Ecuador scraps fuel subsidy for industry, airlines
OREANDA-NEWS. Ecuador's government has scrapped fuel subsidies for industrial and shipping activities as well as foreign airlines and foreign ground transportation, hoping to save up to $300mn/yr.
Ecuador will spend at least $3bn this year on fuel subsidies, according to oil ministry projections.
"We are cutting subsidies to some industrial sectors, shipping activities and big airlines," President Rafael Correa said today, upon issuing the decree eliminating the subsidies.
The decree eliminates a 40pc subsidy on jet fuel used by foreign airlines. But the subsidy will be maintained during a three-year period for companies that agree to several conditions, including operating with airplanes built after 1990, using airports under the direct administration of Ecuador's civil aviation authority DAC, operating priority routes and opening new cargo and passenger routes with a minimum frequency of three days per week.
The decree stipulates that the jet fuel price should not be inferior to $1.25/USG.
On a monthly basis, Ecuador's state-owned downstream firm PetroEcuador will set the prices for jet fuel, LPG, premium diesel, diesel 1, diesel 2, gasoline and fuel oil 6 (IFO) used by industries, shipping companies, airlines and trucks bearing international plates.
Fuel oil 6 will be sold at the same price as fuel oil 4, according to the decree.
PetroEcuador will calculate products prices based on a formula consisting of the weighted average cost of each fuel plus transportation, storage and marketing costs in addition to taxes and a profit margin for the firm.
The weighted average cost of fuels will be calculated considering the price of importing each refined product and the cost of locally produced fuels, according to the decree.
PetroEcuador could also use an import price formula as reference. The formula includes the fuel's international marker quotes plus freight rates, insurance and other import costs.
Since 2005, diesel 1, diesel 2 and diesel premium have been sold at $0.8042/USG, fuel oil 4 at $0.62/USG, 87-octane extra gasoline at $1.689/USG and 92-octane super gasoline at $1.5/USG in PetroEcuador's wholesale terminals.
Before the decree, the official LPG price for industrial use was $12.15/15kg.
Opec member Ecuador has been hard-hit by the sharp decline in oil prices since mid-2014. The country?s oil export revenue could sink by up to $7bn this year, according to Correa.