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PM: Gas subsidy no longer sustainable

The trinidad Guardian / Prime Minister Dr Keith Rowley is defending Government’s decision to remove the fuel subsidy. He said given the drastic drop in revenues, mounting debt, including paying for essentials such as salaries for public servants, medicine for hospitals, pensions and grants for the needy, Government had no choice.

Through a statement via the Office of the Prime Minister on Saturday night, the PM said fuel subsidies were also not the most effective and equitable way to distribute a country’s resource wealth to its population.

“They impose a considerable fiscal burden and were an important reason for under-saving in the Heritage and Stabilisation Fund (HSF),” the statement said.

“Historical and cross-country experience indicates that energy subsidies impose substantial fiscal, economic and environmental costs. Studies have found that the total fuel subsidy has a very regressive impact and disproportionately benefits the rich over the poor.”

It cited survey results which estimated the total subsidy benefit in the lowest income group was about $12,000 a year for households in the lowest income group and about $24,000 a year for those in the highest income group.

The subsidies also generated excessive reliance on fossil fuels and automobiles, leading to congestion and pollution, Rowley said, adding that T&T was one of the highest energy users and, on a per capita basis, CO2 emitters in the world.

He said in 1974 when the price of oil increased sharply, the Government then sought measures to cushion the burden of high oil prices on consumers and passed the Petroleum Production Levy and Subsidy Act (PPLSA), which allowed fuels such as gasoline, diesel and kerosene to be sold to consumers at fixed prices, which were significantly lower than the market price.

“This measure allowed citizens to enjoy one of the lowest fuel prices in the world. However, it came at a significant cost to the state. From its inception in 1974 until 1992, the levy (calculated as four percent of the revenues of crude oil Production Businesses) covered the entire value of the subsidy but as production decreased and prices increased, the shortfalls in the levy were required to be financed by the Government directly from the Consolidated Fund,” Rowley said.

Over time, he said, the rationale for the subsidy was lost and the population came to regard the subsidy as a way for the population to share in the country’s resource wealth.

“In the present day scenario, however, with the global slump in energy prices and the country’s reduction in revenues, the extent of fuel subsidy is simply no longer sustainable.

“From 2006-2016, aggregate fuel subsidies amounted to TT$31 billion, or an average of two per cent of GDP per year. As oil prices trended up between 2009 and 2014, fuel subsidies amounted to nearly TT$3.6 billion per year or about 2.3 per cent of GDP. When crude oil prices plummeted in 2015, subsidies also dropped, to TT$2.1 billion, or 1.4 per cent of GDP, the lowest since the Global Financial Crisis,” Rowley said.

He said at times the Government had difficulty covering the subsidy through revenues and financed it in part by running arrears to Petrotrin.

“The level of arrears peaked at TT$7.1 billion (4.3 per cent of GDP) by the end of 2012. As a result, Petrotrin withheld tax payments to the Government until the bulk of the subsidy arrears were cleared in subsequent years through budget provisions. As of December 2015, outstanding arrears stood at TT$549 million,” the PM added.

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