Energy crisis? Venezuela gas is cheaper than water

CARACAS, Venezuela - Taxi driver Jaime Tinoco works the streets of Caracas in a 1976 Chevy Nova that guzzles 72 litres of gas a day. But he doesn't worry about fuel efficiency - filling his tank costs just US$2.30 (NZ$3.65).

While US consumers struggle with soaring energy prices, Venezuela's gas is now the world's cheapest at 12 cents a gallon (3.7 litres) and Washington's regional foe, President Hugo Chavez, vows to maintain subsidies that keep fuel dirt-cheap.

"Those gringos have everything - so why does their gas cost so much?" asked Tinoco between chuckles as he navigated a midday traffic jam. "Don't they have oil reserves?"

Chavez, a self-proclaimed socialist and critic of President Bush, has even begun subsidising fuel for poor US neighbourhoods.

In Venezuela, the world's No. 5 oil exporter, drivers fill their tanks for less than the price of a cheap breakfast, and love to point out that petrol costs less than mineral water.

The nation's petrol is now the world's cheapest, according to an International Monetary Fund report released in April that shows Venezuelan gas prices as about a third of those in oil-producing giant Saudi Arabia.

Shiny SUVs and rusty 1970s-era sedans share the streets of Venezuelan cities as drivers shrug off fuel costs.

Low-priced fuel is considered a birthright in Venezuela, which sells 1.2 million barrels per day of oil to the United States - the world's biggest gas-guzzler.

"Petrol should stay cheap the way it is, that's why we have oil in Venezuela," said Maria Rosa Pinero, 55, a housewife, filling up a Volkswagen Golf at a gas station in eastern Caracas.

Chavez has extended Venezuela's fuel subsidy to poor Americans through a well-publicised jab at the US government that offers 40 per cent discounts on heating oil distributed by Venezuelan-owned refiner Citgo.

Flush with cash from high oil revenues, Chavez has also shored up regional alliances by providing low-priced fuel to Central American and Caribbean nations he says have been snubbed by the United States.

'Hood Robin' subsidy

Venezuela's gas subsidy is the subject of endless grumbling by economists who say it promotes consumer waste and costs the state billions of dollars in lost revenue.

Critics say the subsidy largely benefits middle and upper class vehicle owners at the expense of government income that could be spent on the poor.

"They call it the 'Hood Robin' subsidy," said Jose Luis Cordeiro, a petroleum engineer who writes about energy issues. "Instead of stealing from the rich to give to the poor, it's the opposite."

He estimates Venezuela would have taken in at least an additional US$8 billion last year - almost 8 per cent of the nation's GDP - if Venezuelans had paid market rates for fuel.

The subsidy also encourages rampant fuel smuggling to neighbouring Colombia and leads to huge lines of Brazilian drivers waiting to fill up along the southern border.

But past efforts to raise gas prices have not gone well. Authorities in 1989 raised fuel prices at the height of a recession, leading to three days of rioting during which at least 300 people were killed. Human rights groups say troops may have killed several thousand people.

The event marked a turning point in Venezuelan history, and served as inspiration for Chavez - at the time a young army officer - to lead a coup attempt three years later. The coup failed but helped propel Chavez into the presidency in 1998.

Chavez has maintained popularity by channeling oil revenues toward social programs for the poor, and has often criticised US dependence on cheap petrol. Washington says he is using his oil wealth to threaten regional democracy.

At Venezuelan gas stations, however, there are few complaints about low-cost fuel or fuel efficiency.

"People buy a car because it's comfortable or because it's big," said Isidro Rodriguez, 30, an accountant, as he filled up a new 4-wheel-drive Ford in southern Caracas. "It's not for the price of fuel, because that's never been a problem."

- REUTERS