12 sectors use subsidized fuels

Ecuadornews:

The revision of the subsidies that the Government has made in recent months has impacted four of the 12 sectors that use subsidized derivatives in the country. The increase in the price of super gasoline is aimed at the automotive sector; and that of diesel 2 and premium diesel applies to shrimp, tuna and “other fisheries” activities.

The increases range between USD 0.10 per gallon USD 0.72. But, according to information from the public company Petroecuador, in total there are 12 sectors that use subsidized derivatives in their production processes.

The segments that most demand these fuels are industrial, automotive and electric. In the industrial sector, sulfur, diesel 2, natural gas, extra gasoline, super, turpentine mineral and rubber solvent are used. Everyone has a subsidy.

Andrés Robalino, president of the Chamber of Industries, Productivity and Employment, explained that this type of “support” began to generate about 30 years ago and became an important support in recent years. The loss of competitiveness, which according to Robalino was experienced in the last nine years by the increase in tariffs for raw materials and machinery, the high cost of labor and other expenses, made subsidies to derivatives allow the industries can continue to produce.

“Today most sectors are at the level that if they lose more competitiveness, in the worst case, they go bankrupt and, in the best case, lose a significant percentage of their national or international market,” Robalino added.

The amounts that the State allocates to subsidize derivatives range from USD 0.006 (less than one cent) per gallon, in the case of super gasoline used for vehicles, up to USD 2.70 per gallon for the national avgas, which is the fuel used by aircraft. Another subsidy is that which is destined for the consumption of natural gas for domestic use.

This product has a subsidy of USD 2.38 per gallon, although its use is not widespread in the country. This fuel is used in the social housing project in the community of Bajo Alto, canton El Guabo, in El Oro. There are 77 families benefited. In total, the number of subsidies to the derivatives adds up to 35.

Fernando Santos, former Minister of Energy, believes that if Ecuador decides to go to the International Monetary Fund (IMF) it should eliminate this type of subsidies. To analyze this issue, the Government announced that dialogue tables will be held, although there is no date yet.

Robalino added that this review should analyze the reality of each sector and prioritize technical criteria. For these fuel subsidies, the State plans to invest around USD1 707 million this year, according to the General State Budget.

But the amount will be higher considering the recovery of the price of crude, which pushes up the price of derivatives. For example, for the diesel subsidy – the fuel with the highest demand – USD 499 million have been allocated between January and July of this year. This amount represents USD 260 million additional to those that were allocated in the same period of 2017, according to information from the Central Bank of Ecuador.

The government, for its part, was optimistic yesterday with the results of the measure to raise the price of super gasoline, which is in force since August 27, 2018. Richard Martinez, Minister of Economy and Finance, reported that the elimination of the super subsidy resulted in a reduction of 245 574 gallons per day of this derivative in September; that is, 40% less compared to the previous month.

While the consumption of the extra and the ecopais increased by 59 308 and 41 471 gallons per day, respectively. Martinez said that it is a positive balance, because the results are as expected. He pointed out that since there is no total transfer of demand to extra gasoline and eco-gas, the State will save USD 33.3 million until December.

“This means that there was a reduction in consumption levels. And the benefits are that less is spent subsidizing the super, we spend less on investment to improve the octane rating on this fuel and less foreign currency comes out of the country to buy those higher quality naphthas that were required for that improvement, “he said.

Francisco Silva, head of the National Chamber of Distributors of Derivatives of Petróleos del Ecuador, said that August should be considered atypical, with more demand than usual due to the uncertainty generated by the announcement of subsidy reviews. Hence, the guild prefers to compare the data for September with the data for July this year.

 Silva said the demand for super was reduced by 35.6% compared to that month. Added super gas now represents 10% in total sales and 90% corresponds to extra and ecopais. In 2017, the super share was 15%. (I)

Source: https://www.elcomercio.com/actualidad/combustibles-subsidio-gasolina-diesel-negocios.html