Fuel subsidy will cost 1.2% of GDP, despite withdrawal for large diesel consumption

This year, The Fuel Price Stabilization Fund (Fepc) would generate a deficit of $20.5 billion, in accordance with the Ministry of Finance and Public Credit in the presentation of the Medium Term Fiscal Framework. This Fund cwould cost the Nation 1.2% of GDP, since the price of fuel has remained unchanged from 2022.

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This although it is a contraction compared to the figure that occurred during 2023, it is still a high fiscal effort, therefore the portfolio recognizes that This subsidy must begin to be dismantled at a general level.

Currently, the price of fuel is like this in the case of Bogotá: Gasoline sells for $15,861 per gallon, while diesel each gallon sells for $9,614. This, according to Julio César Vera, president of Xua Energy, implies that the gasoline $167 above the international parity price, which means that savings estimated at $30,000 million per month are being generated.

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However, The price of diesel is considerably below its international parity price, at $9,600 per gallon, which means that each month aa debt of about $1.04 billion during the month of June alone.

This would lead to debt equivalent to 1.2% of the country’s Gross Domestic Product (GDP) during this year.

Although the Treasury, Transportation and Mines and Energy portfolios have assured that The goal is to correct the deficit that is being generated in this fund, due to diesel, So far, no fundamental adjustments have been made that affect the entire percentage of consumption not only by freight transport, but also by private cars that move with this fuel..

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This is partly because It has not been possible to reach agreements with transport unions, which oppose making changes to pricespointing out that it would lead to increases in costs and therefore freight, which would lead to an increase in inflation.

“The national government It also advances in the challenge of agreeing on a price increase policy for the Acpm, given that this component continues to exert significant pressure on the fiscal balance“, stated the Ministry of Finance in the Fiscal Framework document that was presented on June 14.

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This year alone the debt generated by this fuel would be the equivalent of 0.7% of the country’s GDP, while the rest corresponds to balances of the gasoline deficit that have not been paid to Ecopetrol.

Although no progress has been made in terms of correcting the Fepc deficit at a general level, the Government has taken other measures to help reduce debt. One of them searches eliminate the subsidy for a group of large consumers, which became firm this Tuesday with decree 0763 of June 18, but which will come into effect 45 days after its issuance as confirmed by the Ministry of Finance.

The draft decree had been presented in July 2023 and aimed to remove the benefit from about 150 consumers, which was covering the consumption of about 310,000 gallons per day, and will allow savings of $50,000 million per month, that is, $600,000 million per year, since large consumers represent 5% of the total consumption of Acpm and mainly covers companies that concentrate in mining and oil (60%), among others

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He The effect of the decision had been estimated at that time at $557 billion by 2023. Now the measure was presented firmly, with a effect on about 20,000 gallons per month and whose exclusion from the subsidy would generate savings equivalent to 0.04% of GDP.

“This slightly focuses Fepc spending, helps reduce its significant deficit and sends a signal to the market to promote the decarbonization of the economy starting with the large companies that highly consume this fuel” says the document from the Ministry of Finance.

Vera was in favor, saying that Any measure in the sense of reducing the deficit is correct “from the energy, social, economic and fiscal point of view”.

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“It can be said that it is a measure that iIt impacts approximately 12% of the country’s diesel demand, which is around 145,00 barrels per day (a little more than 6 million gallons per day), that is, about an impact of approximately 17,400 barrels per day“, he pointed.

The application of this measure will require a series of controls for your application, although it could have a positive effect. However, The principal debt will remain, given that the high demand for ACPM continues to be subsidized.

Vera precisely pointed out that this decision “should be accompanied by the start of adjustments in the price of diesel for automotive usein such a way that the effect is greater and truly significant in reducing a subsidy that today costs the country around $1 billion each month, also for the principle of equality and avoiding other problems of possible diversion or illegality around the measure.”.

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The main adjustment to correct the debt that is generated each year is related to the consumption of diesel by vehicles. This year it is estimated that some $13 billion of debt will be generated by this fuelmeaning a correction of $600 billion for this year would be just a small part of the grand total impacting the country’s finances at a time of a sharp drop in tax collection that forced the Government to make a cut of $20 billion in the 2024 General Budget of the Nation.

“The fiscal pressure exerted by this differential motivates the Government to continue efforts to close the gap between local and international diesel prices, as was achieved with gasoline.“, indicated the Minhacienda.

Yes welln none of the related portfolios has announced the way forward in terms of price correction, hope that since 2026 some surpluses will begin to occur of cash in the Fund and even in 2025, “If international conditions and local pricing policy allow it.”.

Based on this, By 2027 the balance of the Fuel Price Stabilization Fund could be neutral, upon achieving the definitive closure of the differential in the previous years and the total closure of the debt.

DANIELA MORALES SOLER
Portfolio Journalist