The Political Economy of Gas Smuggling

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El suero lo quiere de 87 o de 91?
Health care, bachaqueo-style

Caracas-based economist Asdrubal Oliveros recently estimated 130,000 barrels of gasoline are now smuggled across the border to Colombia each and every day.

That’s a big number. How big?

Well, assuming our men in uniform are bad at business and only make $65 per barrel sold (they’re wholesalers, after all), that would work out $8.5 million dollars every day, $253.5 million dollars a month, $3.08 billion a year.

You could make three thousand milicos millionaires for that kind of money, and still have spare change to cut another 843 of them $100,000 gifts. (Note: the government believes the amount is about $2.2 billion per year)

In some ways, the headline figure is actually quite small. It’s only a fifth of the $14-15 billion a year in foregone sales from subsidizing gasoline in the first place, and much less than the $25 billion a year we would be earning from extra oil produced in the Orinoco Belt if Chávez hadn’t muscled out our foreign partners in 2005-2006 and production had risen according to what was then the schedule, but hasn’t cuz, y’know, he did.

But the bachaqueo (the local term for selling subsidized goods at market prices in Colombia) loss is different. These aren’t losses that vanish in a puff of inefficiency. This is money that is pretty much stolen and very much deposited into the actual bank accounts of a few very real human beings, in sums big enough to give them very powerful reasons to ensure it keeps flowing.

So, keep that in mind the next time you get worked up over those 45% salary rises Maduro has approved for the armed forces. For the better connected of these guys, salaries are just retainers.

There are billions of real reasons they’ll do whatever it takes to keep the regime in power, and they probably lie in some vault in the Cayman Islands.

1 COMMENT

  1. “These is money that is very much stolen”
    ??
    It is arbitrage. It is the market at work.

    Are you saying people must just ignore very profitable (and naturally high risk) opportunities?

    “45% salary rises”

    What rises? Annual official inflation is over 60%.

    • You say: “It is the market at work”. No, It is “a market”, and the blogger is assuming that most people would think it a bad market which should be shut down by adopting better government policies. You imply you know better. Don’t put to to a vote.

  2. And now you also see the reason why the price of gasoline will never be raised. It would reduce the profits from the milico’s bachaqueo business. No way they are gonna let that happen.

  3. Is it no wonder the most desired place to work in the military is on the frontier with Columbia? No, it’s not to defend Venezuela sovereignty and see action against FARC, ELN, or other groups who exert control and tax Venezuelan citizens living on Venezuelan land. No, of course not. It is so they can make a ton of money smuggling, or taking bribes from smugglers, etc.

    Near my wife’s family home in Tachira, the smuggling routes are controlled or run by the military, GNB, and the guerrillas, and sometimes a combination them together. Woe to any common citizen who tries to smuggle gasoline without their knowledge or consent…

  4. Think of it this way: Venezuela is actually exporting 130,000 barrels of gasoline a day more than what it’s being reported anywhere, which actually represents a significant revenue for the country. Okay, granted that the money initially gets to a very small group of people, but eventually goes into the domestic economy stream. The Venezuelan economy has to be one of the most distorted and plainly bizarre economies in the world. The fact that the finances of PDVSA and, in fact, that of the whole country, are being compromised by this insanity is mind boggling. It would make much more sense to start selling gasoline at international prices, establish a system of secret kickbacks for those generals involved in the smuggling operations (aren’t they getting away with the most outrageous and openly exposed crime one can possibly imagine with absolutely no consequences anyway?) and offer the poorest part of the population massive subsidies and social programs with the revenue from internal gasoline sales. Smuggling would stop the day after gasoline is set to international prices and perhaps PDVSA could formally export it to Colombia. Naive? For sure. It’d be interesting to track the money that comes into the country as a result of gas smuggling to Colombia and Brazil.

    • Except that the majority of that money does not enter the Venezuelan economy. Most of it, goes to foreign accounts. The people involved in this are not just making a living. They are making a killing.

      • How do you know for sure? Does anybody know how much of the gas smuggling money enters the Venezuelan economy? Does anybody keep track the amount of “fuga de capitales” these days? The Central Bank doesn’t even publish the inflation rate anymore.

