Happy
T&T motorists
By Energy Correspondent
Trinidad Express
Port Spain
Petroleumworldtt.com
05 27 07
Motorists in Trinidad and Tobago are among the
happiest in the world. The problem is we don't
know it. A recent study shows that Trinidad and
Tobago, at US$0.35/litre, ranks 19th among the
countries with the cheapest transportation fuels.
In contrast Norway, the world's seventh largest
oil producer and a country that policy makers hold
up as an example of good fiscal management of its
oil wealth, ranks third among the countries with
the most expensive fuel (US$1.61/litre).
These are just two contrasting trends taken from
a recent study on International Transportation
fuel prices conducted by the German Technical Cooperation
Institute (GTZ). The study prompts the question
of whether the policy of subsidising transportation
fuel in Trinidad and Tobago and indeed across oil
exporting developing countries, is not counter
productive?
In the last fiscal year 2005-6, the petroleum
fuels subsidy in Trinidad and Tobago amounted to
nearly TT$1.4 billion, fully 3.5 per cent of the
national budget. To put this in perspective, consider
the budgetary allocation to agriculture. In the
2006-7 budget statement, the Finance Minister bragged
about a 25 per cent increase in the allocation
to agriculture to $750 million. In other words,
we are spending twice as much of our economic rents
on transportation in this tiny country, than we
are spending to feed ourselves.
The price of transportation fuels across the world
differs on a scale of 1 to 150, reflecting the
impact of subsidies on the lower end and taxes
on the upper end.
Trinidad and Tobago is of course not unique. Subsidised
transportation fuel is a phenomenon all across
the developing oil exporting countries. The top
20 among the cheapest countries in the world are
all oil exporters. Turkmenistan, Iraq, Venezuela,
Iran and Lybia all sell gasoline below US$0.10
cents/litre. Member states among the European community
lie at the other end of the spectrum. Transportation
fuels are heavily taxed with prices above US$1.50
/litre, for the top ten most expensive nations.
Transportation fuels prices are well below those
paid by our partners in Caricom. The chart shows
an interesting contrast among a select group of
countries. Barbados, Guyana and Jamaica all pay
more than twice as much for gasoline as does Trinidad
and Tobago. Those who boast about how cheap life
is in the USA, should not forget that fuel is about
50 per cent more expensive in the Big Apple.
The argument for the transportation fuels subsidy
is a straight forward one. It is one of the mechanisms
used for sharing the hydrocarbon wealth with the
populations. Citizens of these states now regard
this as a right. Any attempt to reduce or remove
the subsidy is tantamount to an act of political
suicide. A recent example is Yemen where Government's
attempt to increase gasoline prices evoked violent
protests that left 12 people dead. The Government
quickly relented, and reduced the size of the increase
by about 50 per cent.
The
second argument against removal of the subsidy
is that it would fuel inflation. While this is
a valid concern, it is also part of the market
mechanism which would cause people to make adjustments
in their expenditure patterns. In fact, in the
case of T&T, it may well contribute to a reduction
in the rate of new car acquisitions. Subsided prices
are a distortion of market signals. For example,
if gasoline and diesel prices were allowed to reflect
world market conditions, there would be many more
CNG fuelled vehicles on the roads of Trinidad and
Tobago. CNG does not require a subsidy. The differential
between world market gasoline prices and a CNG
price is now so wide that the Dominican Republic
recently opened its first CNG station in a deliberate
strategy to replace gasoline with imported LNG.
The money saved from the subsidy reduction can
be used to fund the road development programme
including the long standing problem of agricultural
access roads.
What the Government of Yemen recognized was that
the best time to wean the population off the subsidy
would be when the country is enjoying a period
of prosperity, as indeed all oil and gas exporters
are enjoying now. It is a lesson that all developing
oil exporting states should learn, if only because
it will be very much more difficult to do so when
export earnings fall as a result of a drop in prices
or volumes. In this silly season all the above
is certain to fall on deaf ears.
Feedback: energyczartt@yahoo.com
Trinidad
Express
Wednesday, May 23rd 2007
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