The Trinidad and Tobago government has announced plans to liberalise the liquid petroleum fuel market, noting that since 1974, the liquid petroleum products market has been subject to public economic policy.
Finance Minister Colm Imbert, delivering the TT$49.5 billion budget to Parliament on Monday, said that as a small oil and gas producing country, the view was held that citizens should always benefit from the wealth of the country.
But he said that this policy, which was concretized in the mid-1970s when the price of oil began to escalate in the international markets with a large degree of volatility, led to price stability within the principle of affordability becoming a public economic objective with prices of petroleum products being fixed by the Ministry of Energy and Energy Industries.
“The stated objective of the policy was clear: consumers, in particular low-income groups would be protected from volatile and high prices with consistent access to affordable prices through the subsidy mechanism.
“Illustratively, since 2006 the subsidy has been provided at great fiscal costs and in the fiscal period 2006 to 2020, the subsidy payments made by the government has been in the vicinity of TT$25 billion.”
Imbert told legislators that the government has analysed the subsidy impact on the national community and “we have formed the judgement that not only did the subsidies disproportionately benefit the higher-income groups; but their usage was inefficient from an economy-wide perspective”.
“In recent times, however, in fact since September 2014, energy prices have declined and are now stabilising at significantly lower levels with the upshot that subsidy payments would be considerably reduced.”
Imbert said that at current international oil prices, subsidies do not arise in the sale of premium gasoline or super gasoline; but they continue to prevail in the sale of diesel, kerosene and liquefied petroleum gas (LPG).
“We are of the view that in the context of the projected international oil prices, the fuel market should be liberalized. Under this arrangement, which is targeted for introduction in January 2021, the fixed retail margins for all liquid petroleum products will be removed; Petroleum retailers and dealers will now be allowed to fix their own margins.”
Imbert said that wholesale margins will remain fixed for the time being and an appropriate but reasonable tax introduced to compensate for the current fuel surplus that is generated on the sale of gasoline, because of depressed oil prices.
“The net result should be little or no increase in the price of motor fuels at current oil prices. However, it must be noted that if the price of oil recovers, the price of gasoline and diesel will naturally increase proportionately,” Imbert said.
He added that the new trading arrangements between the importer of fuel petroleum products and the wholesalers would result in price adjustments for such products up or down based on changes in United States Gulf Coast product prices obtained from the Platts Oilgram Price Report which is reflective of international market product prices.
He said that for transparency purposes, the Ministry of Energy and Energy Industries will post the changes in the refinery prices of premium gasoline, super gasoline, diesel and kerosene on the first day of each month, except for the production price of liquid petroleum gas which will remain under the subsidy mechanism.
Imbert said that this new deregulated market will bring to an end 46 years of fuel subsidies and the high social expenditure of TT$25 billion in the last 15 years; but at current international prices, the liberalized framework will lay the foundation for consumer acceptance in the future.
“The liberalisation of the liquid petroleum fuel market, especially at this time of envisaged stable and low prices for petroleum products will set the stage for enhancing strategic investments to keep the industry efficient and competitive. We are now ensuring that the new pricing model will put the retailers on a self-sustaining and profit-oriented basis.
“All gas stations owned by National Petroleum Marketing Company will also now be offered for sale to the private sector with first preference given to existing dealers and concessionaire,” Imbert told legislators.
Both the Trinidad and Tobago Chamber of Industry and Commerce and the American Chamber of Industry and Commerce (AMCHAM T&T) have welcomed the decision to liberalise the fuel market.
The private sector groups said that they view the move as progressive steps towards more public-private partnerships and will improve efficiencies.