Last Friday, an article in this newspaper advanced the view that the September 30 budget could see “subsidies on fuel, transportation, and other sectors being completely wiped out or reduced significantly”. This is a notion that could hold some water given the fact that the Minister of Finance has already slashed the level of subsidization of transportation fuels.
From a legal perspective, the subsidy on Petroleum Products has it basis in the Petroleum Production Levy and Subsidy Act of 1975. This law established both the subsidy on petroleum products and the levy that would be paid by oil and gas companies. It was the intention of the Government of 1975 that the levy would be sufficient to cover the subsidy. However in the last 12 years, as oil prices spiraled upward and the vehicle population increased, the subsidy snowballed and became the fiscal monster that far overshadowed the levy paid by oil companies.
As oil prices have come down the subsidy is not as burdensome on the treasury. The Minister has used this low price environment to roll back the level of subsidization. We should note that there is currently no subsidy on Premium Gasoline. In fact at $TT 5.75 per liter consumers of this fuel are effectively paying a tax. In 2012 premium gasoline was increased (by me) from $TT 4.00 per liter to $TT 5.75 per liter. At that time oil prices in the USA averaged $US 94 per barrel.
When oil prices began falling the then Opposition (now Government) argued that the Government (now Opposition) should reduce the price of premium gasoline. It would therefore be interesting to see whether the Minister of Finance will reduce the price of premium gasoline on September 30th. In my opinion he should reduce it. Considering an oil price of $US 45 per barrel, the price of premium at the pump should really be around $TT 3.65 per liter and not $TT 5.75 per liter.
As far as Super Gasoline is concerned, at an oil price of $US 45 per barrel there should be little or no subsidy on this fuel. Super is the most used fuel in T&T and accounts for 52% of all liquid fuel consumed. The price of Super should therefore stay the same.
Diesel is currently TT$ 1.98 per liter at the pump up from TT$1.50 per liter a year ago. The increase in diesel price has thus far had no noticeable impact on inflation. This maybe because the increase in price as a percentage of the overall operating cost of the average business is small. If the Minister were to totally remove the subsidy from diesel the price at the pump would be approximately $TT 3.31 per liter. This again assumes an oil price of $US 45 per barrel. This would constitute a 67% increase. It would not be advisable to make such a big leap on September 30th. If the intention is to continue to remove the subsidy on diesel, it would be advisable to continue making that change in an incremental fashion.
I will also like to see the Minister of Finance address the issue of the retail margins for transport fuels that are given to service stations. These margins are woefully insufficient and outdated and as a result many smaller service stations will go out of business. In the past year the owners and dealers have had to endure increases in green fund levy and business levy which both constitute the proverbial straw that may break the camel's back. The stakeholders in the gas station sector have made representation to the Government. Let's hope they aren't ignored.
I need to say something about CNG. The NGC – CNG Company that was formed in 2013 is off the ground, running and doing a good job. The PTSC has its fleet of CNG buses and wants more. The new St Christopher's station on Wrightson Road is now dispensing CNG and the same will soon be happening at the Ramco station in Trincity which was opened in 2015. Ansa McAl has also taken the lead with CNG vehicle sales. I am told that the bi-fuel Honda City is selling like “hot hops bread”. With fingers crossed, it seems CNG is finally taking hold.
As we contemplate September 30th we must recall that for years the IMF had been warning T&T about the subsidy and its deleterious effects. The subsidy on diesel also led to the nefarious illegal trade in diesel which saw this country lose billions to criminals. From 2011 to 2015 the Ministry of Energy led the charge and dealt serious blow to this illegal and corrupt trade. Subsidies on fuels also lead to mass energy inefficiency and pollution. In addition they benefit the rich and not the poor as the populist rhetoric would have us believe.
We are heading towards a low carbon world where CNG, Hybrids and Electric Cars will be the norm. Norway has set the example and will ban gasoline cars by 2025 and go electric. Elon Musk of Tesla is a visionary who will change personal transport the way Steve Jobs changed personal computing. T&T must embrace this new world fast or be left behind. Holding on to subsidies on carbon intensive fuels only keeps us tethered to old thinking.
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Petroleumworld News 10/03/2016
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