Utility bills rise 100-fold as Venezuela cuts subsidies - BNN

Utility bills rise 100-fold as Venezuela cuts subsidies – BNN

(Bloomberg) — Venezuela’s government is quietly backing away from a decades-old policy of subsidizing electricity, water, gas and road tolls to bolster fiscal accounts, shifting costs to businesses and individuals long accustomed to cheap utilities.

Across the South American country, water and light bills are soaring. Fees have been reinstated in several states. Gas stations are increasingly charging US dollars. Nicolás Maduro’s government cedes control over the sale of cooking gas and taxation to municipalities.

“We are a different country now,” said Gustavo Noel, an agronomist on a 197-acre rice farm in the grain-producing state of Portuguesa, as the electricity bill jumped 100-fold to $5,000 per month in January. “We are in the middle of a transition period because we killed the goose that laid the golden egg.”

Venezuela’s goose, an oil industry built on top of the world’s largest proven reserves, produces a quarter of what it once produced, leaving tens of billions of dollars less in revenue to spend on services and social programs for citizens. This forced Maduro to move toward a more capitalist approach, which helped launch an emerging economic recovery. Now, his government is gradually raising the prices of state services to their closest actual cost – while still trying to protect the more than 90% of the population living below the poverty line.

After years of stagnation and hyperinflation, which only recently ended, Maduro’s policy of allowing state-owned companies to charge more fees should help them improve their operations, finance and pay higher salaries, said Jose Luis Sabwin, an economic advisor in Washington, DC. who studies subsidies.

“It is unfortunate that it has caused an economic catastrophe to reverse this price situation,” he said. But as the saying goes: it is better late than never.

To be clear, Venezuela is still cheap: a kilowatt-hour of electricity equates to roughly a penny, compared to about 11 cents in the US. However, it is a dramatic turnaround for a government that has long prided itself on offering utilities for almost nothing.

The policy goes back to the 1970s when the government began subsidizing most utilities via the foreign exchange rate, using the reward from higher commodity prices. They were kept in place under Maduro’s predecessor Hugo Chavez, who pledged to reduce poverty and allow millions of families to benefit from services without paying. Even today, about a third of the population has electricity or water connections but doesn’t pay a single cent, according to the National Public Services Observatory.

Exactly how much the government spends on subsidies is unclear as reliable figures have not been published. Economists at the Center for Public Policy at IESA, a Caracas-based business school, estimate that they reached $25 billion annually through 2014.

Maduro is beginning to change policy in earnest in 2020, targeting everything from cooking fuel to electricity prices. Many petrol stations switched from charging in bolivars to US dollars as the government was forced to start importing condensate from as far away as Iran to mix it with domestic crude.

But the change, which is taking place with many governments around the world increasing subsidies to mitigate the impact of rising energy and food prices, has come with little fanfare or publicity, helping Maduro avoid facing a popular backlash. Merchants say they were surprised by the huge bills. In the meantime, services remained poor.

“We used to pay cheap prices for passive services, and now we pay high prices for the same passive services,” said Omar Bautista, president of the Venezuelan Auto Parts Manufacturers Association, FAVENPA. He said manufacturers have been hampered by the frequent rationing of water and energy outside Caracas.

Some producers have adapted by increasing prices or moving to cheaper municipalities run by government-backed mayors who lure companies with tax breaks. Others had to close shop and sell.

In Barquisimeto, the largest agro-commercial city in western Venezuela, Francisco D’Armata is considering moving his 45-year-old glassmaking business to a location where services are more reliable and the local government has kept taxes low to reinstate the industry.

“I would like my son to expand this business to the third generation, but the conditions are still difficult. We have high hopes that things will improve,” he said.

For Simon Salas, director of the Business Association of Lara, the cradle of agribusiness in Venezuela, these increases make sense, given the transformations taking place in the country.

“We just get real, whether we like it or not. Venezuela enters the unrestricted waters and changes itself.” “We were paying almost zero for the services, so we can’t compare.”

© Bloomberg LP 2022

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