Diesel Shortage Strangles Venezuelan Wholesalers

Venezuela’s fuel crisis is not just about gasoline. The diesel crisis is causing delays in supplies chains and boosting inflation. Armando Díaz dives into the causes and consequences

Photo: Armando Díaz

The first time the diesel shortage started to become evident was probably one year ago. The infamous lines in front of gas stations were only for vehicles that run on gasoline, diesel (or gasoil, as it’s known in Venezuela) engines seemed to have been spared. Today, the lines are as bad for both.

Antero Alvarado is a consultant and the regional director of Gas Energy LA. He explains that a year ago PDVSA could still import diesel in exchange for crude oil, through swaps. Back then, PDVSA would produce some diesel that was high in sulfur, lower quality than the one being imported. This output would cover the industrial, electric, and transportation sector, which includes heavy freight and passengers. “In November 2020, these exchanges of diesel and crude oil were suspended,” Alvarado says, “as part of the maximum pressure strategy by the Trump administration, which was looking for PDVSA to stop exporting altogether and causing an inventory collapse, resulting in Maduro being overthrown. But none of that happened.”

The sanctions were the cherry on top for Venezuelan refineries which, must be said, had been suffering a prolonged abandonment.

“They were in very bad shape, but little by little they’ve been recovering production; compared to the beginning of the year, when it was very low.” The State managed to get a hold of a large shipment of diesel in May, Alvarado explains, “no one knows where it came from, but it was able to supply the domestic market.”

In fact, PDVSA handles constant dispatches of ghost tankers, vessels that arrive in Venezuela with their trackers off, fake names and, in most cases, unknown cargoes. During the height of the diesel crisis (which hasn’t gone away), Venezuela might’ve received other shipments to keep stocks at a minimum and to distribute to Cuba as it has done with other fuels that are critical to the island.

“Today PDVSA doesn’t depend that much on imports as before because they’ve been fixing refineries, but you still need between fifteen and twenty percent more to cover the demand,” says Alvarado. 

Some oil experts estimate that before the pandemic, Venezuela consumed between 60,000 and 65,000 diesel barrels per day. According to data by FEDECÁMARAS’ Digital Observatory of Productivity, 89.4% of companies linked to construction, food, and other sectors were having problems buying fuel. They estimate that monthly demand requires 9,259,405 lts. of diesel. Mariel Velma, executive director of the Cámara de Transporte del Centro, pointed out that 90% of heavy freight units are being affected.

Antero Alvarado insists that restrictions on these swaps have never made sense. “They thought that PDVSA would be the most affected, but in the end, it’s the people who are affected. Everything runs on diesel. And for the government, they have become the perfect excuse.”

It’s known that Venezuelan refineries could process up to 1.3 million barrels of heavy and extra heavy crude per day, but between all the refineries they hardly reach 12% of their operative capacity, as Francisco Monaldi, from the Baker Institute, has explained. In terms of diesel, Monaldi has said that in 2016, 120,000 barrels were produced per day, while the number is closer to 30,000 today.

Former president of PDVSA, José Toro Hardy, claims that the company’s decline began with the mass dismissals Chávez did in 2003. Over 20,000 employees were fired from PDVSA, most of them with over fifteen years of experience. “PDVSA never recovered from that loss,” he says.

Through the years, problems became evident, although in the first five, good maintenance still allowed minor imperfections. In 2008, things started to get more serious, and in 2014, when oil prices dropped, a deadly combination of poor maintenance and unprepared staff completed the formula. In 2008, the oil company produced 3.26 million barrels of crude per day. In 2020, it hit the 400,000 mark, the lowest in 80 years.

Toro Hardy regrets that this new episode happens during the sowing season. Agro-industrial machinery depends on diesel fuel, just like the transport from the production centers to the consumer. “If there’s no electricity they turn to electric generators which run on diesel.” Toro Hardy pans across the national map and points the most hurt: the Andean states, Falcón, Monagas, Lara, Nueva Esparta, Bolívar, Zulia, and Carabobo.

The Industry Cooled Down

In Valencia, right in the middle of the country, where in the second half of the 20th century 39 industrial facilities were built, in over five thousand hectares, to supply products to all of Venezuela and export to other countries through Puerto Cabello, very few of those industries remain active.

Antonello Lorusso, president of the Cámara de Medianos y Pequeños Industriales y Artesanos de Carabobo (the Carabobo Chamber for Small and Medium-sized Entrepreneurs and Artisans), has seen the downfall of companies, especially since 2015. “It’s the result of a lack of investment and the drop of the GDP. Not because of the sanctions”. Lorusso has a company that distributes food supplies to different regions. His workers sleep five or six nights in a row, in a gas station, to get about 200 liters of diesel. “That’s not enough to do a 200 km round trip.”

