San José, Costa Rica, since 1956

Pain at the Pump With No Relief in Sight

Days have gotten longer for Naín Abarca.

The 20-year veteran taxi driver used to work eight-hour shifts. But now, with the rising price of gas, Abarca drives his red sedan 10 to 12 hours a day to make up for what he lost in earnings at the pump.

Daily trips to the gas station used to cost Abarca ¢5,000 (about $10). Now they cost him double.

“In reality, you have to live with this system,” Abarca said while waiting in line at a Texaco station in downtown San José.

Like millions of other drivers the world over, Costa Ricans are feeling the impact of rising prices at the pump. The cost of regular, super and diesel have all increased in the past year, with diesel increasing the most at 51 percent (see table).

The most recent published prices were ¢621 ($1.20) per liter for super, ¢604 ($1.17) for regular, and ¢587 ($1.14) for diesel. About four liters equal one gallon.

Next Tuesday, fuel prices will rise again from ¢35-40 per liter. Super will cost ¢656 ($1.27), regular ¢644 ($1.25) and diesel ¢622 ($1.21).

Yet painful gas and diesel prices have not decreased demand. According to a report issued by the National Oil Refinery (RECOPE), overall demand rose by 4 percent in the first quarter of 2008, from 1.8 million barrels to 1.9 million barrels.

The record-breaking price for oil on the international market is the driving force behind gas price hikes. Early this year, oil reached an unprecedented $100 a barrel.

Since then, “Texas tea” rose to the new heights of $135 a barrel at the end of May before settling down to $123 a barrel at press time.

Overall, crude has doubled in price compared to May last year, when it cost $62 per barrel, according to RECOPE.

Fuel prices in Costa Rica do not float freely with market value. The Public Services Regulatory Authority (ARESEP) sets prices through two processes – either by request from local consumers and retailers or in reaction to international market forces, such as fluctuating oil prices and the exchange rate.

The first process can be requested three times a year, while the second can be used on a monthly basis.

A maximum 3 percent flat tax is also included in the price of fuel, the proceeds of which are used to improve the country’s roads.

Rising fuel prices affect more than individual drivers. Public transportation, manufactured goods using petroleum as a raw material, and agricultural products transported by large fleets have all become more expensive as oil prices spike.

“The country is absolutely vulnerable,” said Gilberto Campos, vice president of advocacy group Consumers of Costa Rica.

Campos recommended a reorganization of ARESEP and a reduction in the flat tax as two ways the government could relieve consumer burden.

The National Federation of Taxi Cooperatives is also targeting the flat tax by introducing a bill that would eliminate it for a trial period of two years to temporarily reduce fuel prices.

“We are very motivated about the bill,” said Mikael Sosa, the federation’s general manager. “However, it’s a little complicated.”

Nixing the tax would mean less cash to pay for pothole repair – something the government is not willing to accept.

Vice Minister of Environment and Energy Julio Cesár Matamoros said such a move would never work without an alternative fund source.

Besides, he said, “the demand for fuel does not change because of a decrease in price.”

The government is taking other measures to blunt the blow of rising fuel costs. The Environment and Energy Ministry (MINAE) and RECOPE are preparing a “savings program” that would teach Costa Ricans how to drive more efficiently,Matamoros said.

No gas subsidies – beyond the pre-existing one for the fishing industry – are in the works.

MINAE is also proposing a series of tax incentives that would encourage drivers to buy more fuel-efficient vehicles. Those who purchase hybrids or electric cars would be taxed less, while those driving gas-guzzlers more.

The measure would be issued by executive decree, but is getting a final look-over in various ministries,Matamoros said.

Campos of Consumers of Costa Rica has his doubts about the last proposal, as he said 85 percent of the national work force travels by bus.

“That sector of the population (that would purchase fuel-efficient cars) is very small,” he said.


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