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THE GREAT FUEL SUBSIDY DEBATE
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In June, Energy Ministers from the United
States, Japan, China, India, and South
Korea met in Aomori, Japan ahead of a
meeting of the Group of Eight (G8).
The United States had called for an end
to heavy price subsidies that protect many
Asian drivers from soaring costs. China
and India however, said they could only
raise domestic rates gradually in view of
their fragile economies.
US Energy Secretary Sam Bodman
pointed part of the blame at cheap fuel in
Asia, where fast-growing economies and
low prices have helped drive oil’s explosive
six-year rally.
Bodman called the increase in fuel
prices as “shocking,” but said consumers
will not change their habits if their
countries keep fuel prices low through
subsidies.
India’s ambassador Hemant Krishnan
Singh however, later told Reuters it was
unrealistic to abandon controls that help
protect its 1.1 billion people. He said
that as a developing nation, India is not
in a position to completely do away with
subsidies.
“We are still not in the position to move
to the fully market determined pricing. In
the long-term, I would say each country
would have to devise its own plans with
regard of levels of subsidies,” Singh was
quoted by AFP.
Zhang Guobao, vice chairman of
China’s National Development and
Reform Commission, also did not indicate
any time frame for moving towards
lowering subsidies.
“China is still a developing country and
has weak industries, such as agriculture,
and public transport, such as taxis,” Zhang
told reporters.
“We have to move while giving careful
consideration to social and political
stability,” he said. “We need elaborate
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political preparations.”
China’s domestic fuel prices are among
the lowest in the world, equivalent to
about 61 percent of prices in the United
States, 41 percent of Japan, and 28 percent
of England.
Japan on the other hand, which imports
nearly all of its oil, has pushed for an
easing of subsidies, arguing that they
artificially move prices on the market.
Akira Amari, Japan’s energy minister
and host of the talks, said what they
agreed upon was “the need” to remove
subsidies.
He said removing subsidies was “a
painful decision,” but “there is great
significance in that we agreed to tackle
this matter with courage.”
Before the restructured petrol prices,
Malaysia was expected to pay RM50 billion
to subsidise fuel, representing a third of its
budget. But it will now pay around RM36
billion instead
In a Reuters report, it was stated
that other than Japan, Hong Kong,
Singapore and South Korea, most Asian
nations subsidize domestic fuel prices.
The more countries subsidize them,
the less likely high oil prices will have
any affect in reducing overall demand,
forcing governments in weaker financial
situations to surrender first and stop their
subsidies.
The International Energy Agency (IEA)
has deduced that fuel subsidies in fastgrowing
China, India and the Middle East
cost US$50 billion last year and the bill
may be far bigger in 2008 if oil prices stay
high.
Nobuo Tanaka, Executive Director of
the IEA, said it was “not an unreasonable
assumption” the cost of protecting
consumers from market prices in these
emerging economies could double to
US$100 billion.
Domestic fuel prices in major
developing countries remain capped
despite the doubling of oil prices in the
last 12 months to around US$130 a
barrel. Subsidies allow consumers to
continue guzzling oil, pushing up world
prices.
In Australia, Queensland Premier
Anna Bligh said the State Government
was looking at introducing a new scheme
which will allow the 8.35 cent a litre
subsidy to be given directly to motorists at
the point of sale.
Under the new proposal, motorists will
swipe a bar code on their drivers licence at
the point of sale to reduce their fuel bill.
A state inquiry last year revealed
Queenslanders were paying 2 to 3 cents a
litre more than they should because fuel
companies had not passed on the full state
subsidy.
“All petrol stations in Australia
will be subject to monitoring from the
ACCC (Australian Competition and
Consumer Commission) and with the new
FuelWatch program.
“We are determined to put (the
subsidy) in the pockets of motorists not in
the profits of oil companies.”
The oil industry has been accused of
ripping off Queensland motorists by up
to A$180 million a year by not passing on
the full subsidy.
SURGING FUEL PRICES – A WORLDWIDE PREDICAMENT
FUEL PRICE
WHAT OTHERS ARE PAYING
AROUND THE REGION/WORLD |
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