Finance Minister Larry Howai is expected to announce in the 2012/2013 budget the formation of a new state enterprise charged with implementing the Government's compressed natural gas (CNG) strategy. Several Cabinet sources told the Business Guardian that there is a note before the Cabinet for the formation of a billion-dollar company that will be mandated to construct new CNG service stations and implement a plan to give CNG conversion kits to maxi-taxi drivers, with them having to pay for the kits over time. Manager of the CNG Working Group Raymond Franco confirmed this but said that as the note is before Cabinet he is "not at liberty to say what will happen." Desperate to reduce the huge fuel subsidy, which accounts for almost two-thirds of the country's budget deficit, the Government is seeking in the next financial year to reduce it by moving the transportation sector to CNG and away from diesel fuel. Only last week Energy Minister Kevin Ramnarine revealed that the fuel subsidy for the first nine months of the fiscal year was in in excess of $3.2 billion. The Finance Minister also said that he will have to address the issue of subsidies including the fuel subsidy. Meanwhile, several economists and the Energy Chamber have insisted that the fuel subsidy is not sustainable and that it will have to be reduced if not eliminated over time.
Franco said the CNG?Working Group had been trying to find a solution that will fit all but had come to the conclusion that a series of measures will have to be taken if this country is to successfully transition to CNG. One of the real problems has to do with the use of diesel. In a telephone interview on Tuesday, Franco said diesel fuel was responsible for over half of the total subsidy. He explained that while the actual volume of diesel used was significantly less than gasoline, the size of the subsidy was higher for diesel so it skews the overall size of the subsidy. Franco said most of the diesel is used by the transportation sector and by luxury vehicles. To address this, the committee has recommended an increase in the duties paid on diesel vehicles to make it more expensive for the average user to purchase a diesel-powered vehicle and therefore make gas-powered vehicles more attractive. He said this was necessary because the cost of a gas conversion kit is one-third the price of a diesel conversion kit.
Franco told BG that the recommendation to allow the Government to pay up-front for the conversion kits for the transportation sector, inclusive of maxi taxis and buses, was because the price of diesel compared to the price of CNG was not attractive to maxi-taxi operators. "The economics just was not there. At present, diesel is $1.50 when compared to CNG at $1.07. This was not attractive to maxi-taxi operators who would take too long to recover their investment. Meanwhile, the cost to the State for the subsidy is high, so it makes sense to let the State pay for the kits and over time recover the money," Franco said.
Franco explained that the taxi drivers who use gas vehicles will convert to CNG and bear the up-front cost because the kits will pay for themselves very quickly. The challenge these taxi drivers face is the lack of sufficient service stations. To address this shortage, Franco said the proposal was for the new state enterprise to construct the stations and then lease them out. He said this was due to the failure of the private sector to take up the challenge of constructing enough service stations in a timely fashion. Franco said the plan is to get the programme going before the end of the year and so that there will be a reduction in the subsidy in 2013.