The Government will have to raise the price of diesel if it is going to get the transportation sector to move away from diesel and into compressed natural gas (CNG). That is the view of Unipet’s chief executive officer Ronald Milford who said the Government’s plan to convert the transportation sector to CNG was doomed to failure unless the price is increased. Government officials have said that CNG conversion kits would be made available to maxi-taxi drivers who would be expected to repay the State over time for the cost of the kit.
In a telephone interview with the Business Guardian (BG) last week, Milford said: “They will not be able to move the maxi-taxi drivers away from diesel because the cost of CNG is too close to the price of diesel. Why would a man want to put a tank in his trunk or somewhere else in his vehicle when it is costing him $100 to full his tank? It just does not make sense unless the price of diesel goes up and therein is the problem.” Last week the Business Guardian reported that the Government was planning to make the CNG kits available to maxi-taxi drivers and then get the money back by allowing the drivers to pay the same price as diesel for the CNG until the unit is paid for.
Manager of the Government’s CNG Working Group Raymond Franco said diesel was a major challenge facing the successful implementation of the CNG plan. Franco said that diesel was responsible for over half of the total subsidy. While the actual volume of diesel used was significantly less than gasoline, the size of the subsidy was higher for diesel and skewed the amount of the subsidy.
Franco said most of the diesel is used by the transportation sector and in 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 diesel conversion kit is one-third the price of a gas conversion kit. Franco told the Business Guardian 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 a litre 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 of 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 also confirmed that the Government will be establishing a new state enterprise company to provide the kits and to expedite the construction of CNG stations. Milford said while he had no objections to the establishment of the new enterprise, the delay in construction of the service stations was caused by regulatory challenges. He said Unipet was taking longer to construct its stations because of problems in getting approvals from state agencies. Milford said he did not think that private capital will be invested in CNG fuel stations unless they can also sell liquid fuels. He said this is because it costs $3 million to build a service station and without liquid fuels it will be hard to make a sufficient return to justify the investment. The Finance Minister is expected to announce the formation of the new enterprise in the budget and for the 2011/2012 period, it is expected that the Government will spend over $4 billion to keep fuel prices low.