Venezuela says direct fuel subsidy $1.5 bln a year

Venezuela Oil Minister Rafael Ramirez pegs the value of his country’s fuel subsidy at about $1.5 billion a year, Reuters reports. His measurement is the gap between the sales price and the cost of production. It is unclear to me why he doesn’t refer to the figure in opportunity-cost terms. For some reason, he wanted to make the subsidy sound as small as possible. Opportunity cost is about 10 times bigger. Anyway take a look.

7 thoughts on “Venezuela says direct fuel subsidy $1.5 bln a year

  1. Kepler

    Setty, thanks a lot for posting this.
    What is unclear to me is why it is unclear to you, of all people.
    That’s quite a lot of dosh to develop a country…but then who wants sustainable development in such a feudal petrostate as Venezuela?

  2. sapitosetty Post author

    The president of the republic was looking to shame people for using too much fuel, and Ramirez said PDVSA is trying to reduce consumption. If either of them are the least bit serious, they should use the numbers that make their case. I’m just not sure if 1. they don’t understand opportunity cost, 2. they actually want to keep people using lots of fuel, 3. they are too ashamed of the real size of the number, or whatever. Could be anything. Like I said, I am not sure why they went with that number.

  3. Lazarus

    I provided an estimate of the lost opportunity cost in Miguel Octatavio’s blog on 5 January, which is in the ball park of +$20 BILLION.. and that is shameful.

    1. sapitosetty Post author

      You mean this? You have the right order of magnitude. The average price of all the refined products is not $120 a barrel — that’s just the best stuff, while bunker, petcoke, fuel oil and asphalt can be even cheaper than crude — but no big deal. Your “domestic consumption” number is a wee bit low. But in any case, yes the total annual subsidy is on the order of $15 billion – $20 billion.

      1. Lazarus

        Yeah, that one. It was my 5 minute quick estimate. $120 is for refined products, at ~$2.85/gallon. My reasoning, if the crude was shipped to US and refined and marketed by CITGO that would be close to the lost value, but I know it is still high. OTH, I expect crude to exceed $110 be fore the end of the year.

  4. Lazarus

    Also, Faja syncrude is selling for ~$90 right now, and then there is revenue for the sulfur and coke.

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