How much would be the diesel oil price in Bolivia without subsidy?

How much would be the diesel oil price in Bolivia without subsidy?

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For the reader with little patience the answer is: Bs 9.40 per liter (US$ 5.11 per gallon)… approximately. One of the central words in the previous sentence is «approximately», because this information is not completely public in Bolivia, to write this text I estimated some values with some prudent assumptions, now I want to share with you the results.

For the reader with time and patience let me present the following table, you will find the price composition, as well the information source of its components. I should note that this information is in Bs per liter and US$ per liter, so non Bolivian readers can make the comparison with the diesel oil price in their respective countries. The data is almost self explanatory , so the only thing I will mention is that the table is constructed under the assumption that with the subsidy elimination domestic prices should be «import parity price».

What else I can share with you? With the information from the table and the projected import volume for 2013 is possible to find the annual import value of diesel oil. I made my job and this value is US$ 986 million, which doesn’t, I repeat, doesn’t represent the diesel oil subsidy. Why? The explanation below.

Assume you are an importer of books… your dream is to have a bookstore, decorated with wood, maybe a bit cold and dark, where people find the latest bestsellers and you can make some money while drink some delicious coffee and occasionally pay attention to poems book that you like so much. The government, meanwhile, in a moment of complete literary epiphany decides to subsidize… yes, subsidize the books imports… Diablos! With this example I could discuss about protectionism, domestic production , freedom, justice… ok, let’s go back to diesel oil. The point is that the import cost of each book is US$ 100, but thanks to the government subsidy you can sell the same book to the modest price of US$30, in this sense, What is the final amount of subsidy? Some easy math tell us that the subsidy will be US$ 70 per book.

The above example seems simple but in the usual discussion of diesel oil imports in my country (Bolivia) concepts are confused  returning to the analogy of the books, in Bolivia some people thinks that the subsidy is US$100, when you and I know that the final figure is US$ 70.

Now I can share some results, the import cost is about US$ 986 million per year, the sale of diesel oil in the domestic market is US$ 380 million, therefore the estimated subsidy is US$607 million, which represents a not small 2.3 % of GDP. Here I point the question of a dear friend: Why economists like to talk in % of GDP  The answer is very cute, when the figure is % of GDP the international comparison is very tasty. Let’s see, in the following table you will find how much money represents 2.3% for some countries in Latin America and The Caribbean (I use the database of ECLAC ). For example, if the Bolivian economy were the size of Argentina’s economy, the diesel oil subsidy cost would be US$10.972 million… ouch!

As always was a pleasure to share with you these results about the Bolivian energy economy, now the day is ending and I’m waiting for Santi, he’s in his Kung Fu class, he decided to take those classes because to the question: Hijito what you want to be in the future?… he replies:  Ninja.

Mauricio Medinaceli Monrroy

La Paz, September 9th. 2013.

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