March 3, 2021

Ecuador eliminates fuel subsidies with a price band system



Ecuador’s Minister of Energy and Non-Renewable Natural Resources, René Ortiz, announced on Tuesday that the historic subsidies for gasoline and diesel will be replaced by “a new fuel trading system at market prices.”

“The fuel trading system with market prices and fluctuation bands of 5%, ensures relative stability in the market, particularly in that of extra gasoline and diesel,” he said in a virtual press conference.

Under the new system, the price of extra gasoline, eco-country and diesel may fluctuate up to a maximum of 5 percent, which will be applied both in the case of a possible increase and when its market price falls.

This will mean that fuel prices will fluctuate within a system controlled monthly by the Government, or by bands.

Thus, the floor price for the extra gasoline band will be $ 1.75 per gallon (applicable unit of measurement in the country) and could range from one cent to nine cents, explained the Energy minister.

The fuel could only become more expensive if the prices in the international market of crude East and the WTI, of reference in Ecuador, increase abruptly.

“If the band is broken by the international market, it means that it protects the consumer because the price ceiling remains in Ecuador,” Ortiz stressed.

Interpelled on several occasions about whether the new measure represents the end of four-decade subsidies for gasoline in the country, the minister acknowledged that “and at prices with this formula, they totally eliminated any type of subsidies.”

And he clarified that currently and given the fall in the price of crude oil, “the formula is perfectly established without sacrifice for the consumer, and without sacrifice for the treasury that has to pay the subsidies.”

The new system, he added, is included in a presidential decree that “is ready”, although a technical protocol must still be followed to report its correct use to more than a thousand gas stations throughout the country.

A presidential decree that in October eliminated fuel subsidies caused the most violent disturbances experienced in Ecuador in decades, channeled by the indigenous leadership, which forced Lenín Moreno to repeal it in order to pacify the country.

The government agreed last year with multilateral organizations to finance more than 10.2 billion dollars to alleviate the state debt and included budgetary adjustment commitments that led to the idea of ​​abolishing historic subsidies in a country whose main export product is oil.

However, before the fall in the price of crude oil and the crisis caused by COVID-19, Ecuador seeks to “de-monopolize” the sector and for this the new fuel trade system will allow the import “of any type of fuel,” Ortiz added.

In this sense, he glimpsed the option of dry natural gas, cheaper and one of the least greenhouse gas emissions produced.

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