Land of really, really cheap gas / Venezuelans pay 12 cents a gallon -- and not a penny more

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2006-06-20 04:00:00 PDT Caracas, Venezuela -- Taxi driver Victor Serrano burns a tank of gasoline every day whizzing around the streets of Caracas.

But he has no problem coming up with money to pay for his daily trips to the service station. Serrano pays only $1.80 for a whole tank.

"I don't worry about that because gas is so cheap," Serrano says as he fills up. "If we live in an oil-producing country, we can't pay a lot for gas."

While a gallon of gasoline in California costs well over $3, Venezuelans pay 12 cents per gallon, about the same price as a banana.

Drivers in the world's fifth-largest oil-exporting nation say they consider cheap gasoline their birthright.

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But maintaining some of the world's lowest fuel prices requires heavy government subsidies and price controls. Oil prices hovering around $70 a barrel have filled the Venezuelan government's coffers, helping President Hugo Chavez maintain the country's long tradition of low gasoline prices.

Extremely low gasoline prices are also helping boost car sales, which rose 68 percent last year, according to the Automobile Chamber of Venezuela.

Low gasoline prices dissuade drivers from worrying about fuel efficiency, and Venezuelans clog their streets with gas-guzzling SUVs and obsolete buses that emit more pollution than newer, environmentally friendly models.

"It's amazing. People here drive their cars one block away to buy bread," says Omar Hernandez of the Caracas environmental group Fundecis. "The number of cars we have collapses the city."

Gas station owners have long complained about these low prices because the pennies per gallon they earn mean losses for many of them.

"Gas is too cheap," says Roger Bergna, manager of a service station in eastern Caracas owned by state oil company PDVSA. "That's why we can't have logical or fair profits, and our services suffer."

Bergna grabs a single piece of hard candy from a shelf in his station's convenience store to show that the least expensive item in the store still costs twice as much as a liter of gas.

"The gasoline truck drivers don't make enough," he adds. "The wholesalers don't, either. And we, the retailers, we're at the end of the chain, and we're just left to cry."

Eight percent of stations in the capital have shut down in the past two years, according to Metrogas, the Caracas branch of Venezuela's national gasoline retailers guild. Metrogas President Rómulo Arreaza says the stations can't afford to pay their workers the 25 percent minimum wage increase that Chavez ordered this year.

After two years of appeals from service stations, the government increased gasoline owners' profits slightly last month but did not move the pump price.

The Energy Ministry raised stations' take from 3.4 to 4.6 cents a gallon by funneling money away from gasoline taxes. Energy Minister Rafael Ramirez says higher fuel prices are not an option.

"We're not going to raise gasoline prices," Ramirez says. "We've always resolved this within the same price, and that's what we'll do."

Profit margins squeezed

Before the latest increase for station owners, inflation and minimum wage increases had far outpaced growth in stations' profit margins, according to Metrogas. Still, Arreaza says, the increase is less than half of what his association wanted.

"We still have the hope of achieving fair profit margins through negotiations," Arreaza says. "But until that happens, the sector will stay in crisis and stations will continue to close."

The leftist Chavez, who has become the Bush administration's leading antagonist in Latin America, has used revenue from the state oil company to subsidize cheap food for the poor, as well as an array of other social development programs that are the hallmark of his socialist Bolivarian Revolution." He even financed a fuel subsidy plan to sell discounted heating oil to low-income families in the northeastern United States last winter.

The government is afraid that raising gasoline prices will alienate supporters, says Toby Bottome, editor of the magazine VenEconomy, especially since Chavez is running for re-election in December.

A gasoline price increase during a budding recession in 1989 helped spark a three-day riot in Caracas that left at least 300 people dead, a memory that Bottome says is still fresh in many Venezuelans' minds.

"They wouldn't dare run the risk of triggering a new bout of rioting," Bottome says.

An explosive issue

Jose Luis Cordeiro, a petroleum engineer and consultant who writes on Venezuelan oil history, says that gasoline prices are a politically explosive issue but that a price increase is long overdue.

Cordeiro estimates that Venezuela could have earned an extra $8 billion last year if the government allowed stations to sell at market prices. The country consumes double the amount of gasoline as neighboring Colombia, which has almost twice the population, he says.

Environmental leaders like Deborah Bigio, executive director of the Venezuelan NGO Fundena, says the rising number of cars is making Caracas' congestion and pollution even worse.

But economists agree that the government can afford the environmental risk and the losses on local fuel sales as long as global oil prices stay high.

And Serrano says Venezuelans are prepared to fight for the advantage they have over drivers in the rest of the world.

"I've worked in other countries, and you have to save gasoline there because it's really expensive," Serrano says. "It's not as good as we have it here."

"If the government raises prices too much, we'll hit the streets and block the roads."