Cuba with More Expensive Fuel and Its Effects
The Island remains far from an energy transition
HAVANA TIMES – The increase of over 400% in retail fuel prices in Cuba, in addition to inflationary impacts, underscores the urgency of accelerating the energy transition in a country dependent on imported fuels and facing a shortage of foreign currency.
According to authorities, the “update” of fuel prices was calculated in relation to international quotations and using the US dollar as the standard, applying the official exchange rate of one US dollar to 120 Cuban pesos (CUP).
Since March 1st, the price per liter of regular gasoline has increased from 25 to 132 CUP, equivalent to 1.10 dollars, an increase of 90 cents compared to the previous value. The price of regular diesel also saw the same increase.
Special gasoline and diesel also increased their value by more than four times, according to their type.
The decision includes the sale in dollars at around thirty service stations in the fifteen Cuban provinces, either through international payment cards or with a card created exclusively for this purpose.
According to reports, the new retail fuel prices aim to encourage savings and adjust consumption, while sales in foreign currency aim to guarantee replenishment.
“Now it is necessary for there to always be diesel or gasoline, and without the lines (queues), sometimes lasting for days, to buy. I hope that the one sold in Cuban pesos does not disappear and that it will only be possible to obtain it in dollars,” said Jorge Calvo, owner of a Lada brand car from the Soviet era, speaking to IPS.
Also, starting March 1st, the electricity rate for residential sector customers consuming more than 500 kilowatt-hours per month increased by 25%. This would affect around 6% of the over four million Cuban households during the summer months, according to estimates.
The measures, which were supposed to begin on February 1st, were postponed due to a “cybersecurity incident” caused by “a virus from abroad” that affected the fuel marketing system, officials reported.
The announced increase in interprovincial transportation prices and liquefied petroleum gas (LPG) for cooking, with over 1.7 million customers in this Caribbean country of 11 million inhabitants, remains pending.
The Effects
The increase in energy tariffs, preceded by tax and tariff modifications since January 1st, are aimed at “correcting macroeconomic distortions” and “revitalizing” the economy, the government argues.
Economists and citizens point out market segmentation and a partial increase in dollarization.
Among multiple effects, they mention the widening of gaps related to access to foreign currency for refueling, and the purchasing power of a majority of the working population that earns their salaries in the heavily devalued CUP.
In Cuba, the average monthly salary is equivalent to about 35 dollars according to the official exchange rate; about 13 dollars if considering the informal market rate of reference for a significant amount of products, goods, and services accessed by families to meet basic needs.
Referring to the price increase, Finance and Prices Minister Vladimir Regueiro acknowledged on February 28th at a press conference: “We know that this has consequences on the costs of production processes. The measure itself has an inflationary impact.”
However, the official added, “the fare prices for private carriers should not increase because wholesale prices remain unchanged.”
If fuel becomes more expensive, those who transport crops to agricultural markets will have to raise their prices. Private businesses, in addition to the increased taxes, will also have to spend more on electricity or goods transportation, reasoned several people consulted by IPS for this report.
Yusnel Prado, a driver from Havana, told IPS that old cars like his, with which he operates as a private taxi driver, not only consume fuel but also tires, oil, lubricant, and spare parts, “for which there are no cheap prices.”
Prado mentioned that his family needs, in addition to increasingly expensive food, “shoes, hygiene products, and even medications. Even if I don’t want to, I have to charge more to cover my expenses.”
Another private driver, Luis Ernesto Carballo, residing in the central city of Santa Clara, reminded IPS that “outside of Havana, it is much more difficult to access fuel because the little supplied is not enough to work every day. You have to look for it on the black market.”
Susana Martínez, a retired teacher living in the eastern city of Las Tunas, emphasized to IPS that the private service “is a luxury for those who live on a pension, but sometimes there is no other option, for a medical appointment or to visit family in another municipality,” because the state bus service “is terrible, it takes a long time or in some cases doesn’t even exist”.
Pending Energy Transition
Cuba faces cyclical energy crises, more recurrent since 2019, parallel to the deterioration of the internal economic situation and the shortage of foreign currency.
Among the multiple causes, authorities maintain, are international prices, non-compliance with contracts by suppliers, and US government sanctions that hinder access to credits and international banking services.
In 2021, Cuba imported 126,000 tons of gasoline, in 2022 around 192,000 tons, and in 2023 about 203,000 tons, compared to a demand of about 360,000 tons annually, Energy and Mines Minister Vicente de la O Levy detailed in a press conference on February 28th.
The island needs 1.8 billion dollars to cover diesel needs in a year, he indicated.
Last year, only a third of that amount was disbursed, around 600 million dollars, to import barely 609,000 tons of diesel, explained the Minister of Energy and Mines.
The island consumes about 8.3 million tons of fuel annually, of which almost 40% is provided by domestic production.
The heavy Cuban crude with a sulfur content between seven and 18 degrees API is mixed with other fuels for thermo-electric generation in units that average over 30 years of operation.
Breakdowns and maintenance of several of these plants, combined with fuel deficits, result in several-hour blackouts, especially outside the capital.
Around 95% of electricity generation relies on the consumption of fossil sources, which also includes accompanying gas from domestic oil, floating units (barges) leased from Turkey, as well as diesel and fuel oil-based generators and engines.
The government aims to increase renewable sources to sustain more than 30% of electricity generation by 2030, considered a matter of national security.
Such a significant transformation, according to estimates from the Ministry of Energy and Mines, will require investments of around 6 billion dollars, a challenge for this developing nation in the global South.
Decarbonization Opportunities
International reports value decarbonization as an opportunity to reduce dependence on fuel imports, reduce foreign currency expenditure, and mitigate risks due to international price instability.
Investing in clean energy sources favors mitigation and reduction actions of environmental pollution, which brings about better public health indicators and biodiversity protection, as well as the possibility of creating green jobs, among multiple advantages.
In recent years, hybrid buses (alternating diesel and electricity) were added for public transportation in Havana, with a lower ecological footprint.
As part of actions towards a transition to a low-emission urban transportation system, six-seat electric vehicles were also incorporated, although in insufficient numbers, favoring micromobility in the Cuban capital.
Some companies and institutions added electric cars, while customs provisions opened the doors to the importation of zero-emission vehicles, mainly motorcycles and bicycles.
The assembly and commercialization of such equipment allow some people to acquire them, although their prices are considered prohibitive for many.
However, the deep internal economic crisis and the shortage of foreign currency slow down actions to multiply 100% electric means.
Other obstacles are related to dependence on the National Electric System to power the batteries and the absence of a service station network. This causes public transportation to recharge at their bases and private vehicles at homes.
In June 2023, Transportation Minister Eduardo Rodríguez Dávila explained to the official Granma newspaper that the country could not “continue incorporating electric vehicles if it does not ensure energy generation for their recharge using renewable sources.”
He mentioned that his ministry planned to install charging points in airport terminal parking lots, taxi bases for electric buses, as well as bus and train terminals.