Thursday, 29 October 2020

The Costa Rican model for fuel prices to the consumer

One of the methods to take advantage of the current international oil market conditions and reduce fuel prices, the highest in the region, is to change the model of price calculation and fixing.

But don’t expect that any time soon.

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According to the data from Centralamericandata.com, Costa Rica leads with $3.87 per US gallon of regular gasoline in Central Amerca as of March 24, Nicaragua follows with Nicaragua $3.28, Honduras $3.27, Guatemala $2.93, El Salvador $2.54 and Panama, $2.81.

The process

The import of finished fuels is handled by the Refinadora Costarricense de Petróleo (Recope). On its website, the state agency explains how the formula to determine the price of a liter of gasoline sold to the consumer:

International price (colonized) + Tax + RECOPE Operating Margin +  Freight + Service Station Margin + Subsidies and royalties.

Current fuel prices in Costa Rica from Recope website

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Every second Friday of the month, taking into account international prices of the last 15 days, Recope submits a pricing proposal to the Autoridad Reguladora de Servicios Publicos (ARESEP), another government agency.

From Recope website

To set the price, the Aresep following a formula made up of 16 variables, defined since 2015. Its responsibility, in addition to applying said formula, is to check that the data provided by Recope to support the changes fulfill their requirements to corroborate that they are reliable and attached to the technique.

The price is defined using this formula:

From the Aresep website

One of the components is the dollar exchange rate. The problem is that the current dollar exchange is used, and the cost of the international purchase of fuels, where Recope buys expensive and not related to the average of international prices.

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The Aresep decision is typically within 2 weeks, the prices at the pumps take effect within a week (up to 5 working days) of publication in the official government newsletter, La Gaceta.

The process takes about a month at best, which as we have seen in recent weeks, a lot can change in international markets in that time.

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Q Costa Rica
Reports by QCR staff

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