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Currency Crisis Echoes throughout Venezuela’s Transportation Industry

By: Elisa Vásquez - @elisavasquez88 - May 21, 2014, 3:58 pm

EspañolEarlier this month, General Motors warned of a possible shutdown of its plant in Venezuela. The government, immersed in a battle over exchange controls, owed the company US$20 million for imports the plant needed for production. Toyota, Iveco, Encava, and Ford have all experienced similar shortages, and the government has responded in turn by issuing foreign currency to avoid possible production freezes.

Similarly, Battery companies, such Duncan and Titan, and tire producers, such as Bridgeton, Goodyear, and Pirelli, have received subsidized dollars this week from the government to alleviate production costs. However, this particular assistance has not proved sufficient to alleviate the shortages of these products.

The same day the assistance was delivered, a gang of battery thieves were captured in Maracaibo. They planned to get a quick sale of the stolen goods on the street for half price. Evidence also revealed that the thieves stole at least 100 batteries from the parking lot of the city’s largest shopping mall.

An aging fleet of vehicles are symbols of the difficulty: 77.7 percent of vehicles in Venezuela are more than 5 years old, and almost 30 percent were manufactured more than 15 years ago. These figures, taken from a recent study by the Venezuelan Chamber of Automotive Products Manufacturers (FAVENPA) in 2013, signal a rate of production that could potentially have consequences for the environment, the economy, and the quality of life of Venezuelans.

The FAVENPA study notes the environmental concerns, given that older vehicles create more pollution and require greater gasoline consumption. With regard to the economy, the high gasoline consumption is a drain on public finances, since Venezuela increasingly produces less and imports more, buying it at international prices and subsidizing it to the point where consumers can fill their tanks for less than US$1 on average. The low per-mile cost then generates more traffic, which becomes more chaotic and means workers often spend more than 3 hours driving to and from their place of employment.

Higher Gas Prices as a Solution

Speaking to the PanAm Post, Juan Carlos Sánchez — a professor at the Central University of Venezuela and co-winner of the Nobel Peace Prize in 2007 for his work on the Intergovernmental Panel on Climate Change (IPCC) — said that by not removing old vehicles from the road and replacing them through a program of incentives, the Venezuelan government is creating a heavy burden for itself. It continues to be obliged to import increasingly more subsidized gasoline because of the high amount of fuel older cars consume.

Es común observar una mayoría de vehículos viejos en las calles de Venezuela Fuente: Wikimedia Commons
A majority of old vehicles is a common site on the streets of Venezuela. Source: Wikimedia Commons.

“By renewing its fleet of vehicles, the government would significantly decrease consumption and this would help reduce gasoline imports. If the price of gasoline were set a reasonable rate, this would ensure a more conscientious use of it,” explained Sánchez.

According to figures reported by El Nacional, state-owned Petroleos de Venezuela (PDVSA) buys approximately 3.3 million barrels of gasoline from the United States every day, and receives around a 2 percent return on its investment. Therefore, the country loses US$107 per barrel of gasoline purchased.

“Without a doubt, the issue of raising gasoline prices is unpopular and has a high political cost. The administration has postponed addressing the problem for as long as the budget allows, but it seems we are reaching the point now where our economy cannot take any more prolongation,” said the expert.

As for the environment, while highly populated areas in Venezuela have not yet reached the levels of air pollution seen in cities like Lima — recently recognized by the World Health Organization (WHO) as the city with the worst air quality in Latin America — the latest statistics available from WHO rate Caracas at 24 PM 2.5 (a measure of airborne particles per square meter), equal to the air pollution of Mexico City and Bogotá.

Failures of Mass Transit

Only between 5 and 7 percent of mass transportation vehicles in Venezuela have ecological engines, and almost 75 percent are over 30 years old, according to José Luis Montoya, president of Central Public Transportation.

The issue of high gasoline consumption is compounded by the low efficiency performance of older vehicles. Montoya also notes that most of these vehicles have smaller gas tanks than the newer models, so in addition to using gas less efficiently, their entering and exiting contributes to traffic congestion. The shortage of parts means they are also more likely to break down and generate even more traffic.

In Venezuela, mass transportation remains privately controlled, and most of the public relies on the service. The replacement of these vehicles then depends on the purchasing power of each driver to buy a new model. Montoya explains that up until five years ago, the Urban Transport Foundation Fund (FONTUR), although at times inefficient, provided a line of credit for drivers to replace old vehicles. However, the program came to an end after a sharp decline in vehicle production in the country.

“Private banks also financed [these purchases], but there were no buses available to buy,” Montoya says.

In previous statements to the press, Montoya has indicated that 20 percent of the urban fleet has been shut down for repairs. These vehicles await parts such as batteries and tires that remain scarce. Julio Guerrero, director of the Interurban Transportation Group, which connects Caracas with other towns and cities, told El Universal that the number is actually higher, at 30 percent.

A Stationary Economy

According to a report this week by the Venezuelan Automotive Chamber (CAVENEZ), domestic vehicle production in April fell by 90 percent compared to production during the same period in 2013, and imports are down 99.7 percent from last year. This means buying new cars is not an option, so people must continue to use older models.

José Antonio Diéguez, director of operations of FAVENPA, told the PanAm Post that if the decline in automotive fleet in the country is not reversed, he expects to see other issues arise. Diéguez says vehicles may be “cannibalized” through an increase in thefts, then scrapped and sold for parts in the market.

Translated by Guillermo Jimenez.

Elisa Vásquez Elisa Vásquez

Elisa Vásquez is a Venezuelan journalist with experience covering social and community topics. Her specialty is human rights education and international solidarity. She reports from Panama City. Follow her on Twitter @elisavasquez88.