Colombia to Lower Gasoline Prices Following FEPC Debt Repayment and Peso Appreciation

President Gustavo Petro declared that the FEPC’s accumulated debt, estimated at 70 trillion pesos from prior subsidies, has been fully settled. The fund was originally established to stabilize domestic fuel prices but accumulated significant deficits due to long-term subsidies, especially under previous administrations that maintained artificially low gasoline prices. The government financed these deficits partially through debt, including a USD 5 billion credit with the IMF and additional borrowing, which Petro claims were refinanced under more favorable terms during his tenure to reduce future fiscal burdens.

Currently, average gasoline prices in Colombia exceed 16,000 pesos per gallon, significantly higher than in countries such as the United States, Ecuador, and Argentina. This discrepancy results from an administrative pricing scheme that integrates import parity, port fees, transportation, commercial margins, and exchange rate risk premiums, rather than pure market pricing. A cross-subsidy mechanism has been in place whereby gasoline prices are kept artificially higher to generate surpluses to finance subsidized diesel prices, affecting transport and industrial sectors sensitive to diesel cost fluctuations.

Although Petro announced a forthcoming decrease in gasoline prices, details regarding the implementation timeline and the impact on FEPC’s financial equilibrium remain unclear. The Minister of Mines and Energy indicated ongoing adjustments to the ethanol price formula and gradual alignment of domestic fuel prices with international references, facilitated by declining global oil prices and a strengthening peso.

Ecopetrol, the state-controlled refinery operator, maintains near-complete control over refining capacity through its Cartagena and Barrancabermeja plants. Industry experts highlight that even with optimized refinery efficiency, Colombian gasoline prices will remain tethered to international markets. The current pricing formula introduces an asymmetry that accelerates price hikes when Brent crude and the dollar rise but delays price decreases, sustaining elevated wholesale and retail price levels.

Political opposition has criticized the government’s debt management and the broader economic effects of currency appreciation, which can impact export sectors. Nevertheless, the announced reduction in gasoline prices signals a pivotal policy realignment aiming to ease consumer costs and stabilize inflation while maintaining fiscal discipline. The government’s capacity to balance subsidy removal, fuel market realities, and social pressures will be critical in the near term.