Bolivia to shift fuel distribution to private sector in bid to shore up supplies

Bolivia plans to transfer fuel distribution to the private sector, a key for shoring up supplies after years of shortages under state control, part of a wider process to attract investment to rebuild oil and natural gas production, energy minister Mauricio Medinaceli said in a statement late Dec. 17.

Medinaceli said the private sector has the financial capacity to ensure sufficient supplies in the market, including by taking out credit lines and signing supply deals for up to five years.

This is one of the first measures in the oil sector taken by President Rodrigo Paz, a conservative politician who took power in November to end 20 years of socialist rule that led to a decline in oil and gas production and a surge in fuel shortages.

Medinaceli said Bolivia faces two big challenges in the fuel sector: ensuring sufficient fuel imports and making sure that they reach the population. He said that theft of oil products, for reselling on the domestic black market or across the border, was the main reason for the long lines at the pump.

"The bulk of the problem is fuel leaving the country, mainly to Peru, Chile and Paraguay, where the price is higher," he said.

Medinaceli said the underlying problem for diesel and gasoline distribution is financial, given that low reserves of US dollars have made it hard for the state-owned oil company YPFB to pay for imported products to meet demand beyond its own refining capacity.

Bolivia imports diesel, gasoline and other products from the global market, as well as from neighboring countries like Argentina, Chile, Paraguay and Peru.

A new hydrocarbons law

Once fuel distribution has been transferred to the private sector -- which is expected to take six months -- the Paz government will work on a new hydrocarbons law aimed at attracting investment and to rebuild production, both of oil and gas, Medinaceli said.

Bolivia's oil output averaged 22,000 b/d in September, down from 25,530 b/d a year earlier, extending the decline from a record 51,000 b/d in 2014, according to data from the state statistics institute INE.

Gas production is falling similarly, averaging 27.4 million cu m/d in August compared with 30.3 million cu m/d a year earlier, and more than halving from a high of 60.8 million cu m/d in 2014, according to the data.

The decline in gas production, in particular, has hit the country's finances hard, given that it has long been its biggest export.

Raising pump prices

As part of the effort to normalize the fuel sector, the Paz administration is removing state fuel subsidies.

Fuel prices will now fluctuate with international benchmark prices and the costs of refining, transportation, taxes and royalties, leading to a surge in gasoline and diesel prices.

The move is part of an economic emergency declared by President Paz late Dec. 17 that aims to rein in inflation, currently at more than 20%, and shore up public finances.

"Eliminating poorly designed subsidies does not mean abandonment, but order, justice and real and transparent redistribution," Paz said in a televised press conference. "This will generate additional fiscal resources that will be shared between the central government and regional governments."

The president added that this was a difficult decision to make, but added that it was necessary.

"We need to ensure fuel supplies and stop depleting our reserves," he said. "I have a duty to tell the truth and act decisively."

As part of the hike in fuel prices, Paz said the minimum salary will rise 20% next year, and one-time funds will be distributed to the poorest families. The money saved from the elimination of the subsidies will also go into improving education, hospitals and other public services, he added.

"We have made a key decision to protect people's pockets, provide certainty in energy and fuel with clear prices and guaranteed supply," he said in the press conference.

The first grumbling

Even so, some unions have come out against the measures, giving the government 24 hours to repeal them or they will consider going on strike.

"The poor class has already suffered a blow from inflation, which the administration is going to turn into mega-inflation in 2026, into stagflation at the national level," Wilfredo Ajllahuanca, executive director of the Confederation of Urban Teachers, was quoted as saying by La Razón newspaper.