Why the price of gasoline in Colombia does not stop rising

Accustomed to paying one of the cheapest gasoline in America, Colombians face a unprecedented price increase since the Government decided to reduce subsidies that increased its deficit and went against its environmental promises.

(See: This is the cleanest gasoline that San Andrés will have since July).

In October 2022, two months after assuming power, President Gustavo Petro began to adjust gasoline prices. As of May 2, it was already worth 11,767 pesos per gallon (2.5 dollars), 28% more than seven months earlier. It is the largest increase in the last four years.

And there are areas of the country where the price per gallon has already exceeded 12,000 pesos

The increase responds to Petro’s urgency to reduce fiscal spending generated by the Fuel Price Stabilization Fund (FEPC), a state program that subsidizes its cost since 2007 to avoid an impact on consumers.

Petro is committed to eliminating this burden for the State and use the resources released to improve social investment, when the hole in the FEPC reaches 36 billion pesos (7,826 million dollars).

In addition, the president considers that subsidizing fuels goes against his environmental policies to face the climate crisis, such as suspending oil and gas exploration activities.

(See: They will give away $500 million to tank vehicles: so you can participate).

The measures hit the pockets of Colombians, who in March faced the highest inflation so far this century (13.34% year-on-year) and their discontent permeated social networks, identified the digital verification unit of the agency AFP.

The international context warns of the possible effects of raising prices or controlling the distribution of fuel. In Ecuador The protests cornered the Government until forcing it to lower rates in June 2022 and in bolivian, Hundreds of farmers demonstrated against the restrictions imposed by the Government on the sale of imported diesel at gas stations.

Gasoline.

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The FEPC covers the difference between oil prices in the international market and the internal value set by the Government, under a model that perpetuates the deficit in the state coffers.

Colombia, what produces 80% of the gasoline it consumes through Ecopetrol, This company recognizes the international value of the fuel.

(See: The impact of the rise in gasoline in the pocket of Colombians).

Paying the oil company a lower price than the market would also have an impact on the country’s tax revenues, since “it would be another form of subsidy“he said to the AFP the expert Sergio Cabrales.

The situation worsened in 2022, when international crude oil prices rose along with their demand after the fall caused by the pandemic and the contraction in supply linked to the conflict in Ukraine.

But the administration of Iván Duque (2018-2022) he maintained the subsidy, pressured by massive protests.

(See: ‘If we want to respect the fiscal rule, we must raise fuel prices’).

“Events such as the pandemic or the social outbreak of 2021 made the previous government prefer not to raise the price of gasoline. His political capital was non-existent“, explained Hernando Zuleta, an expert from the Universidad de los Andes.

Gasoline price increase

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The Minister of Mines and Energy, Irene Vélez, assures that the previous government left a negative balance in the FEPC of 15.9 trillion pesos (about 3,550 million dollars), accumulated since April 2022.

But the increases in fuel decreed by Petro are not only aimed at covering the difference left by his predecessor, but also at reduce the Colombian gap with the international price.

“Still running a deficit, even with hikes“, explained the specialist Julio César Vera.

(See: How convenient is it to sell gasoline at differential prices?).

This is recognized by the Government, which estimated that in 2023 it will spend 26.3 trillion pesos (5.825 million dollars) to cover the debt which prolongs the situation.

The Minister of Finance, Ricardo Bonilla, agrees that the gallon of gasoline must reach 16,000 pesos (3.2 dollars) to reach international parity.

So far, the measure has not touched the prices of diesel, used for the transport of raw materials and passengers, trying to avoid a greater impact on inflation.

AFP