    • “It would make much more sense to start selling gasoline at international prices […]”

      What does this mean, exactly? That the price of gas be a function of Venezuela’s average BBL for a given quarter or other period of time?

      • A practical definition of “international prices” for gas would be matching the price of gas in Cucuta and Colombian Guajira. At that price point, smuggling gas into Colombia is economically inviable.

        Another practical definition of “international prices” for gas would be the price we have been paying to import gas ever since the Amuay refinery blew up, using the USD-VEF market rate.

  5. “But the bachaqueo loss is different. These aren’t losses that vanish in a puff of inefficiency. These is money that is very much stolen and very much deposited into the actual bank accounts of real human beings in sums big enough to give them very powerful reasons to ensure it keeps flowing.”

    WTF

    Stolen? Bachaqueo is non-sanctioned resale or export of goods previously produced or imported by Venezuela. If someone legally buys a Rexona spray deodorant in a San Cristobal pharmacy at VEF 50 and sells it across the border at VEF 150 (or at the same price in the streets). Who stole from whom? Buying isn’t stealing and selling isn’t being robbed. You are way off mark here.

    The problems with bachaqueo is that the venezuelan production and imports are exchange rate subsidized and price controlled.
    – In some cases, the Venezuelan state ends up subsidizing Colombian comsumption of these goods via our exchange rate subsidy and price controls, in that sense it’s another foreign subsidy.
    – On other cases, the difference between the PVJ and the real market value is pocketed by middlemen in the distribution network instead of the producers, which means that even if the street price skyrockets, the producers don’t get enough income to reinvest into expanding production capacity or purchase supplies at black market rates. (Think milk whose PVJ is about VEF 40, being sold by street vendors at about VEF 150). In that sense, the subsidy and price controls benefit the middlemen instead of the consumers.

    I’d like to point out, one more time, that to my knowledge, Venezuela is the only country that loses money on exports and feels the need to decrease exports to cut losses. Whenever Venezuelans traveled abroad in the days of Saudi Venezuela or in the golden days of CADIVI, I never heard of any country limiting how much clothing we bought, or snickers, or perfume, or laptops.

    • In Portugal, the biggest supermarkets normally limit the number of items a consumer can buy when the discount is 50%. These real 50% discounts are very rare though. Obviously, regular buyers of products are not fooled by 50% or greater discounts when the basic selling price is inflated. They are all able to recognize a real and a fake 50% discount.

      There are generally no price controls in Portugal or the European Union, for that matter.

      Distortions in prices are generally absent from the Portuguese market.

      • And I bet foreigners can purchase those discounted items in Portugal without any fuzz, and that portuguese can travel abroad with those items in their car or luggage.

        • The border between Switzerland and France used to be closed. Since groceries in France were so much cheaper the Swiss government either forbid or heavily limited the amount of French products you could get through.

          • How long ago was that?

            Obviously, when there is a big imbalance authorities use their powers to protect their side – while normal market forces, for example, arbitrage, etc., have not yet solved the problem in a natural way. Eventually the market solves the problem.

          • This was happening in 1990. It might have carried on for a few years after that.

            This is very different from the Venezuela/Colombia case, as it was Switzerland “protecting” its businesses, instead of France trying to stop food smuggling.

          • Notice that France didn’t forbid the sale of their gorceries to Swiss citizens. It was Switzerland who limited the import.

            The reverse occurs in our case. Venezuela harasses Colombian shoppers while Colombia does little or nothing to prevent their citizens from buying stuff in our country.

    • My guess is that when it comes to the military, the bachaqueo happens during the distribution stage, not retail. That makes it cheaper and logistically easier.

      When your job is to distribute food and gas and you divert them for your own economic benefit, that’s stealing.

      • Actually, the whole colombian bachaquero theory seems weak to me. I’ve always found it too complicated to hire people to stand in line for hours every day to buy 2 paquetes de harina PAN each time. It’s way way easier to smuggle a few containers through the border. Captahuellas are doomed to fail.

        • It’s the magic of the Revolución Bonita. They take the cake but leave some crumbles.

          It’s just like CADIVI. You have people taking billion dollar contracts, getting rich overnight and you have people who go to Ecuador to “raspar el cupo”.