Waiting for gasoline produces delays in days, not hours, and increases distribution costs

Photo: Armando Díaz

Lorusso feels that, as time goes by, problems keep adding up and even if they look for solutions, a new conflict always comes up. The crisis has led to over 400 companies attached to CAPEMIAC to produce below 20 percent. It’s a fluctuating number. Sometimes it goes up to 35 percent, but each time the low point is lower. In spite of having such low production levels, the Instituto Municipal de Ambiente (the Municipal Institute of the Environment) keeps increasing the taxes. “We produce less, but we get charged more,” Lorusso says.

With the diesel shortage, most workers struggle to get to their jobs. Lines in some of the bus stops of Carabobo’s capital are enormous. “It’s very expensive for the staff to commute on a daily basis. You can imagine that not having our employees makes us less productive,” Lorusso says.

However, the members of CAPEMIAC look for ways to stay afloat. “It’s been almost six months in this situation and we don’t have options or alternatives,” says Lorusso, who tries to make alliances with the clients. “I tell them to send their vehicles here to load up. We give them the diesel so they can return.”

“I used to have 80 employees and now I have 30,” Lorusso says, “it’s 50 families who have been affected by the loss of income. Then we have the diaspora. That’s where we have the real losses.” 

Less Diesel Means More Expensive Food

Fátima Tedesco has a stand next to the Mercado Periférico de La Candelaria in downtown Valencia. “I haven’t received any goods in a month and a half, because of the diesel issue. We’re at a standstill.” Her kiosk is almost empty. The dirty shelves don’t have much to display, but a few bananas, some tomatoes in bad shape, potatoes and onions. From a tall wicker chair, she waits for someone to come and buy.

It usually costs 120 dollars to fill up the truck that brings the goods, but that’s the standard price. Sometimes she has to pay up to 150. “For me to get my hands on that fuel, I have to wait in line for days or a connection somewhere,” and Tedesco nods when she is asked if those connections are cops. The diesel used covers the round trip from Valencia to La Puerta, Trujillo, where she gets the vegetables.

A basket of lettuce costs 10 million bolivars, but in the wholesale market in Tocuyito (Carabobo), it costs 10 dollars, that’s why she has to raise her prices. “Otherwise I won’t make any profit. Before this whole diesel problem, I sold a kilo of lettuce in two thousand bolivars and now in five thousand.” She doesn’t know the exact numbers, but with what she makes, she manages to pay the suppliers. However, it’s not enough to fill the gas tank. “I’ve been stranded for two months in this city, I want to go back to my land, but with no diesel, how can I?” she complains.

Food vendors have to find the right contacts to be able to find merchandise in the producing regions. Additional costs are paid by consumers

Photo: Armando Díaz

In that same market, María Labrador sells imported products and basic food. Since the diesel problem grew, on top of the pandemic, providers visit her less frequently. “They used to come by once a week, now it’s once a month, and sometimes not even that,” she says. Customers have also vanished. Products like coffee, sugar, or pre-cooked corn flour, which used to sell quickly, now spend over a week on the shelves. “If we don’t sell, we can’t order again. This affects our profit margin, which is usually between twenty and forty percent, but that has decreased too.” 

Unfortunately for these small traders, businesses around the Periférico, who used to be wholesalers, have taken advantage of the crisis to join retailers. “They sell everything at a cheaper price and we can’t compete with that. We lower our prices even more, but that hurts us.” 

In these other businesses, the abundance and variety of products is obvious. They say that they don’t have any issues with fuel, or product supply. “No, we haven’t been affected by anything. Who our providers are and what they do to supply us, that’s private and I won’t tell you,” says a young man with a middle eastern accent who doesn’t want to give his name.

Labrador, who goes to her work post every day, says that “they have connections, they get diesel, the transportation, they even have giant trucks and no one says or does anything to them. They rule here.”  On many occasions, Lorusso and other unionized businessmen have asked to meet the commander of the Zona de Defensa Integral Carabobo, General Luis Bustamante Pernía, since they handle fuel distribution.

No Solution for Now

Antonello is always reading the press and is up to date with the current situation through experts. “The other day I saw that the government was sacrificing diesel production for gasoline, but in reality, both are just as necessary, and lest we forget gas.” 

José Toro Hardy recalls that Maduro’s team affirmed that by July the problem would be solved, but well into August the shortage is ongoing. Fixing the oil industry is very expensive. You would need large investments and the State doesn’t have the money since it’s broke. The solution would come from private and foreign companies, but Toro Hardy points out that you would need legal security and be transparent with bids, and even if some companies do come, it won’t be enough. Toro Hardy estimates that, per year, PDVSA would need 25 billion dollars between investments and expenses, so in eight to ten years at that rate, it could go back to where it was before the oil strike. But, achieving this is unfeasible, since more companies are walking away, such is the case of Norwegian company Equinor and Total from France. They used to invest billions, but they aren’t willing to take the risks the crisis is forcing them to go through.

Therefore, the system’s recovery is distant, and the quick fixes that the government has been implementing aren’t enough to take the industry and production sectors to their maximum levels. On the contrary, the decline seems to deepen more each day and, even if the sanctions are lifted, the main problems will still be there. PDVSA doesn’t seem to have other options but to include external players. When and how they do it remains to be seen.