Life in the land where filling up an SUV costs $3

Venezuelans love paying 10 cents per gallon, but critics warn of economic, environmental impact.

By , Correspondent of The Christian Science Monitor

Auto salesman Leonardo Caicedo looked over the shiny Jeep, Chrysler, and Dodge vehicles crowding the showroom in central Caracas, where a gallon of gasoline now costs about the same as a large hen's egg, and a liter costs less than a single photocopy.

The SUV sales are "excellent," he said, and customers don't worry about fuel efficiency, since they can fill their 18-gallon tanks for less than $3.

"It's good for us, and it's good for the people so they can buy luxury cars with big engines," Mr. Caicedo said.

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But critics say Venezuela's highly subsidized gasoline, which retails for between 10 and 15 cents per gallon, and 7 cents for a gallon of diesel, is bad for the country.

Besides feeding perpetual traffic jams and worsening air pollution, they say the subsidy is a multibillion-dollar drain on the national budget, sapping money that could help schools, hospitals, or public transit, and transferring it to the wealthier classes, who own the cars. And they wonder how long leftist President Hugo Chavez can defy economic gravity.

But few public policies here are as popular as is almost-free gasoline. Wealthy Venezuelans, who generally despise Mr. Chavez, say that if the government stopped subsidizing gas it would only waste the money on corruption. The poor fear a bus-fare hike.

Caracas pollster Luis Vicente Leon said Venezuelans consider almost-free gasoline a birthright.

"Venezuelans believe that they live in an oil field," he said. "They feel they own the oil, and therefore should not pay for it."

Politicians remember 1989, when gasoline and food price hikes helped trigger huge riots. The violence demonstrated the popular discontent that would later make Chavez a hero for leading an unsuccessful 1992 coup attempt.

"Here, when gas goes up, presidents fall," said cab driver Francisco Zambrano.

Former President Rafael Caldera, who preceded Chavez, indexed gasoline prices to inflation, and Venezuelans grudgingly accepted the price rises. However, upon taking office in 1999, Chavez froze gasoline's retail price in the local bolivar currency. Since then, the bolivar has plummeted in relation to the dollar, while double-digit inflation has multiplied the prices of everything else.

The super-cheap gasoline has eliminated any incentive to conserve. During recent months, many street merchants have bought portable generators to power their hamburger stands and loudspeakers, adding more pollution to Caracas's already-gray air.

"Here, gasoline is cheaper than water," Felix Mancilla, who sells pirated CDs and DVDs, says happily. He uses his generator to run a television and speakers, which customers use to test his products. Running the generator all day long costs him only $2 per week.

"It's a way to halt inflation," he says.

The subsidy, and lack of any pollution or safety controls, also keeps many decades-old rolling wrecks on the streets. Police here do not even cite vehicles for driving at night without headlights, much less for violating pollution laws.

"My car wouldn't be permitted in Spain," Mr. Zambrano said of the battered blue 1974 Chevy Malibu with broken headlights and twisted fenders that he uses as a taxi. A customer appeared, and, after three scraping attempts, he got the car started and clanked up the street.

About the only ones complaining are gas station owners, who are prohibited from raising prices to meet rising labor and other costs.

"It's an uphill fight," says Norbis Pena, head of the gasoline dealers association. "We are operating in a deficit."

Periodically, the state oil company gives the gas stations a larger slice of the retail price, increasing the government's losses.

Along Venezuela's borders the subsidy also fuels a huge smuggling industry, which multiplies government losses and finances Colombia's outlawed right-wing paramilitaries, who tax the trade. In border areas of Colombia, where gas retails for 20 times the Venezuelan price, hawkers line highways offering jugs of cheap Venezuelan gas. Venezuelan authorities have tried to staunch losses by rationing deliveries to gas stations and requiring drivers to show proof of Venezuelan residence in order to fill up.

The subsidy also contradicts the principles of the Kyoto Protocol, which Venezuela signed last year. A 2002 study commissioned by the National Assembly found that Venezuela's per-capita carbon dioxide emissions were more than double the average for Latin America. Yet, Venezuela's energy voraciousness hasn't prevented Chavez from frequently denouncing the US for endangering the planet through reckless burning of gas. In a recent speech at the UN, Chavez blamed global warming for spawning storms with "demolishing impacts" like hurricane Katrina's.

Venezuelan environmentalists shake their heads.

"If Chavez would only act according to what he says, then we'd have an environmentalist Venezuela," says Manuel Diaz, president of the Venezuelan Environmental Foundation.

Ironically, the gasoline subsidy also contradicts Chavez's philosophy of spending the nation's great petroleum wealth on the poor. The same National Assembly study found that the richest 20 percent of Venezuelans received 6.5 times as much of the gasoline subsidy as did the poorest 20 percent, who rarely own cars. Meanwhile, many public hospitals lack basics like gauze and X-ray machines, parks aren't maintained, and the public bus system is crying for funds.

The government subsidizes some other products, particularly food, though not nearly as deeply as gasoline. Pollster Leon predicts Chavez will stick with the gasoline subsidy because it "gives the message that he's concerned about everybody," even though it mainly benefits the upper class.

During recent months, Chavez has extended the concept beyond Venezuela's borders, winning allies by offering below-market petroleum to South American and Caribbean nations. He has even offered cheap gasoline to poor US neighborhoods.

Will it come 'crashing down'?

US Sen. Connie Mack, a Florida Republican often critical of Chavez, said in a telephone interview that the largess will last only until oil prices fall again.

"Eventually, it will all come crashing down around" Chavez, Mr. Mack predicted. [Editor's note: The original version incorrectly referred to Rep. Connie Mack as 'Ms.']

But Mark Weisbrot, an analyst with the left-leaning Center for Economic Policy Research in Washington, said he expects oil prices to stay high or even rise, enabling Venezuela to keep financing the gas and other subsidies.

"It's a big waste and it's environmentally destructive," he said of the gas subsidy. "But it's not an economic problem."

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