Lasso faces crisis in public transportation, freight sectors as fuel prices approach market rates

May 21, 2021 | 13 comments

One of the biggest challenges facing President-elect Guillermo Lasso will be allowing gasoline and diesel prices to rise to international market levels while reducing the impact on bus and trucking companies. Energy Minister René Ortiz says there can be no return to subsidized fuel and Lasso agrees.

Quito taxi owners blocked the city’s major thoroughfares in an April strike over rising fuel costs.

“Ecuador can longer afford the subsidies and must adjust to true market conditions,” Ortiz says. “At the same time, we recognize the dilemma of the public carriers and freight companies, whose prices are set by national and local governments. There must be some accommodation to cover the increased costs.”

During the campaign, Lasso acknowledged the “balancing act” between a return to market pricing and relieving the burden it puts on private companies. “The price controls of the government create an awkward situation and it is necessary to look for alternative controls that are easier for the carriers to live with,” he said.

Since the beginning of May, there have been work stoppages by municipal bus companies, freight carriers and taxi cooperatives, in Quito, Guayaquil and other cities, protesting high fuel prices. Bus owners in Cuenca called off a system-wide strike this week after the city agreed to provide a subsidy for discounted fares but said the stoppage was only temporarily delayed pending a solution to fuel cost increases.

Following an April strike, the national government allowed long-distance bus companies to raise fares 15 percent.

The national union representing municipal bus owners says the country will face a “series of paralyzing strikes” if companies are forced to accept higher operating costs without being able to raise fares. “Mr. Lasso faces an impeding crisis and must act quickly to avert it,” the union said in a statement.

According to Ortiz, gasoline and diesel prices, which have increased gradually over the past year, will reach full market prices in August. He says that the elimination of the subsidy will save the government between $600 to $700 million a year and that taxes on the higher prices will bring in an additional $80 in revenue.

Since the end of the subsidies, the price of diesel has increased 48 percent and the price of gasoline has risen 14 percent.

In a campaign debate, Lasso warned against providing new “service subsidies” to offset fuel costs, saying the practice would eliminate the gains of moving to market-based pricing. “For many years, the country has built its transportation systems on subsidies which have destroyed traditional market mechanisms,” he said. “We must establish a fair and efficient system that serves the interests of the public, the government and the companies that provide essential services.”