Photo: Reuters

Maduro Turned to Iran for Gasoline. It Wasn’t Enough

It’s been over a month since the Iranian fuel tankers brought gasoline to our country. What’s next? Here are the answers to key questions

The unprecedented fuel shortage crisis seems to have been eased with the Iranian tankers. But how much did they really bring in, and how long will it last?

In late May and early June, five Iranian tankers came to Venezuela without much trouble. Allegedly, they carried one and a half million fuel barrels, but the real number is a bit less, since they also brought additives and other by-products, like lubricants. It’s not a big number if we consider the Venezuelan fuel usage, but this has dropped because of the prolonged quarantine and our own economic recession.

At first, it was estimated that the Iranian fuel would last for about 40 days, but it will go on for longer because the economy is paralyzed and many can’t afford the international price set for it. The government has prioritized Caracas and the rest of the country has to suffer on a larger or smaller scale. Recurring power outages in cities like Mérida and Maracaibo only make matters worse, since you can’t pump fuel without electricity.

A tanker coming from Trinidad and Tobago came in April, carrying 150,000 barrels of fuel, which surprisingly led the Trinitarian parliament to open an investigation. This shipment helped ease the crisis for a few days. Another somewhat helpful bit is the current use of natural gas for vehicles (GNV), sold in some stations with the old, subsidized price tag. Since 2009, car assembly lines, importing companies, and dealers have to make sure that vehicles come with the GNV system in their engines, whether they use it or not.

Gas stations are being expropriated now; what does this mean for the fuel distribution business in Venezuela?

There are 1,680 gas stations in Venezuela on record. Many of them, however, have closed down in the past few years and PDVSA currently owns around 200. According to the Energy and Oil Ministry Resolution N° 013 from March 9th, 2009, gas stations are establishments with permits from the aforementioned ministry to retail fuel to end consumers. Retail sellers are commonly known as licensees. The facilities, as well as the storage and pumping equipment in these stations, are property of PDVSA, and the brand is PDVSA’s. The real estate, meaning the plot of land and other assets, could be owned by the licensees. Well, last June, around 40 gas stations received a letter from PDVSA, telling them that their contract was being terminated. As a general rule, the Oil Ministry (not PDVSA) is the one with the authority to revoke permits, since fuel supply is a public service. This, of course, should also include the licensees’ right to receive compensation for the early termination of permits, in response to money spent as investment and forecasted future earnings. This is a very delicate subject and we can’t give a definite opinion, because with all certainty each licensee case is different and many of them could be the subjects of discrimination. If PDVSA is keeping the real estate, it would definitely be an expropriation, or even worse, a confiscation.

The concept of an early termination of the license or permit in case of public interest is written in the country’s legislation as a prerogative in the hands of the public administration that carries compensation for the licensee. The debate on whether the law was rightly applied in recent cases is ongoing; however, the early termination is a general principle in administrative law, traditionally recognized by Venezuelan courts.

Is expropriating gas stations a sign that the regime is rebuilding the country’s ability to produce and distribute fuel? Is there business in foreign currency to be made that the regime doesn’t want to share with the private sector?

We honestly don’t see that trend. To have access to fuel, you need to import it or refine it locally. The regime has made some efforts on both fronts. But there is the question on whether this is sustainable in the long run. You can’t underestimate its ability to jump over hurdles, even if it means more hardship for the Venezuelan people.

Selling gasoline today at international prices is good business, although it can become scarce at some point, so we can’t rule out the possibility of stations being operated directly by PDVSA, or reassigned to other dealers who can get permits.

Keep in mind that there’s a restructuring plan for PDVSA, presumably prepared by the regime and exposed by the international press, although it hasn’t been confirmed by an official source, and this plan recommended the gradual decrease of fuel subsidies, as well as the handing out of licenses to private companies to operate refineries.

