Fuel subsidy must go, eventually

In Parliament last month, Minister of Finance Winston Dookeran made the point that the Government had had to find $3.2 billion in 2010 in order to fund the gasoline subsidy. The maintenance of the gasoline subsidy, according to the minister, was becoming an “enormous” strain on the Treasury.

Minister Dookeran was not exaggerating when he described the gasoline subsidy as having become a strain on the Treasury. If Mr Dookeran’s figure for the gasoline subsidy in 2010 is correct, it would mean that an estimated 7.3 per cent of the recurrent expenditure in the last fiscal year would have been spent by the Government in easing the burden of variable gasoline prices on the public. The amount of money the Government spends on the gasoline subsidy is based on the world market price of crude and, therefore, with the benchmark that is used to calculate the subsidy topping US$93 a barrel yesterday, there is the strong likelihood that the gasoline subsidy could continue putting “enormous” strain on the Treasury in 2011.

At some point, the issue that the Government will have to face is whether the billions of dollars that it spends on the gasoline subsidy every year could be better spent on providing some other service.
Is the money that is being used to subsidise gasoline being diverted away from being used on a specialised burn centre or a specialised cancer centre or a national programme of agricultural access roads? One of the realities of today is that governments will be required to contend with financial resources that are limited by the global market prices for T&T’s main petrochemical exports.
The fact that T&T’s oil production, currently at about 100,000 barrels of oil  a day, is declining, means that even though the world market price of oil is above US$90 a barrel, T&T does not benefit as much today as when oil production was considerably higher.

The current administration seems to have gone along with the plan by the previous government to reduce the subsidy in tandem with the increased usage of compressed natural gas (CNG).
The Government is urged to ensure that the required level of ministerial impetus remains in place with regard to increasing the number of CNG stations across the country, improving the quality of CNG technology and ensuring that money is spent marketing the idea of changing cars from gasoline to CNG.
The Government would do well to take the advice of the CNG task force, which submitted a report recently, that proposed the conversion from gasoline to CNG of the fleet of buses operated by state-owned PTSC’s and all government and state-owned vehicles.

Eventually, the country must move to eliminate entirely the subsidy on gasoline.
While a subsidy may appear to make the transportation of people and goods stable and cheaper than it would otherwise be, there is clear evidence that fuel subsidies discourage efficiency.
The argument can be made, as well, with the rate of headline inflation over 13 per cent, that the country is not deriving as much benefits as it should from subsidised transportation—primarily because the cheaper cost of fuel in T&T is offset by the length of time that people spend in traffic jams.