Send to Kindleby Stephen Milden
President Rafael Correa, in his weekly TV broadcast, announced on August 3rd that the government will end natural gas subsidies by 2016. The date is predicated on the new hydroelectric projects being completed. There are eight new and or expanded hydro electric plants in the works that will provide excess capacity allowing the surplus to be sold to Colombia and Peru.

In addition to the six new hydroelectric plants, the existing facilities in Paute which provide approximately half of Ecuador’s current demand, will be expanded.

Paute Hydroelectric Dam
Correa stated that by eliminating the LP gas subsidy. “…hundreds of millions of dollars…” will be saved. He went on to say that he hopes to end all fuel subsidies by the end of his second term in 2017. "We will be like the rest of the world with energy costs being determined by the market."
Additionally Correa said that plans are underway to eliminate the subsidy for gasoline with specifics to be announced in the not too distant future. Currently the government is spending $3.8 billion annually, with $700 million of that solely for LP gas. “We can build 1,000 new schools with that money and have more left over to invest in other public services.”
At present gasoline costs 30% to 40% of the international market rate. Regular is $1.48 per gallon and premium is $2.19. Diesel is set at $1.03 per gallon. The government said that some subsidy will continue for private vehicles based on a quota system that is being developed, but this would be a temporary arrangement. Gasoline subsidies for public transportation vehicles would continue.

Cuenca City Bus
What Correa is hoping to accomplish is that Ecuadorians pay market prices for energy in line with the rest of the world. At present consumers pay approximately 8% of the international market rate for LP gas. To refill a 30 pound cylinder the subsidized cost is $1.60 plus delivery which brings the cost up to just over $2.00. For roughly the same quantity of LP gas in the US and Columbia, the cost is right around $25.00, and $20.00 in Peru. Given that Columbia and Peru share borders with Ecuador, there has been a thriving black market which has added millions of dollars to the government’s budget without benefit to the people the subsidy is intended to help.
Besides the additional burden of the black market, industrial and commercial uses of LP gas are not subsidized in the same way, but it’s not uncommon to see a restaurant or business using the same gas cylinders intended for domestic use. Correa also objects to the government paying for things like heating swimming pools when such uses are not what the subsidy was intended to do.
As a way to assist those who rely on the existing subsidy, the government will provide 60 kilowatts for free to households. While that won’t cover the typical three bedroom, two bath home that uses four times that, those that are living in a simple one or two bedroom cottage will likely get most, if not all, of their electricity gratis.
Correa has been a populist president who has appealed to the poorer people of Ecuador and the new electric subsidy is hoped to reduce the backlash from this demographic. Lacking numbers it is impossible to determine how much this will cost versus the current subsidies for petroleum based products although, if all of the planned measures are enacted, clearly millions will be saved by the government, but the impact on the overall cost of living for the people is an unknown.
Indurama plant in Cuenca Ecuador
The government is encouraging domestic makers of gas appliances to switch production to electric models. Appliance manufacturers such as Indurama, which is based in Cuenca, say they will phase out gas models in anticipation of the gas subsidy being eliminated.
Speak Your Mind