are crunching aren't working," a palace official said.

PdV's average cost of manufacturing gasoline in its local refineries is about $1.70/USG at the official exchange rate of 60 sovereign bolivars (BsS) per dollar, according to the energy ministry. PdV's local refineries, with a combined nameplate capacity of about 1.3mn b/d, can manufacture up to 260,000 b/d of RON 91 and RON 95 gasoline at peak capacity. But PdV's local refineries currently are operating at about 25pc of capacity, forcing the company to import more than two-thirds of the 120,000 b/d of gasoline consumed locally. These gasoline imports on average cost about $2.58/USG based on the official BsS 60/$ exchange rate, the palace official said.

The government's official exchange rate has not budged since the new sovereign bolivar was introduced on 20 August. But the black market rate has depreciated over just seven weeks to BsS 115.29 currently, putting the real market value of local motor fuel at about $1.34/USG and "guaranteeing the continuity of significant fuel smuggling to Colombia and other countries in the nearby region," the palace official said.

Filling a 15-gallon tank would cost drivers more than $70 if the government sets prices at $2.58/USG. But the average minimum monthly wage decreed by Maduro in September is only $30 at the official exchange rate and $15 at the current black market rate.

Given the low monthly minimum wage and the new sovereign bolivar's rapid depreciation, the Maduro government has no political or fiscal leeway to safely post new local fuel prices equivalent to international levels, the palace official said.

"Government planners now think the only realistic option is to impose strict motor fuel rationing on the local market to at least erase PdV's losses on gasoline imports, but there are concerns that compulsory fuel rationing could cause more political protests and inflict more economic damage," the palace official said. The actual mechanics of how to enforce motor fuel rationing at the pump effectively are still being discussed within the government.

Venezuela's economy is now expected to shrink by at least 18pc in 2018, with inflation soaring to over 1.3mn pc this year and over 10mn pc in 2019, according to the World Bank and International Monetary Fund. Local independent economists think Venezuela's GDP could contract by over 20pc this year.

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