Long lines at gas stations have become a regular headache in Bolivia. They are a sign that the country's fuel supply is stretched thin. The government wants to ease the squeeze by charging the country's biggest diesel users a lot closer to market rates.
As of Monday, customers who purchase more than 120 liters of diesel per month will pay 18 bolivianos per liter. The old price for that group was just under 10 bolivianos, so the jump is 84%.
Smaller buyers keep the old price of 9.80 bolivianos per liter. Presidency Minister Fernando said they "will be able to keep filling up with diesel at the price they were already paying."
Hydrocarbons Minister Marcelo Blanco announced the policy at a news conference in La Paz. The government will recalculate the price every week based on market rates, so it moves with conditions instead of staying frozen.
The weekly review keeps subsidized fuel from becoming a bigger burden on state finances. It also protects the subsidy for small buyers instead of spreading it to every liter sold.
This is not the first attempt to fix the fuel system. Late last year, a partial cut to subsidies pushed gasoline prices up 86%, while diesel prices rose more than 160%, but the shortages stayed.
This time, the approach is narrower.
The government, now nine months old, wants to curb smuggling, line up fuel prices with market conditions, and bring in private suppliers. Cheap state fuel is easy to sell elsewhere for more money, which is why smuggling has been hard to stop.
The bigger plan is to bring in competition. Private companies need a price that covers their costs. The weekly market-based rate is meant to give them one.
If private companies import and distribute diesel, the state-owned energy company YPFB will not have to handle as much of the business. Early signs of that shift are already showing.
Last weekend the government and a private firm called ALERE SRL signed a cooperation agreement covering crude-oil imports and diesel distribution in an agricultural part of Santa Cruz department. Santa Cruz's regional government also said it would work with private companies to get fuel to farmers who were hurt by the shortages.
Bolivia's fuel subsidy system has long strained public finances. YPFB has handled imports and distribution, while cheap fuel has encouraged smuggling to higher-priced markets. The government's latest move aims to shrink the subsidized share of the market and create room for private suppliers.
The exact share of Bolivia's diesel market touched by this rule is not clear. Aramayo declined to offer an estimate, noting that smuggling skews consumption figures and the new measures should clarify the picture.
What about inflation? That worry is real, but Aramayo said the effect should be limited.
Large consumers were already paying more than the newly set official rate through unofficial channels, so the price adjustment mainly catches up to reality.
Katrina Butt, an AllianceBernstein portfolio manager in New York, shares that view. "It only affects large consumers," she said.
The subsidy for motorists is still in place, and she puts large buyers at less than 10% of diesel use. The likely impact on total diesel demand is a single-digit percentage.
That also explains the inflation picture. Annual inflation in Bolivia was below 5% in July, after running almost 25% a year earlier.
For most drivers in the country, the price at the pump this week does not change.
The bigger question is not the price change itself. It is whether private suppliers show up and keep shortages from coming back.
For your portfolio, the part worth watching is whether Bolivia can hand more of the fuel market to private companies without another supply shock. If the plan works, the government spends less on subsidies and waiting lines shrink, but if it does not, the lines come back.