Drive now, pay later!

Bolivia is importing a record amount of diesel and gasoline – fiscal constraints and subsidies are an unsustainable solution.

Although Bolivia has made significant strides towards renewable energies in recent years, it remains overwhelmingly dependent on fossil fuels. Whilst there is nothing new about the country’s reliance on imports of gasoline and diesel to service domestic energy needs, over the past year, the volume of imports has reached unprecedented levels. La Paz spent USD 2.120 billion purchasing gasoline and diesel. Most countries import energy, but Bolivia is not a wealthy nation – revenue spent on imports and energy subsidies are simply not sustainable.  

A Bolivian former deputy minister of economy explained, “The country’s energy subsidies have been maintained for many years largely due to political considerations. The price of fuel exerts a very strong impact on daily living expenses and the state has always been careful to dampen the potential for riots and protesting when times are tough. Subsidies are usually anchored to international energy prices, and it is the government that subsidises the difference.”

“The country’s energy subsidies have been maintained for many years largely due to political considerations.”

Former deputy minister of economy, Bolivia

This is expensive politics – when oil prices rise, so too does the subsidy. When it reached almost USD 140 per barrel, the subsidy reached almost USD 900 million. Bolivia has subsidised between 50% – 70% of the price since 2004.  

Throw into the mix the hydrocarbon subsidy which further aggravates Bolivia’s already challenging fiscal reality. Bolivia’s management of its mounting fiscal deficit is further complicated by the fact that it is serviced in dollars – the country’s international reserves are dwindling fast. La Paz has responded by printing money to cope with its internal deficit but in order to purchase energy imports there is no other option but to pay with reserves. 

Is there any light at the end of this dark fiscal tunnel? A former director of the hydrocarbon regulation authority (“ANH”) stressed the importance of investment, “The only way to reverse this future is through foreign investment in the sector. That should start with reform of the country’s complex and discriminatory regulatory framework. With the current framework, few multinational energy companies would regard Bolivia as an attractive place for investment. Companies are forced to sell energy at below market price to domestic consumers – investing in Bolivia does not make commercial sense. In addition, the government take is very high, reaching 82%. The administration is going to have to change several laws if they don’t want the gas economy to die.”

“The only way to reverse this future is through foreign investment in the sector.”

Former director, Agencia Nacional de Hidrocarburos, Bolivia

Could subsidies be removed anytime soon? Unlikely according to the former deputy minister, “Bolivians are so used to energy subsidies that it is politically extremely difficult to suggest removing them without half the population taking to the streets. Even during the administration of Evo Morales which enjoyed high approval ratings he moved to remove the subsidy – in less than  ten days he backed down because of street protests that paralysed the country.” 

The current president, Luis Arce is no Evo Morales – he lacks the clout to advance such a measure through congress and his administration has a record of flip-flopping on policy. It seems more likely instead that Arce will continue to borrow money from the Central Bank to finance the public deficit and avoid conflict with the energy sector. Bolivians continue to fill up their cars but at some point – sooner or later – those subsidies will have to end.   

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