          With bachaqueo, you have whole gas trucks crossing into Colombia, and you have taxy dirvers modifying their gas tank to carry a little more over to Cucuta. You have whole trucks of Mercal crossing into Colombia, and you have a Wayuu family of 5 standing in line geting the max amount of everything and then selling it across the border, only to do the same thing again the next day and the one after that.

          • Navarro,

            You got me thinking of the Wayuu or the Yukpa or for that matter any poor people along the border. It just make sense to take advantage of the price arbitrage between Colombia and Venezuela.

            One option is for grandma to sit at home watching the ‘telenovela’ opposed to Grandma stands in line, having a friendly gossip session with other neighborhood grandmas in the same line. Buy everything you can, sell some part of it to a profit with the help of your kin across the border.

            Add to Grandma any other person sitting around the house and you start getting scale. Multiply this by every household and now you have a river of people like the bachacos.

            What is going to get absurd is chavismo, los amigos del pueblo, terrorizing all these people and trying to stamp out one way of ‘redondearse’ (make a little extra on the side).

            Then the ‘capta huella’ solution is a stillborn idea. What they are calling for is a realtime transaction based system that will cover a population of 30 million! I can tell you first hand that these are the technical challenges web companies like Yahoo and retailers like Home Depot are trying to solve. You may think poorly of the US Federal government, but I think it is qualitatively more effective than the Chaverment and they bungled the Health Care Website roll-out, the most important policy achievement of the Obama administration.

      • “When your job is to distribute food and gas and you divert them for your own economic benefit, that’s stealing.”

        No.

        IF their job was distributing food and gas, and they used to their advantage that is corruption or influence peddling (not stealing). But that isn’t their job. SADA, from the Food Ministry is the organization charged with issuing the permits trucker need to transport stuff inside the country and to go into Colombia.

        Their job is to ask the truckers for the paperwork when they cross the border. The allow them to pass unchecked with merchandise legally purchased in Venezuela, to be sold in Colombia. The military gets a cut. This is corruption, this is illegal. But if you’re going to say it’s “stealing” you have to tell me who stole what from whom.

        • they’re stealing from everyone, just like a corrupt politician steals from everyone. Subsidized gasoline, while ill-advised, is meant for Venezuelan consumption… this isn’t too hard to understand. Is your family in this “business” or something? this definitely seems to have touched a nerve

        • What about food suppossed to be delivered to MERCAL/PDVAL/abasto bicentenario? These are subsidised products and they are suppossed to be sold in Venezuela. Whoever is not delivering these products at their destinations is stealing from the Venezuelan state.

          • I agree that military officers engaging in or benefitting from bachaqueo are corrupt. Dishonorable discharge corrupt, jail time corrupt.

            I agree that civil servants from the food ministry or any other organization engaging in or benefitting from bachaqueo are corrupt. Administrative investigation corrupt, bannable from civil service corrupt, jail time corrupt.

            I just don’t consider bachaqueo itself stealing. There’s plenty of Wayuu and other civilians engaging in bachaqueo, who are not using state resources to their benefit. They are simply buying stuff at the government decreed price with their own money, and then reselling that stuff in Colombia or in the street at market prices. That is an inmoral practice, that also happens to be illegal, but isn’t stealing (and whose real causes are the economic distortions created by currency controls and price controls).

          • When the Wayuu do it, it is not immoral – nor does it strike me as stealing. It all depends where the goods came from. When an officer does it it’s probably immoral, unethical, corrupt, criminal, and, yes, fattening, too! Think of all the hours spent in a truck.

  6. I dare to say that most, if not all the subsidies in Venezuela have been created to benefit the very people who made them while squeezing the producer and stealing from the consumer?

    • “While squeezing the producer…” Let’s be more precise! While squeezing the domestic producer and supporting the producers we import from!

  7. In Margarita, we are seeing a huge rise in trafficking in price controlled goods. At all of the supermarkets, there are hordes of people waiting in long lines to buy these goods. They spend all day returning time after time to buy their limit of whatever is available. This is creating long lines at the stores for normal shoppers, such that no regular person wants to go the the stores that have price controlled goods because it is just too much of a hassle. Effectively, the blight of Mercal has now spread to normal stores.