The regime is taking other actions too, like Decree N° 4,200 of May 29th, 2020, by which the Valued Added Tax, the Import Tax, and Customs Duties will be exonerated in regards to definitive imports and fuel sales, as well as on supplies and additives carried out by state, joint, and private companies. Nevertheless, according to the current statutes, neither joint companies nor private companies are allowed to import or sell fuel the way this decree indicates. For this to happen, Decree N° 1,648 of January 15th, 2002 and the Liquid Fuels Domestic Market Law would have to be modified.

What can we expect from refineries? Is it true that they’re trying to operate again with Iranian help?

Lack of official news from the government prevents us from having a clear image of what’s going on in the refineries. It’s true that PDVSA has been trying to recover the Amuay, Cardón, and El Palito refineries with the aid of Chinese, Iranian, and Venezuelan companies. Some reports say that these refineries are producing around 140,000 barrels of gas per day.

The first obstacle to normal activity is the technology used in these facilities. Most of it came from the U.S., since they were built by Exxon, Shell, and Mobil, with help from American engineering companies. You would also need highly qualified management and technical teams, together with expensive maintenance plans so the operation continues successfully over time.

Then there’s the downwards trend in Venezuelan oil production. Chances are that the government will need to sell all of that oil abroad in order to obtain foreign currency, or to pay debts to key creditors.

Can we assume that, from now on, fuel will be paid in dollars at gas stations?

We believe so. In any case, you can still pay in bolivars at the official exchange rate given by the Central Bank. Many establishments have points of sale and, despite the economic sanctions that Venezuela has on its shoulders, the U.S. dollar has become a common form of payment in supermarkets, bakeries, pharmacies, hardware stores, and now in non-subsidized gas stations. Venezuelans receive remittances, dollar payments for services or sales, or they’re using up their savings in foreign currency. You also have cases in which people use credit cards and are taking up debt in dollars.

This system encourages, no doubt, the black market within the country and smuggling into neighboring countries. These methods won’t disappear, but uncertainty is the norm.

Since the bolivar has lost all its value and the law allows for payments in foreign currency, we believe that the dollar will still be the preferred currency for Venezuelans. This could become a problem if the U.S. imposes new sanctions, forbidding the use of electronic payment services in dollars through the Venezuelan financial system, for example. But, the U.S. can’t prevent the use of its currency in Venezuela entirely.

Are there still incentives for smuggling? Will we continue to depend on fuel sold in the black market?

Right now there’s a twofold pricing system that has been going on for barely a month. 1,360 gas stations supply subsidized fuel through a system controlled by the last number on license plates. This system encourages, no doubt, the black market within the country and smuggling into neighboring countries. These methods won’t disappear, but uncertainty is the norm.

Fuel smuggling into neighboring countries did stop during March, April and May, because fuel was only available inside Venezuela at black market (exploitative) prices. Today, 120 liters of fuel per car and 60 per motorcycle, each month, at a ridiculously low price of BsS. 5,000 per liter, provides a great opportunity for smugglers and resellers. Public transport and freight vehicles are completely subsidized for at least 90 days. The price difference with the international price of $0.5 is huge.

By the way, we still haven’t seen the new fuel prices in the Official Gazette, as it should be done according to the Hydrocarbons Law.

How close are we to the extinction of lines at gas stations?

Not close at all. 

Right now, there’s no hint of lines ending outside the capital any time soon, and since we haven’t received any more fuel imports, the country could go through another severe shortage in the short term. Some gas stations outside Caracas aren’t getting fuel anymore and those who live in other states have to endure the long lines, especially for subsidized fuel during restricted schedules, and in an environment where there’s an alarming rise in COVID-19 cases. A close look has to be put on a new development since the Venezuelan government is now trying to import more than 1.1 million barrels of Iranian fuel, apparently in route, while the U.S. District Court for the District of Columbia, issued a warrant last week for its seizure following a complaint by the U.S. government.

In our opinion, the oil industry’s administration model is exhausted. Venezuela should sanction a new oil legislation that allows far-reaching private investment. The bitter confrontation between the regime, the U.S. and the EU, as well as the upcoming parliament elections, are not helping in the resolution of this situation at all.