Ryan Hamilton Davis
Finance Minister Colm Imbert said subsidizing fuel with petroleum at its current rate would cost Trinidad and Tobago $3 billion – and that’s a cost the government simply hasn’t budgeted for.
Imbert made the statements during an interview with TTT, in which he explained the problems with fuel prices and the fuel subsidy, and why the subsidy was reduced.
“Right now, with oil at US$95, or if you use an average price of US$95, the cost of premium gasoline would be over $7/litre, or $7.25. The cost of the super would be around $7.05. The cost of diesel would be $6.50 or $6.70.
“Let’s say the average is TT$8. With our annual consumption of one billion barrels of gasoline, that means the country has to pay TT$8 billion to buy fuel. At prices (before the increase), the revenue that would have been generated would have been approximately TT$5 billion.
“So the rest that would have to be compensated by the government would be around TT$3 billion. Somebody has to pay that extra $3 billion.”
He said most of the supposed $3 billion shortfall would come from the Treasury, which holds the money for VAT, income tax, corporation tax and all other sources of government revenue.
He added that the government had allocated $200 million to subsidize the price of fuel in the 2021-2022 budget. This was calculated from an oil price of around US$65 per barrel. But the price is now much higher.
“So the subsidy that has to be paid to maintain prices (at previous levels) is an expense that has not been budgeted for.”
He criticized the cut in the fuel subsidy and called comparisons with places like Barbados and Guyana false. He added that the arguments that these countries are cutting taxes and increasing subsidies in separate countries are irrelevant to the point that TT would have to find billions of dollars to maintain subsidies at previous levels.
“What is relevant is where do you find $2 billion or $3 billion to make up the difference between the cost of buying the fuel and the price at which you sell it?
“None of the commentators say where they would get this from. Will they increase VAT? Will they increase the rate of income tax? imported goods Where do they get the money?
“They (the commentators) don’t want to deal with the reality that there’s a $2 billion to $3 billion deficit that has to come from somewhere.”
Imbert said the government made the decision to reduce the fuel subsidy so that some of that spending could be applied to other things.
“We could invest it in development programs, fix potholes, fix roads, clean sewers, make sure there’s no flooding as the rainy season approaches. rains, in the health sector, free education or higher education.
“We don’t think it’s a good idea to take $2 billion or $3 billion and spend it on keeping fuel prices down. It should be spent on something that benefits the nation much better.”
Imbert said the price of fuel is determined by several factors. This includes the price of buying oil at the world market price, plus the price of turning that oil into gasoline, plus the cost of logistics, transportation, storage and other overheads. He said that TT normally buys its fuel from the United States.
Imbert explained that the fuel subsidy began in the 1970s when an Arab-Israeli conflict sparked what many have called the first oil crisis in history.
The conflict, the Yom Kippur War, began in 1973, when Egypt and Syria launched a surprise attack on Israel on the Jewish day of Yom Kippur (atonement). But when the tide turned and Israel began to gain ground, Arab oil-producing countries tried to pressure Western countries to force Israel out, imposing embargoes on the United States, the Netherlands, Portugal, Rhodesia and South Africa.
In December 1973, the Organization of the Petroleum Exporting Countries (OPEC) held a conference in Vienna where it was announced that the price of oil, which had been around US$5 a barrel, would rise to US$11.65 per barrel due to the halt in oil production. exports to these countries. In response to the rising price of oil and the correlated price of fuel, the Prime Minister, Dr. Eric Williams, introduced the Fuel Subsidy.
But Imbert noted that in 2014 the then-government spent nearly $7 billion to maintain the same fuel subsidy.
He said the government was afraid of the backlash that would result from cutting the subsidy and decided to maintain it. It was a bad long-term decision, he said.
“Can you imagine if the government at the time decided to set aside TT$2 billion for the fuel subsidy and had the remaining TT$5 billion? They could have paid all the salary arrears to civil servants and not let the incoming government deal with it as an expense that would burden the treasury. There are many different things the money could have been used for.
On April 19, premium and premium gasoline prices increased by $1 per liter to $6.75 and $5.97 respectively. Diesel rose 50 cents to $3.91 and kerosene to $3.50.