So, according to El Mundo, Venezuela spends some $3 million per day on diesel for electrical generation, since 200,000 barrels of the stuff is being devoted to thermoelectric plants every day.
Now, let’s puzzle this one through. Crude oil prices are over $80 a barrel now, and diesel – a refined product – obviously trades at a premium to crude oil. Closer to $100 a barrel, in fact. So, in terms of opportunity costs, we’re really talking something closer to $20 million a day, not $3, spent on Diesel generation.
If, as a matter of accounting, Corpoelec is paying just $3 million a day for its 200,000 barrels, all that means is that PDVSA is selling them fuel at $15 a barrel – an 85% discount from the international price. This entire dynamic seems to escape El Mundo’s intrepid reporter Erika Hidalgo López altogether. The whole notion that the price PDVSA charges Corpoelec might be entirely fictional, or different from prices abroad, and that that might have an impact on her story just never occurred to her. The real scandal here – the insane scale of PDVSA implicit diesel subsidy – is right under her nose, but she never sees it.
Why bother? $3 million seemed like a big number. Big enough for her purposes, anyway. She went with it.
I’ve said it before and I’ll say it again: while rampaging innumeracy on this scale is certainly sad coming from a supposed business reporter, there’s something much bigger at play here. It’s not that Ms. Hidalgo López flubbed this piece so badly that gets me, it’s that none of her higher ups caught it.
It’s supposed to be a business paper, ferchrissake!
Update: One perceptive reader thinks I had a fail fail:
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The problem you’re pointing out is not the math. “It’s Economics, stupid!” See, the reporter fails to come up with the right figure of $20 million a day because she fails to understand one of the most important concepts in Economics. She doesn’t understand the concept of Opportunity Cost! If she fails to see that, then it’s impossible for her to come up with the formula 200,000 barrels/day x $100 = 20,000,000 dollars/day. That’s really the problem not the math.