Cuba to end fuel subsidies, dual currency

Cuba will remove state subsidies from a range of goods and services and eliminate its dual currency system on 1 January, moves that could increase fuel and power prices by 25-30pc.

Without state subsidies, gasoline and diesel prices will increase by 27pc, while LPG, which the government described in 2019 as a "basic and necessary fuel," will increase by 28pc, according to official documents seen by Argus. Residential electricity rates will rise by 30pc.

The rate increases will come as the country ends its decades-long dual currency system, dropping the convertible peso that has par value to the dollar and using only its peso that has an exchange rate of 24 to the dollar, president Miguel Diaz-Canel said this week.

Cuba's economy continues to be stressed by tightening sanctions from Washington that have affected its access to imported crude and refined products, and inflows of foreign currency to pay for imports.

Hard currency earnings have been hit as foreign tourism wanes because of the Covid-19 pandemic and the US administration blocking cruise ships and restricting flights. Foreign currency inflows were further reduced in November when money transfer company Western Union closed its outlets on the island under pressure from the Trump administration.

Venezuela's state-owned PdV supplies crude and refined products to Cuba under a two-decades-old barter agreement. But PdV's own crude production has plummeted and its refineries are mostly broken, leading Cuba to find other sources, some of which demand cash payments.

The currency unification will have "very little impact under current barter services for oil supply agreements with Venezuela and Algeria," Cuban energy expert Jorge Pinon at the University of Texas in Austin, Texas, told Argus today.

But the island would be further pressured "if it loses its free cash flow supply from Venezuela, as its balance of trade would be negatively impacted by approximately $1bn annually," Pinon said.