  8. 130,000 barrels

    159 liters a barrel
    34,000 liters in a fully loaded tanker truck
    equivalent to 220 full tanker trucks every day (including Christmas and mothers day)

    about 3.5% to 4% of the total gasoline sold in Venezuela

    That’s possible (as opposed to the government claims of 40% smuggled)

    • 159 liters/BBL
      34,000 L/ truck
      2220 trucks/d
      =47,000 BBL/d

      about 3.5% to 4% of the total gasoline sold in Venezuela
      =1.3 million to 1.9 million BBL/d
      Don’t think so. Venezuela produces about 2.5 million BBL/d of crude.

        • I used Forbes to get the 800,000 as used every day in Venezuela, I think that was very wrong.

          http://www.forbes.com/sites/christopherhelman/2014/02/20/cheap-gasoline-why-venezuela-is-doomed-to-collapse/

          “About 800,000 barrels per day of gasoline and diesel is consumed domestically”

          Then this:

          http://www.nytimes.com/2014/01/21/world/americas/venezuela-gasoline-prices.html?_r=0

          “Venezuelans use about 323,000 barrels of gasoline a day, Mr. Ramírez said last year.”

          I used gasoline sold, not crude produced.

          159 x 130,000 = 20,670,000 liters
          20,670,000/ 34000 = 608 full tanker trucks (not 220 and not 2220)

          (unless my math is very wrong again)

          If it is only 330,000 barrels per day of gasoline sold in Venezuela, and 130,000 is smuggled, then it is close to 35% smuggled

          • Venezuelas crude oil production according to EIA hovers arround 2.5 MBD ( 2013 figures) of which about 750 KBD are spent supplying the domestic refined product market ,

            Part of the refined product production does not consist of gasoline but of other products (diesel, kerozene, fuel oil ) which are used to feed fossil fuel power plants to make up for the increasing shortfall in hidroelectrical generated power and in other domestic uses. Part of the products should be used to dilute the extra heavy crude in order to export it now that the light crude production is falling.

            The local gasoline production is supplemented by the import of US refined products used in the manufacture of gasoline for the domestic market to the tune of 83.000 KBD (2013 figures) .

            PLEASE NOTE that the economics of subsidized prices also favour the smuggling of other refined products beside gasoline , so that the volume of smuggled products may not consist only of gasoline . In that case the 323 KBD mentioned by former Minister Ramirez may not tell the whole story .

            Off the cuff the 34.000 Liters per tanker truck figure sounds a bit on the high side , these trucks are sometimes huge but many of them are smaller . Also If you use paved roads then the former can be used , but if you are using un paved roads ( caminos verdes) then there are limitations to the size of the trucks that can carry the smuggled products , specially during the rainy season.

    • Huh?

      130,000 barrels
      159 litres per barrel
      34,000 litres per truck

      130,000 * 159 / 34,000 = ~608 trucks a day

      You’re off by 2/3!

  9. Completely OT — This relates to the armed “colectivos” and their recent actions and successes in having Rodríguez Torres removed. It has been posted on before, but I thought the following quote from an NGO official was worth sharing, for its succinctness:

    “The boundaries between the groups who posses weapons legally and those who have them illegally are blurred. The attitude towards these (pro-governemnt) groups has been permissive and we are now seeing how they overextend their reach into the political sphere”, says Rocio San Miguel, president of Citizen’s Control, an NGO that monitors human rights and the armed forces.

  10. See, the problem when it is called stealing is that everyone focuses on the bachaquero who, like N Smith says, is only taking advantage of the arbitrage opportunity. The bachaquero seems to be the “bad guy”, and the GNB is the bad guy for letting it happen and taking advantage of it, they are the “robbers”. No, they are not the robbers, what they are doing maybe illegal and some may say immoral (is it really? why?) but it is not stealing. They are just buying, transporting and selling. It is called commerce and is what moves the world.

    If anyone is “stealing” then is the government which created the distortion in the first place, not the trucker or the GNB who are only conducting a business, taking the goods where they are more valuable, nothing immoral in that.

