If oil prices continue to fall and the exchange rate remains stable, further gasoline price cuts would follow, Bordaberry said. The government left diesel prices unchanged to reduce the difference between the two types of fuel, he said. As well as promoting consumption of gasoline in the short term to mop up surplus production at state oil company Ancap, the government is also keen to reduce the subsidies on diesel and encourage consumers to switch instead from gasoline to natural gas.
The price cuts will reduce Ancap revenues by some US$32mn this year, Ancap president Jorge Sanguinetti said. As previously agreed, he confirmed that Ancap will not contribute any profits to the government coffers this year. But the minister added that this is part of "preparing Ancap to face up to its future" as its monopoly on oil refining and production is slowly dismantled.
The cuts are part of the overall strategy of promoting vehicular natural gas (VNG), which the government is just starting. Bordaberry announced plans to send a bill to congress that would impose the same tax regime on vehicular natural gas (VNG) as is currently applied to gasoline, and has also asked the regulator, Ursea, to draw up regulations governing the usage of VNG within 90-120 days.
Alain Saclier, president of natural gas distributor Gaseba, told BNamericas that VNG would not be competitive if it is burdened with the same tax level as gasoline, and suggested the natural gas industry would lobby to have a previous law passed in May 2002 maintained, which established a lower tax level applied to diesel. The government is very keen to promote the use of natural gas as an essential part of the energy matrix, national energy director Alvaro Bermudez told BNamericas.
For example, existing free access rules make it easy for a bus company that consumes more than 5,000 cubic meters a year to become an unregulated consumer and buy gas directly from the source at very reasonable prices, he explained. Liquefied petroleum gas (LPG) prices also remain unchanged, as the government is still examining the strategy for that type of fuel, the minister said. In 1974, the use of LPG in vehicles was banned because a government subsidy intended to reduce the cost of LPG for domestic use made the fuel much cheaper than gasoline. As consumers took advantage of the subsidy and switched to their cars to use LPG, tax revenues suffered.
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