FROM 2000 to 2020, the government of Trinidad and Tobago (T&T) has spent over $31 billion on the fuel subsidy.
The Sunday Express calculated the figure to be $31,105,200,000 based on available data, which includes information from budget speeches for the period. This figure excludes the oil royalty paid by oil companies operating in the T&T.
T&T motorists have benefited from a fuel subsidy since 1974, or 46 years.
In 2000, the fuel subsidy was $449 million and remained in that vicinity until 2004, when it rose to $913 million.
In 2005 and 2006, it averaged $1.6 billion, but then steadily increased to $2.2 billion in 2007, $3.6 billion in 2008, dropping to 1, 6 billion dollars in 2009, then rise to 2.9 billion dollars in 2010.
From 2011 to 2014, the subsidy was over four billion: $4.4 billion in 2011, $4.5 billion in 2012, $4.4 billion in 2013 and $4.1 billion in 2014.
In 2015, it fell by nearly half of that trend amount to $2.1 billion.
In 2016, it was $400.8 million. It was $528.6 million in 2017, $739 million in 2018, and $276.7 million in 2019. (See chart)
In 2020, with the onset of the pandemic and two lockdowns, it was $86 million, according to the Trinidad and Tobago Extractive Industries Transparency Initiative (TTEITI) 2018 report, released in February of the year. ‘last year.
The TTEITI noted that T&T had “enjoyed the use of transportation fuels at prices below the open market price”.
“The government and exploration and production companies share the burden of the fuel subsidy by paying Paria Fuel Trading Company the difference between the actual sale price and the subsidized price. In Trinidad and Tobago, the subsidy to fuels was not based on an individual’s income level but was applied universally. For several years, the government has reduced the fuel subsidy, which has led to price increases,” he said. he observes.
He noted that between 2015 and 2017, the price of super petrol increased by 84% while diesel was by 127%.
T&T consumes more than a billion liters of fuel per year, for just over a million cars in circulation, for a population of 1.4 million.
Fuel Price Adjustment
Next Tuesday, the price of premium and super gasoline will increase by $1 to $6.75 and $5.97 per litre, respectively. The diesel price will be adjusted by 50 cents per liter to $3.91 per litre.
Prior to the 2016 budget on October 5, 2015, the price for the premium was $2.70 per litre. The increase in the price of the super to $5.97 on Tuesday means that the commodity would have increased by 121% in six and a half years. During the same period, diesel went from $1.50 per liter to $3.91 per litre, a 160% increase. (See table).
In a statement to Parliament last week, Finance Minister Colm Imbert noted that the adjustments were “not at market prices”, but sufficient to allow an equal distribution of costs.
“It should be noted that the diesel price adjustment of 50 cents per liter represents half of the increase in the price of gasoline, in recognition of the fact that diesel fuel is widely used in public transport and in the transportation of goods. the cost of LPG will remain set at $21.00 for a 20 pound cooking gas cylinder for domestic customers, which is less than 25% of the actual market price and the Department of Energy and Power Industries has been tasked with looking at an appropriate price of LPG for commercial customers,” he said.
In the 2021 budget, Imbert had announced the liberalization of the fuel market with fuel prices subject to market forces.
Last week, he noted that “the fuel price liberalization process was to start from February to March 2022.
“However, in October 2021, oil prices were nowhere expected to increase by more than 60% in five months,” he said.
In the 2021 budget, Imbert had indicated that, since 1974, the market for liquid petroleum products has been subject to public economic policy but that it will change in 2021 with the removal of the fuel subsidy.
“We have analyzed the impact of the grants on the national community and have formed the judgment that not only have the grants disproportionately benefited high income groups; but their use was inefficient from the point of view of the whole economy,” he said.
Imbert had said the fuel subsidy would be removed, prices would be subject to market forces and the government would sell all National Petroleum (NP)-owned gas stations to the private sector, with preference given to existing dealers and concessionaires. .
At the time, he said that at then-international oil prices, subsidies were not occurring in the sale of premium gasoline or premium gasoline; but they continued to prevail in the sale of diesel, kerosene and LPG.
Regressive fuel subsidy
Energy economist Gregory McGuire, chairman of the TTEITI steering committee and consultant at VSL Consultants Ltd, said the economic rationale for the subsidy “was still weak and misplaced.
“The solution to the problem of high transport costs for the vast majority of people is to have an efficient public transport system. Instead, we have created this monster over the past 46 years which is now hard to kill,” he said.
“I would say that successive governments have been very hesitant and afraid of the possible political consequences of removing the subsidy. Changes were made over the years, first to reduce the burden on businesses, but the population continued to benefit from the subsidies,” he noted.
He told the Sunday Express that the fuel subsidy was first introduced by the Petroleum Production Levy and Subsidy Act 1974.
“As its name suggests, this law was designed to make the oil companies pay for the fuel subsidy. The subsidy was distributed among all producers on a cost per barrel basis according to their share of production. The objectives of this legislation were: to share the oil wealth with the people and to protect the people from the impact of high oil prices.
“It should be noted that as early as 1980 the effectiveness of this political position was contested, although mainly on the side of the company. The report of the Cabinet-appointed committee tasked with submitting legislative proposals for the taxation of oil companies noted that the oil tax was a major cost item for companies and a drain on government revenue. It rose from $34 million in 1974 to $720 million in 1980 and was to reach $1 billion in 1985. have no significant advantage. to the economy,” he observed.
He is of the opinion that the subsidy should be completely abolished.
“We’ve been dragging our feet on this for way too long. Like all the other islands, we now have to get used to the real cost of fuel. This is the only way to help people make more fuel-efficient choices,” he said.
He noted that removing the fuel subsidy would have an impact on inflation in the country.
“If the flexible mechanism is put in place, the long-term inflationary impact can be mitigated. I expect oil prices to normalize as soon as Russian-Ukrainian tensions ease. At that time, crude oil prices will undoubtedly fall to pre-war levels. Longer term, the trajectory is one of lower oil prices as the world moves towards a net-zero carbon future. I think that rather than the knee-jerk responses we have had to the proposed price increase, citizens should ensure that the benefit of lower oil prices, which is certain to come, will be transferred into lower prices at the pump. It’s not part of the current conversation,” he said.
McGuire said an IMF Article IV consultation in 2013 took note of the fuel subsidy.
“The fuel subsidy is regressive. A block subsidy on fuel prices leads to higher income brackets of the population receiving a more than proportional share of the subsidy.
According to a recent estimate, almost 45% of the direct and indirect benefits of the subsidy go to the richest segment of the population, compared to 4% to the poorest. As a proportion of income, the subsidy is estimated at almost eight percent of the income of the richest segment of the population, twice the income share of the poorest.
“Furthermore, pervasive fuel subsidies lead to waste and cause traffic jams that reduce productivity. Trinidad and Tobago is estimated to have 0.7 million vehicles, an average of about one per adult person, reflecting frequent traffic congestion in urban areas and long commute times. Finally, from an environmental perspective, fuel subsidies promote overconsumption and increase greenhouse gas emissions,” the article states.
“The study that the IMF is referring to was actually the study done by Marissa Chester of the UWI Economics Department under my supervision,” he said.