    Imagine for a moment that to solve the grave problem of scarcity of toilet paper, the government decided to sell, at a heavily subsidized price, boxes full of 1 dollar bills to be used as a replacement for TP, making it illegal to use them for anything else. Would you call it stealing if some people, despite the prohibition, decided not to clean themselves and instead used the bills to buy goods, including actual TP?

    If you think about it for a moment there is not that much difference between using dollar bills to wipe yourself and burning free gasoline in a car instead of selling it for its real value.
    Which one is the actual immoral choice?

    • If gasoline were priced at international prices at PDVSA pumps, there would be no smuggling, because there would be no economic incentive to do so.

      • The same apllies with EVERYTHING that’s been regulated by the government, from basic basket goods, all the way up to dollars.

        Obviously the biggest hurdle is the fact that all of those are the mafia’s merchandise, and so they’ll oppose any measures to fix the problem.

      • There used to be a Law ( now forgotten or superceded) that prohibited govt agencies and services from performing their services at less than what it cost to produce them . If we applied this old law and then applied the law which bans the sale of goods to the public at a price which produces a profit margin greater than 30% of costs you would get a window within which to establish the ‘fair’ price of gasoline to the domestic market at a level which was not as high as the international market price but which would be more ‘rational’ than what is done now. .

  11. Francisco, I know you are using Oliveros number of 130,000 barrels of smuggling a day, I just think is like too much and should be reconsidered, why ?

    To make things easy I will use 100,000 per day.

    One Barrel is equivalent to 42 gallons and to make numbers easy, we will say that each gallon has 4 liters, so 100,000 barrels a day of smuggling is 16,800,000 Lt, in words would be 16 million 800 liters per day. Let’s say that in average each car tank holds about 50 liters of gas, and if each car can make 6 trips a day to a gas station to refill, then you would need the help of 56,000 cars a day just dedicated to this business, or 28,000 if these cars doubled their gas capacity for smuggling purposes.

    When caravans of 100 cars and pickups cross the border, lets say each holds 1,000 liters, that 28,000 liters, equivalent to 666 barrels, lets say you have 10 of these per day that would make it just 6,666 barrels a day which is very distant from the 130,000 barrels per day

    When you see one of those big orange gas trucks on the road, these hold about 36,000 liters, which is about 9,000 gallons and divided by 42, it comes to about 214 barrels. So if the smuggling is of 100,000 barrels a day then you would need the equivalent of 467 of those big trucks crossing the borders, a day.

    I understand that a big chunk goes sea and river ports, but even if you say 50 % that leaves the equivalent of 230 orange trucks going around trying to get rid of their load, daily, but there are not so many of those around.

    .
    Javier Cáceres, Economista
    Director de notiven.com

  12. For most of their independent lives Venezuela and Colombia have shared a common border without smuggling having become the problem for Venezuela that its become now , Venezuela enjoyed advantages thanks to its oil that Colombia did not enjoy and that created disparities in prices which contributed to the practice of smuggling specially from the Colombian side . Now those disparities have become monstrous thanks to the irrational and irresponsible (virulently populist) subsidies and exchange rate policies of the Venezuelan regime giving rise to a flood of smuggling activities which hurt the Venezuelan economy .

    We can thus see gasoline and staple smuggling more as a sympton than as the cause of our predicament. The propagandizing use made by the regime of the scale of the smuggling between both countries to excuse Venezuelas declining quality of life situation is both dishonest and distorting . Its a crude attempt at hiding the fact that the smuggling has a cause in the governments populist and irresponsible policies WHICH IT IS DOING NOTHING TO REMEDY, and represents just another attempt at finding a scape goat on which to pin the guilt for the conequences of their own foibles and errors.

    This government has made the creation of enemies and of hatreds to pin the blame for its ow faliures and misdeeds its main order of business , anything happens that reveals to all , the govts mishandling of the economy and the country and off it goes to declare someone else the culprit the better to fire up its own image of itself as the victim of other peoples wickedness and attract the fanatic support of its poor brain dead followers .

    The exact scale and scope of the smuggling activities is not really the issue , its the fact that the smuggling and its advere consequences could have been avoided by the regime observing a rational common sense set of economic policies but that instead it chose to adopt subsidies and exchange rate control policies that are destroying Venezuelans quality of life only to showoff their ideological muscles .

