Last update: 12-Dec-2013 4:50 am
Thursday, December 12, 2013
Trinidad & Tobago Guardian Online
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NP CEO: Remove subsidies on fuel
Four days before the 2014 budget is due to be presented, the CEO of state-owned National Petroleum (NP) issued a 1,456-word statement supporting calls for the removal of fuel subsidies. “The removal of the fuel subsidy should not be feared but embraced for the long-term benefit of all of us in Trinidad and Tobago,” said NP CEO Kenneth Mohammed. Mohammed said in the last few weeks leading up to the budget, much had been written, published and discussed about the fuel subsidy.
One of the issues that has not be raised is the illegal diesel trade and its direct correlation to criminal activity, according to the NP executive. Claiming that there were enormous profit margins in the illegal diesel trade, Mohammed said drug smugglers and dealers had incorporated it into their main activities. Although causality could not be proven, correlation can be seen as there have been direct instances of drugs and ammunition found on board detained vessels, he said.
He pointed out that while colouring diesel had enjoyed some success in curbing the trade in the United Kingdom, that was only a partial solution. “The complete removal of the fuel subsidy or even a reduction resulting in a negligible profit margin will have a direct impact on the reduction of this type of crime in T&T,” according to Mohammed.
The NP CEO said: “Economically any plan seeking to make the economy stronger must incorporate a reduction in the subsidy or complete removal for all fuel types. “These savings could easily be pumped back into the economy, into health, education or infrastructure, all far more worthwhile and critical. However, to remove the subsidy would require several complementary financial measures as well. Those measures will depend on whatever is foreseen as the economic repercussions due to removing a subsidy of this scale.”
He suggested that among the ways in which the “repercussions” from the removal of the subsidy could be mitigated include the reduction of VAT and income tax and/or providing relief through rebates to fishermen, manufacturers etc. through a system similar to the VAT administration process. Countering the arguments that the removal of the fuel subsidy would promote inflation and reduce competitiveness, Mohammed said that might be true in the short run but several studies suggested the opposite is the case in the long run.
He added: “One way that fuel subsidies inhibit growth is by tying up budget resources that could otherwise go to investment in human capital or infrastructure. “Another way is by distorting the structure of trade. Rather than exporting goods in which it has a true comparative advantage, countries export goods that have high opportunity costs but have low out-of-pocket costs because of artificially low prices for energy inputs.”
He also noted: “When the fuel in question comes from domestic sources, it would be better to export it directly than use it in inefficient domestic industries. Subsidising imported fuel in order to convert it into exports in which the country does not have a true comparative advantage is even more absurd.” According to Mohammed, fuel subsidies have side effects that directly reduce the quality of life for people of all income levels, describing traffic congestion and air pollution as two of the most striking.
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