[sustran] Re: International Fuel Prices 2005

[Tony Plumbe]

Hello Mr Wagner,

One needs to be a little cautious in interpreting the impact of fuel price 
hikes on the public budgets of developing countries as it all depends upon 
whether or not those countries are themselves oil and gas producers. Three 
of the countries you cite, Indonesia, Malaysia and Nigeria, are very 
substantial oil and gas producers and the net effect on their national 
budgets of increases in the price of crude oil and gas can actually be an 
increase in government net revenue while domestic fuel prices are kept 
constant and the subsidy bill rises. Thus the government can have greater 
capacity to subsidise end user fuel prices. In the case of Indonesia as an 
example, the rising international oil and gas prices on exports mean they 
nearly cancel out the increasing burden of the domestic subsidy of end user 
fuel prices if domestic prices remain unchanged as far as the national 
budget is concerned. Your conclusions below regarding Indonesia are, I 
believe, fundamentally wrong by reporting only part of the outcome.

Whether end user fuel subsidies should exist, and if so at what level, are 
quite other issues.  Whether the international fuel price hikes should be 
used as a pretext to implement the reduction or removal of subsidies is also 
another issue. Whether cross subsidies should exist on jointly produced fuel 
products is another issue. Whether removed subsidies will result in more of 
government budgets being re-allocated to poverty relief is a further issue. 
Your comments below contain many assumptions that do not stand up to 
objective consideration.

A useful question to ask is how many developing countries that are not 
substantial oil producers have overall fuel subsidies in today's post 
structural adjustment world?

One has to be aware that the spot price (cited by journalists and others) is 
not the price at which all oil at a particular time is trading. For the 
latter one needs to take account of the spectrum of forward and long-term 
contracts weighted by the quantities involved. There are of course several 
benchmark spot prices at any one time for different types of crude oil.

What governments often need to do, but frequently fail to manage, is to 
convey to their populations that fuel is only a small proportion of total 
transport costs. That applies even in developing countries with low labour 
costs. Hence increases in transport costs at the same percentage rates as 
increases in end user fuel costs are not justified, yet this is what usually 
happens in practice as operators (and many other traders) seek to exploit 
the situation. Inflationary pressures that result from this behaviour are 
rightly of major concern to governments.

You may like to note that in one of the countries with the highest level of 
taxation on fuel - the UK -the government is facing a public revolt 
concerning fuel price increases as I write.

The website you identify is a very useful resource into which I hope GTZ can 
put sufficient resources for its maintenance to ensure it stays up to date 
on a monthly basis in the current situation.

Tony Plumbe
International Development Consultant


>From: "Wagner Armin GTZ 4413" <Armin.Wagner at gtz.de>
>Reply-To: Asia and the Pacific sustainable transport 
><sustran-discuss at list.jca.apc.org>
>To: <NewMobilityCafe at yahoogroups.com>,<sustran-discuss at list.jca.apc.org>, 
><cai-asia at lists.worldbank.org>,<fuelprices at mailserv.gtz.de>
>Subject: [sustran] International Fuel Prices 2005
>Date: Thu, 8 Sep 2005 16:02:30 +0200
>
>
>NEW: International Fuel Prices 2005
>
>Due to the increasing oil prices several developing countries had to reduce 
>their subsidies on fuel in the recent weeks which lead to serious public 
>unrest. In Yemen, 22 people died and hundreds of people were injured during 
>clashes between the Yemeni military and protesters forcing the government 
>to revise its decision. In Indonesia, large protests and strikes by public 
>transportation employees were triggered and in numerous other countries 
>such as Nigeria, Malaysia, and Bangladesh disapproval by the population 
>provides dangerous potential for further agitation.
>
>However, most of the affected countries do not have a choice but to reduce 
>subsidies if they do not want to be overwhelmed with its financial burden. 
>For example, according to recent projections for Indonesia oil 
>subsidisation will require up to 13.5 bn. US-$ in FY2005 leading to a 
>budget deficit three times as large as initially planned and amounts to 
>more than 25% of Indonesia's public expenditures. As a consequence, there 
>will be significantly less money available for social infrastructure which 
>will particularly harm the poor.
>
>The only possible conclusion from these events for the countries concerned 
>is that they must change their oil price policy. Subsidisation must be 
>removed gradually ideally leading to a system of fuel taxation in the 
>medium term. During this process it is crucial to communicate especially to 
>the weak groups in society that in the long run fuel subsidies hurt poor 
>households economically rather than assisting them.
>
>Due to the tremendous relevance of this topic, the German Technical 
>Cooperation (GTZ) on behalf of the German Federal Ministry for Economic 
>Cooperation and Development (BMZ) publishes the comprehensive study 
>"International Fuel Prices 2005" in order to provide data which facilitate 
>well-informed decision making.
>
>The most recent publication "International Fuel Prices 2005" (Author Dr 
>Gerhard P Metschies) contains the following information:
>
>- Diesel Prices of 172 countries
>- Gasoline Prices of 172 countries
>- Time Series of Price Trends
>- Fuel Taxation for State Financing
>- Fuel Subsidies
>- Fuel Prices and Purchasing Power
>- Contraband of Fuel Worldwide
>- Government Tax Calculation
>
>The publication is available on: 
><http://www.gtz.de/en/themen/umwelt-infrastruktur/transport/10285.htm>
>
>The reader may note that this survey is based on a crude oil price of 43 $ 
>per barrel - far lower than today's prices. However, all conclusions remain 
>valid.
>
>In addition, a monthly newsletter will be released by the mid-September. 
>The newsletter aims at supporting government officials as well as decision 
>makers from NGO's and the private sector in developing and implementing 
>sustainable oil price policies.
>
>If you are interested in receiving the newsletter please send an email to 
>Majordomo at mailserv.gtz.de  <mailto:Majordomo at mailserv.gtz.de> that contains 
>the line "subscribe fuelprices <your email address>". Please make sure to 
>delete all other contents from the mail body, so that your request can be 
>processed. For further information feel free to contact us ( 
>armin.wagner at gtz.de  <mailto:armin.wagner at gtz.de>) or visit our web page 
><http://www.gtz.de/en/themen/umwelt-infrastruktur/transport/10285.htm>.
>
>Sorry for cross-posting.
>
>Best regards,
>
>Armin Wagner
>
>*****************************
>Transport Policy Advisor
>Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH
>(German Technical Cooperation)
>Division 44 - Environment and Infrastructure
>Transport and Mobility
>P.O. Box 5180
>65726 Eschborn, Germany
>Tel. + 49 6196 79- 6467
>Fax. +49 6196 79-80 6467
>E-Mail:Armin.Wagner at gtz.de
>http://www.gtz.de/transport
>
>
>
>________________________________________________________
>
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>GTZ Spotlight 2005: Focus - Fascination - Future: Designing tomorrow's 
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>________________________________________________________
>
>30 Years GTZ. Partner for the Future. Worldwide.
>GTZ Spotlight 2005: Focus - Fascination - Future: Designing tomorrow's 
>cities. http://www.gtz.de/spotlight
>
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