MercoPress. South Atlantic News Agency

Chile stabilizes fuel prices for next twelve months

Gasoline in Chile will remain below the 620 pesos per litre benchmark during the next ten months, following the government's decision to intervene in the fuel market to help mitigate the impact of hurricane Katrina and international crude prices.

September prospects indicated gasoline could have reached 750 pesos a litre, equivalent to 1,40 US dollars with similar rises for jet fuel, cooking kerosene and diesel.

The first stage of the new Chilean government fuel policy has been to disengage the current import parity with Gulf of Mexico fuel prices, which means that government owned oil company ENAP will strictly accommodate prices to production costs.

In October the second stage of the plan is creating a new oil price stabilization fund which will receive resources from the exceptional international value of copper, Chile's main commodity export, and already has earmarked 200 million US dollars.

The fund will be operational for twelve months and will be used if crude prices keep increasing.

Finance minister Nicolás Eyzaguirre said that breaking away from US prices seemed only natural "since 10% of the US refining capacity has been knocked out and it's not fair to pass on the higher prices to Chilean consumers. Besides Gulf of Mexico refined products prices have skyrocketed 160% in the last twelve months".

President Ricardo Lagos underlined that the government has been able to cope with the fuel crisis because ENAP, which is a strategic corporation, "was not privatized".

However his remarks were replied by liberal economists who argued that ENAP job is not to mitigate prices, but rather lower fuel taxes.

Economist Tomas Flores from Libertad y Desarrollo regretted the government didn't take advantage of the situation "to lower specific taxes on gasoline and improve the tax structure since diesel which is highly contaminating, in Chile is far cheaper than petrol".

Liberal economist Juan Andres Fontaine supported cutting during four weeks the fuel price parity link with the Gulf of Mexico, but argued the proposed new stabilization fund 5% fluctuation margin is too tight and "easily accommodates subsidies to the wishes of consumers", in an electoral year. Presidential and congressional elections are scheduled for next December.

He proposed establishing a medium term price target for fuel, gradual lowering of specific taxes and exposing ENAP, which has the refining monopoly in Chile, to competition or to regulated public utility rates.

Minister Eyzaguirre underlined that the new stabilization mechanism will be funded with the interest accrued from the copper fund surplus.

"We're not transferring resources from the Copper Fund to the new stabilization fund, but rather working from the surplus generated".