Govt. Cuts Fuel Retail Margins 33%

Ecuador's President Lucio Gutierrez has published an official decree to cut the profit margin of fuel retailers to 13% from 18% in line with the government's promises to the International Monetary Fund (IMF). The move will reduce retailers' margins on a gallon of gasoline to about US$0.20 from about US$0.27, a source at Ecuador's energy and mines ministry told BNamericas.

Gasoline sells for some US$1.50/gallon at the pump. In 2002 fuel retailers earned about US$131mn from sales, and would still earn more than that in 2003 - about US$140mn - under the President's decree, the source said, adding that retailers earned US$73mn in the first half of 2003 compared to US$62mn in the same period last year. However, fuel retailers have asked the country's constitutional tribunal to overturn the decree, which they say is unfair, Dow Jones reported. According to the national chamber of petroleum derivatives distributors, Camddepe, the measure would put some 900 service stations out of business throughout the country, including those run by large international oil companies, according to Dow Jones.

The foreign companies that operate gas stations in Ecuador control roughly half of the domestic fuel market. They are Spain's Repsol-YPF, Anglo-Dutch firm Royal Dutch/Shell, US-based ExxonMobil and ChevronTexaco, as well as Argentina's CGC. In order to offset the measure, the distributors chamber predicts that the sector will cut 30% of its workforce, which translates into 2,000 lost jobs nationwide. "That's just lies," the ministry source said, adding that such job cutbacks are unlikely.

However, the government's move has made good on a pledge to the International Monetary Fund (IMF) in order to obtain a US$205mn aid package in February. The President waited about six months before publishing the decree to give the fuel retailers more time to "earn a bit more money," the ministry source said. The measure will help the government generate an extra US$30mn for the country's coffers to confront fiscal problems. "We have a lot of needs in this country, everyone is asking for raises and this is a poor country," the source said.

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