Noboa announces elimination of the diesel subsidy

The price of a gallon of diesel fuel increased from $1.80 to $2.80 Friday following President Daniel Noboa’s decree eliminating the subsidy that had been in place since 1974. According to the decree, the $2.80 per gallon price will be effective until December 12, when it will be adjusted for inflation.

The subsidy for diesel fuel was eliminated effective September 12.

In a statement, the president said elimination of the subsidy will save the government $1.1 billion annually, although $300 million of the savings will be used to compensate bus companies, truck companies transporting “essential goods,” and poor families affected by the price hike.

“This was not unexpected,” said economist Juan Carlos Salvador. “When he [Noboa] increased gasoline prices last year, he said diesel would be next. The government has been under pressure from the IMF [International Monetary Fund] and International Development Bank for years to eliminate the subsidy and he decided early this week that now is the time to do it.”

Salvador added: “Most important, of course, this provides badly needed income for the government, which is struggling to pay its bills.”

A major concern in dropping the subsidy, according to Salvador, was the possibility of protests and strikes that have followed attempts to reduce subsidies in the past. “The fact there was no social uprising after the gasoline adjustment as well as the fact that that organizations such as Conaie [Confederation of Indigenous Nationalities] are in political disarray, indicated to the government that the repercussions would be manageable.”

Never-the-less, Salvador concedes that there will be strong reaction and probably some protests to the price hike. “Even if Conaie doesn’t take to the streets, the bus companies and transport companies could mount strikes. First, though, I expect they will demand meetings with the president.”

To reduce the impact on the poor, the government will provide compensation of between $400 and $1,000 a month for local and long-distance buses. Under the plan, bus companies are prohibited from increasing fares unless those are part of the normal schedule of fare adjustments.

According to Noboa, bus companies were provided advance notice of the subsidy elimination and the compensation to be provided.

In addition, the government will make an additional 55,000 poor families eligible to receive the Human Development Bonus, also called the “Poor Bonus,” and provide VAT refunds to 115,000 qualifying beneficiaries in the public transport and goods transport sectors.

Among other provisions of the presidential decree is a requirement that Petroecuador reduce the sulfur content of diesel fuel to the European Union standard by October 2026.