Colombian government increases diesel price: impact on heavy transport

The Colombian government has taken another step in its strategy to phase out fuel subsidies, this time affecting the heavy transportation sector with an increase in the price of a gallon of diesel. The measure, which will come into effect on August 8th, has generated various reactions and analyses from experts and stakeholders in the industry. Although the trucking industry, the main consumer of this fuel, has been exempted for the moment, around 235 companies and users of industrial vehicles will be most affected by this decision. Since the beginning of negotiations between transporters and the government, efforts have been made to avoid the mobilizations and conflicts that have historically characterized relations with the trucking industry. According to Julio César Vera, manager of the Xua Energy Foundation, the diesel price increase will impact 12% of the total ACPM demand in the country, with a significant rise of 59.5%. While many analysts view the measure positively, they also agree that it is insufficient and that the government must address the high costs of subsidies. The expenditure required to maintain the diesel subsidy over the years has had a significant impact on the finances of the Colombian state. It is estimated that the announced adjustment will result in an annual savings of 600 billion pesos, helping to cover the deficit left by the Fuel Price Stabilization Fund. However, experts like Michel Janna warn about the risks of establishing differentiated prices and the lack of controls to ensure efficiency in the distribution and sale of fuel. The need to verify that large distributors comply with the prices set by the regulation becomes a crucial point for the effectiveness of the diesel price increase. Brigitte Castañeda, a petroleum engineer and economist, emphasizes the importance of avoiding practices that could lead to circumventing the new established prices. On the other hand, the significant increase in the price of regular gasoline since the gradual subsidy phase-out began in 2022 highlights the fiscal challenges faced by the government. Finance Minister Ricardo Bonilla has clarified that the diesel price increase will not affect gas stations or retail distributors, as the decree aims to align the price with the international market. Despite complaints from the sector and potential economic impacts that may arise, experts have pointed out the need to make gradual adjustments to ensure a more equitable transition. The lack of transportation alternatives and the power of the truckers' union have been determining factors in the current situation. Environmental demands and the urgency to reduce dependence on fossil fuels have created pressure to find more sustainable alternatives in the transportation sector. Despite efforts to promote a transition to cleaner technologies, the inconsistency in government policies, such as the diesel subsidy, poses challenges in achieving long-term environmental goals. Amid an economic and fiscal adjustment scenario, the transportation sector in Colombia faces new challenges that require a comprehensive and sustainable vision to ensure its viability in the future.