Fuel prices in Ecuador could change, depending on the decisions that will be made in the political sphere in the coming months. On the one hand, there is an urgent bill in the National Assembly proposing an increase in the value added tax (VAT) from 12 to 15 percent, the aim of which is to combat drug gangs that threaten the security of the country.

Among the products that will have this tax increase are fuels, including those that have a frozen price such as extra and eco gasoline, as well as super and diesel. If this VAT increase is approved, the price of these fuels will increase. The executive secretary of the Chamber of Distributors of Petroleum Products of Ecuador, Oswaldo Erazo, says that with an increase of only 3 percent, extra and eco gasoline, which is sold for $2.40, will increase in price by 7.5 cents per gallon, or to $2,475, and diesel for the automotive sector to 5, 5 cents per gallon, or from $1.75 would jump to $1.80. Because the increase is only 3%. This is assuming that the current price structure (terminal price, marketing percentage and VAT) is maintained.

Meanwhile, the Minister of Economy and Finance, Juan Carlos Vega, announced that work is being done to direct fuel subsidies. This would be done by targeting the people who need it the most. Public transport will keep the subsidy, he assured.

If this were to happen, there would also be an increase in prices, but at the moment it would not be so dramatic because fuel prices without subsidies are not that high, because world fuel prices have also fallen by the hand. Raw oil. According to Petroecuador, the theoretical December 2023 WTI crude price was $63.20. Meanwhile, as of January 16, the WTI price was $72.02.

According to Eraz, if the subsidy for extra and eco gasoline is withdrawn, they would rise from USD 2.40 to USD 2.65; In the case of Ecopaís, this would rise from $2.40 to $2.69.

On the other hand, diesel would have a stronger increase, as the subsidy is currently $1.18. Then it would rise from $1.70 to $2.88. In any case, all these calculations are premature, because it is not yet known what the targeting method will be and whether it will be gradual or direct.

For Erazo, it would be important to focus the subsidy on diesel, while for gasoline, the subsidy could be abolished or increased for all those who have a car.

Darío Dávalos, an energy expert, believes that currently the Central Bank of Ecuador (BCE) is reporting $457 million in gasoline subsidies between January and November 2023, so the said subsidy could be closed in 2023, according to data from BCE- and, with almost 500 million dollars in gasoline subsidies. Although there are figures that speak of a subsidy of 630 million dollars. But he explains that there is another way out: if Petroecuador decides to change the import of gasoline from 95 octane to another 85 in order to increase the octane number of extra and ecopaís (+ethanol), as they announced at some point, this could significantly reduce subsidies and save the Government from social conflict, directing the targeting of fuel.

It is true that the state is looking for more funds and is already thinking about structural reforms. Among them, the increase in VAT and the analysis of subsidies. This type of measure, which aims to improve public finances with sustainable measures, could in the long run force multilaterals to support the country with larger loans, said Economy and Finance Minister Juan Carlos Vega Malo.

The Minister also clarified that the subsidies will be reviewed depending on the political moment and that this is in the hands of the President of the Republic, Daniel Noboa. It is important to remember that the issue of subsidies is sensitive and that in previous governments it caused heat in the streets and stormy protests.