The Government of Trinidad and Tobago has followed through on its commitment to begin to address the transport fuel subsidy when it increased the price of super gasoline and diesel by a further 15% in its mid-year budget review. This came on top of a previous increase of 15% in September 2015 and a decision not to reduce the prices when VAT was reduced from 15% to 12.5% (effectively increasing the price of fuel pre-VAT).
Super gasoline is now retailing at TT$3.58 per litre and diesel at TT$2.00 per litre, while premium gasoline remains at TT$ 5.75 per litre. According to the Minister of Finance, Colm Imbert, the price of super at the pump is now roughly what the unsubsidised price would be at US$ 45 per barrel of crude, while diesel still attracts a subsidy of about one dollar a litre at the same price. Premium prices remain higher than they would be if the price control system was removed, at the current international oil price.
Trinidad and Tobago is by no means the only country who has sought to remove fuel subsidies during the current difficult period for hydrocarbondominated economies. Last year, the United Arab Emirates, the third-biggest OPEC producer, linked gasoline and diesel prices to global oil prices, becoming the first country in the oil-rich Persian Gulf to remove transport fuel subsidies. The change made by this oil rich nation was driven by the desire to diversify sources of income, strengthen the economy and increase its competitiveness in addition to building a strong economy that is not dependent on government subsidies, this was according to Al Mazrouei, the Energy Minister of the UAE in a statement to Bloomberg news.
Brazil also opted to remove fuel subsidies but opted for a more phased approach. The government pursued a gradual approach to the removal of subsidies in order to minimise opposition from the interest groups. The movement to free-market prices began with petroleum products used by few consumers (e.g. asphalt, lubricants) and then moved progressively to widely used products (e.g. gasoline, diesel, fuel oil and LPG).
The increase in fuel prices in Trinidad and Tobago has not met with significant opposition. There has been some opposition from trade union leaders and the labour aligned political party, Movement for Social Justice, but no significant public opposition campaigns have been launched. Media interests in the aftermath of the mid-term budget review seemed to be more focused on a proposed 7% tax on online shopping, rather than the 15% increase in fuel prices. The increase was widely anticipated and many commentators had been advocating for the removal of the subsidy for a number of years. The Energy Chamber has been strongly advocating the gradual removal of the subsidy for more than a decade, and has welcomed the price increase as a first step to dismantling the subsidy system.
Minister of Finance, Colm Imbert has stated that he wanted to create a national dialogue over the issue of transport fuel subsidies. The increases in prices has sparked some discussion, but there has been little detailed debate about the merits and demerits of the fuel subsidy. Imbert did attempt to introduce some data on the value of the subsidy for rich compared to poor households, stating that “the average benefit of the fuel subsidy to low households is less than $1,000 per month, whereas the benefit to upper income households exceeds $2,000 per month”. However, as of yet this does not seem to have sparked much public discussion.
While Trinidad & Tobago has increased the controlled prices of transport fuels, there has not yet been any move to dismantle the price control mechanism and to allow the prices of transport fuels to be set by the market, rather than government decisions. The statement by Imbert did suggest that the Government would be moving towards fully liberalising prices of transport fuels and allowing them fluctuate with shifts in international prices. With the concentration being on the current price increase, this point about moving to a fully liberalised system has not yet entered into the public discourse.
The data presented by Imbert is in line with the international research on transport fuel subsidies, which indicates that they tend to favour richer households disproportionally. An International Monetary Fund study indicated that on average in Latin America the richest 20% of households received 38% of the value of transport fuel subsidies, while the poorest 20% of households received just 6% of the value of the subsidy.
At present retail margins remain controlled by the Government, a fact that has led to some complaints from gas station owners over the recent past especially as they have had to face a higher tax burden with the increased Green Fund Levy. The retail market also remains dominated by the state-owned National Petroleum with the only competition coming from privately-owned Unipet. It is unclear if the Government intends to fully liberalise the local retails market and once again allow international fuel brands, such as Shell, Esso or bp, to establish operations in Trinidad and Tobago. This wider element of the proposed national conversation has yet to take place.