Paraguay finalizes fuel subsidy bill

Paraguay will subsidize gasoline prices at service stations run by the state-run oil company, Petropar, for at least the next two months.

The legislation, signed by president Mario Abdo on 25 March, allows Petropar to keep pump prices in check, with the government paying for the difference as international crude prices increase. The subsidy will be in place for at least two months, but can be extended.

The government claims the measure will cost around $20mn monthly, but critics argue that the price tag will be much higher and distort the market, with Paraguayans turning to Petropar's 228 service stations instead of 1,300 private gas stations in the country when they need to fill up. They also say that the move will ultimately backfire, because Petropar will be unable to meet demand and does not have mechanisms in place to increase imports quickly on the spot market.

The association of private service station owners, Apesa, says the move could force private companies, particularly small chains, to close.

The legislation does not include a government request to add $100mn in new debt to pay for the subsidy.

Landlocked Paraguay does not produce crude. Slightly more than half of Paraguay's fuel is imported from neighboring Argentina, about 20pc comes from the US, and the rest from a basket of countries.

Brazil's Raizen is the largest player in the Paraguayan market, with more than 350 stations. It took over the local Barcos & Rodados distributor in 2021.

Paraguay is joining a growing list of countries in the region with programs to alleviate raising fuel prices.

In Peru, the government announced on 23 March that it would increase the subsidy for LPG for low income families by 25pc to offset rising prices. It is considering temporarily adding 84 and 90 octane gasoline to a price stabilization mechanism.

By Lucien Chauvin