2024-09-17 07:20:25
Starting at 00:00 on June 28, 2024, the price per gallon of extra and eco país gasoline will rise to $2.72. This price will last until July 11. A price band system will begin on July 12. Find out what the main differences are between the subsidy reduction scheme that Noboa will implement and the targeting agreed upon, but never applied, during the Lasso Government after the violent strike in June 2022.
On June 27, 2024, through a press conference, the national leadership of the Fenocin (National Confederation of Peasant, Indigenous and Black Organizations)said the compensation and compensation system reduction of subsidy of the Extra and eco-country gasolinepromoted by the Government of Daniel Noboa, is “unpresentable.”
The president of the organization, Gary Espinoza, rejected the decisions adopted by the national government, indicating that he would be adopting the IMF’s proposals.
In addition, he reiterated Fenocin’s call to discuss the targeting of subsidies through the project that was worked on as a result of the 2022 agreements.
He said that “this is a project that has been worked on by the government and social movements and is already 95% complete.”
Espinoza refers to the targeting scheme agreed upon between the indigenous movement and the Guillermo Lasso’s governmentafter the violent strike of June 2022.
Below are the main differences between the system of reducing the subsidy for extra and ecopaís gasoline, which will begin to operate tomorrow, June 28, 2024, with a first increase of 26 cents in the price per gallon; and the system of general subsidy with exceptions that were agreed upon, but never implemented, in 2022:
1.- The system of reduction of the subsidy for extra and eco gasoline of the Government of Daniel Noboa works as follows:
From 00:00 on June 28, 2024, the gallon of extra and eco país gasoline, both at the gas stations of the Petroecuador network and at private ones, will go from costing $2.46 to $2.72. That is, there will be an initial increase of 26 cents per gallon. This first increase will occur to match the international average price.
The new price of $2.72 will last until July 11. Starting July 12 (and then on the 12th of each month), a band systemAt most, the price can rise by 5% per month or fall by 10%.
For example, if the WTI pricewhich is the reference crude oil for Ecuador, will become 30% more expensive in August, the official cost of extra and eco país gasoline may increase 13.6 cents (5%), that is, from $2.72 to $2.856.
If, on the other hand, the price of WTI falls by 30%, the official cost of extra and eco país gasoline could decrease by 27.2 cents, that is, from $2.72 to $24.48.
The price of the extra and eco country will be updated each time, but only by a maximum of 5% upwards or a maximum of 10% downwards.
For its part, the generalized subsidy scheme with exceptions, agreed in 2022 and which organizations such as Fenocin seek to reactivate, established a cumbersome scheme of various prices for different sectors.
Most would continue to receive the full subsidy, with only those excluded highest income sectors taking into account five parameters:
He vehicle cylinder capacity: Vehicles with cylinder capacity greater than 2,201 cubic centimeters (cc) will not receive a subsidy, vans with a cylinder capacity greater than 3,001 cc, Jeep with a cylinder capacity greater than 2,401 cc and motos with displacement greater than 301 cc.
2.- Number of vehicles owned: Individuals or legal entities that own 3 or more vehicles will not receive the subsidy. However, the following vehicles for productive purposes are excluded: motorcycles, trucks, dump trucks, buses, trailers, tankers.
3.- Type of owner: Vehicles owned by individuals are also excluded. NGOsinternational missions, international organizations and diplomatic corps.
4.- Vehicles whose owners have an income equal to or greater than $41,603.01, that is, more than $3,466 per month. The income level will be determined based on the tax return. income tax of natural persons.
5- Unregistered vehicles: Although they will not lose the benefit of the subsidy in the first instance, a one-year period will be established for the registration of unregistered vehicles. If after this period, they are not registered, then this benefit will be lost.
The indigenous movement also demanded (but there was no agreement) to increase the fuel subsidy for sectors of the social and community economy. These sectors include small and medium farmers; small fishermen; agricultural machinery and engines, including auxiliary machinery for agriculture; community transport; motorcycle taxis and river transport to communities.
The proposal was to set the price of diesel at $1.50 per gallon, that is, $0.25 less per gallon than the current price. In the case of extra and ecopaís gasoline, the price with the highest subsidy would be $2.10 per gallon, which implies $0.3 less per gallon compared to the levels in force in 2022.
