Fuel prices are a determining factor for the economic and social development of a country. Fossil fuels are the main source of energy for transportation, industry, and electricity generation UN (2020). Furthermore, income from the exploitation and export of oil represents an important part of the State's fiscal resources. For these reasons, the government has a strategic interest in regulating the fuel market and guaranteeing its supply and accessibility.
The deficit of the Fuel Price Stabilization Fund (FEPC) in Colombia is an issue that has recently been the protagonist of the analysis of the fiscal situation in Colombia. The Autonomous Committee of the Fiscal Rule (CARF) has requested that it be added to the already large fiscal deficit of the National Government. However this could have effects on the Colombian economy, the twin deficits that the country has, and the resources available for the payment of financial obligations, such as the external debt.
The objective of the FEPC was to protect consumers and Ecopetrol S.A from the adverse effects of oil volatility. However, the FEPC has generated a series of fiscal, economic, and environmental problems that question its effectiveness and sustainability, highlighting that it has not generated savings in its existence. This article analyzes the origin, operation, and results of the FEPC, as well as the reform proposals that have been proposed to improve its performance, and concludes with an additional option for structural reform of the FEPC.
The reduction of the FEPC deficit through the increases in fuel prices announced by the Government and the normalization of the Fund's debt with Ecopetrol S.A, although it could contribute positively to the financial situation of the company and the country, is not the only way and it appears insufficient, as will be shown in this article.
The three alternatives mentioned to modify, reform, or eliminate the FEPC entail consequences for the various economic sectors and the population in general. Each of these options requires a political and social consensus for its implementation. Currently, the most promising option is the use of price band systems, direct subsidies, or compensation through income tax. However, the challenge of promoting the transition to a low-carbon economy also needs to be addressed. Additional analyses and additional options are required to improve the FEPC, including the participation of the Central Bank and based on theoretical considerations that support structural reforms that will be addressed in this document.
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