    • This article is about the equivalent of 600 34,000 litre trucks crossing the border *every day*. I think the people in Tachira–borders with Colombia–would’ve noticed and recorded such a massive amount of trucks. The picture featured in the article of a vessel with comparatively insignificant capacity is laughable.

      Do you get payed WPS like the dudes in aporrea.org? That’s the best I could come up with as an incentive for ignoring such flagrant deception

      • Last August Minister Asdrubal Chavez said the figure was 45,000 barrels a day smuggled. That’s still about 207 of those 34,000 litre trucks crossing the border every day.

        More recently, this July, Minister Ramirez put the number at 100,000 barrels a day. That’s 467 litre trucks crossing the border every day, using the method of Cáceres.

        That’s still a lot of trucks or trucks equivalent, either way you slice it. I don’t think any of those are as unrealistic as you might think. I have relatives in Tachira, very close to the border, and smuggling is common and the military and guerrilla both run mountain routes not far from their homes for smuggling. I’m not sure how much has changed since the much publicized “border closing”, but before that as long as you paid off whomever you needed to you generally had nothing to worry about. The way it worked near them, one brought up the gas to the mountains, they paid you and took it the rest of the way.

        You don’t need hundred truck caravans, not at all. Instead of 467 trucks, or whatever, you have thousands of vehicles and vessels of various sizes crossing at hundreds of points all throughout the long Venezuelan-Colombian. It’s big industry.

        • Not to mention that Colombia isn’t the only outlet for arbitraged gasoline. Kepler linked a while back to a German video that showed gasoline smuggling to Brazil. Boats to Trinidad…

  13. Asdrubal Chavez announced last august that gasoline and diesel smuggling to Colombia stood at 45.000 bls per day at a loss to Pdvsa of $ 2.200 million per year . He did not give any specifics about how that loss had been calculated.

    As Francisco has pointed out this loss is peanuts compared to the loss which the regime has caused Venezuelan economy by forfeiting the production income which it would have obtained had it not embarked on the arbitrary confiscation of private companies working in the oil industry. ( i.e. 25 billion USD ) or the cost to the Govt of the absurdly huge gasoline subsidies to the local market.

    Whatever the loss its considerable and to be avoided . Evidently the most rational way of avoiding such loss is by making the subsidies more rational and yet the Regime balks at doing so . Why?? The most common response is that such measure would hurt the govts popularity and threaten its hold on power .

    It is possible however that also relevant to such incomprehensible deferral of a much needed hike in gasoline prices is the fact that smuggling operations greatly benefit those members of the military who either get paid for looking the other way or make large profits from actively participating in the smuggling operations and that as the govt feels it needs to keep the military happy to keep itself in power it is cautious about taking measures that might make them unhappy despite the harm to its own economies and those of the country, .

    • “As Francisco has pointed out this loss is peanuts compared to the loss which the regime has caused Venezuelan economy by forfeiting the production income which it would have obtained had it not embarked on the arbitrary confiscation of private companies working in the oil industry. ( i.e. 25 billion USD ) or the cost to the Govt of the absurdly huge gasoline subsidies to the local market.”

      And that gives him creative licence to write about a 600 gas truck caravan that crosses the border on a daily basis, so far unnoticed. Instead, you get a picture of an ambulance that has less than 1/10 of carrying capacity.

      The government *is* messing up big time, but you’re just worsening the situation by confusing readers and diminishing the opposition’s credibility.

    • Thanks M.O. Now this is a puzzle !!, Ramirez talks about 100 kbd , Asdrubal Chavez of 45 kbd , a difference of 65 kbd !!, apparently the regime doesnt know how much smuggling is going on . What it ought to know is what it has to do to fight the smuggling . Raise gasoline prices!! . Why doesnt it do so?? , maybe ONE of the points of Franciscos post. (there are several) .

      Following Minister Chavez figures if the smuggling is 100 kbd then Pdvsa’s losses climb to some 5 billion USD , a hefty sum by any measure !!

      • Correction: the difference between the current minister and the former ministers smuggling figures is 55 kbd rather than 65 kbd , my mistake !!

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