Thus, there would be one price for those totally excluded from the subsidy, a general subsidized price for the majority and a third price (with more subsidy) for the social and community economy.
According to Carlos León, a petroleum engineer, this scheme is inefficient, cumbersome and even much more expensive to implement.
2.- The Noboa Government has established a scheme to make the payment of money transfers as a measure to protect transport users. Specifically, monthly payments will be made to users Taxis, tricycles and mixed-use vans in the rural sectorso that transportation rates do not rise for consumers.
The scheme will start with 18,952 beneficiaries already registered and with all requirements fulfilled by June 24, 2024. However, it is expected to reach a total of 84,000 compensation beneficiaries and registration will be open for three more months.
In addition, the goal is to include 40,000 more families per year as beneficiaries of social benefits and vouchersThe annual cost would be $50 million.
The scheme agreed in 2022 did not include compensation because it was a general subsidy with exceptions. What was established was that the savings generated should be allocated to social spending in bilingual intercultural education, schools in rural areas, marginal urban neighborhoods, health (specifically chronic childhood malnutrition in the territories with the highest incidence).
3.- As previously explained, the Noboa subsidy reduction scheme establishes a fluctuation band where the price of extra and eco país gasoline can rise by a maximum of 5% or fall by a maximum of 10% each month.
In the 2022 system, the indigenous movement proposed that, for sectors excluded from the general subsidy, a band system with a minimum price of $1.90 and a maximum of $1.95 per gallon for diesel. In the case of extra and ecopaís gasoline, the minimum price would be $2.55 and the maximum would reach $2.60 per gallon.
In addition, the government wanted to charge additional fees based on income levels, based on a tax that would “discourage the use of fossil fuels.”
For a sector called ‘Premium’, which would be the one with the highest income tax payment, an additional amount equivalent to 110% of the value of the production cost of the gallon produced by Petroecuador.
For the second group with the highest income tax payment, the surcharge would be equivalent to 75% of the value of the production cost of the gallon produced by Petroecuador.
The Lasso Government’s proposal had higher ceilings. Thus, the diesel would have a minimum price of $1.90 and a maximum of $3.56 per gallon; while for extra and ecopaís, the minimum price would be $2.55 and a maximum of $3.23 per gallon.
At the time of that negotiation, and as a result of Executive Decree 467, issued on July 1, 2022, the price of diesel had been frozen at $1.75 per gallon; while the price of extra and ecopaís gasoline was set at $2.40 per gallon. Those prices rose in April 2024 when the VAT went from 12% to 25%.
4.- Noboa’s scheme does not include measures to reduce the diesel subsidy in public and freight transport; nor does it focus on the large industries.
In the 2022 scheme, according to the indigenous movement, Petroecuador could generate savings of $637 million if differentiated prices were charged, outside of the general subsidy, to what they called large companies. If sectors such as the tuna and shrimp trawlerthe savings would have been $1.192 billion. These calculations were never justified.
In addition, there was talk of removing the subsidy for diesel used by the thermoelectric plants and the cement companies. It was also accused that large cruise ships I came to load subsidized fuel in Ecuador.
The Lasso government did not accept these demands; but in December 2022 it eliminated the diesel subsidy for the shrimp sector. According to the International Monetary Fund (IMF)This measure has generated savings of $150 million per year.
In a recent analysis of the Chamber of Industries and Production (CIP)it is ensured that, apart from transport, the industrial sector does not have fuel subsidies in its production processes.
The CIP also stresses that reducing the subsidy alone will not solve all the problems facing the fuel market in Ecuador.
For this reason, it is proposed to “Move towards a more competitive model, which allows the participation of the private sector and eliminates other restrictive practices in the economy.”
For his part, in a recent interview with LA HORA, the president of the Guayaquil Chamber of CommerceMiguel Ángel González said that businessmen are not asking for handouts or subsidies from the State, but that the obstacles and inefficiencies that prevent such aid from existing must be addressed.
For González, the subsidy reduction scheme that Noboa will implement is a step in the right direction; but in the medium and long term, the goal should be to completely eliminate fuel subsidies. Ecuador must learn to produce at real costs. (JS)
By: LA HORA Newspaper