Climbing international fuel prices, in the face of US sanctions against Russia, can impact this country’s fuel subsidy.
Prime Minister Dr Keith Rowley gave some details during Tuesday night’s Conversations with the Prime Minister and seemed to make a case for either the removal, or the reduction, of the fuel subsidy.
He said that currently, the Government has to find over $700 million for the fuel subsidy to preserve it the way it is now.
“The question we have to ask ourselves is, if we have $767 million available, is subsidising fuel the way to spend it? Cause we will have to borrow that money to pay this subsidy,” he said.
Yesterday the price of oil rose to $128 a barrel and the PM said that people in T&T based their financial future on that cost of oil and think that once it goes up, things would be good and if it dips, “we in for problems”.
He said that what was going on in the world would impact citizens and not in a positive way.
“We are not producing volumes of oil to say our earnings on the volume side would be large enough to provide the cash that you will get from the large volume, high price to out with the subsidy,” he said.
The PM said that the current price at the pumps—if not subsidized and oil is up to $100 per barrel—the price at the pump would be $2 more than people are paying now for premium gas.
“That is a huge shock to the economy and Government has to find the money from somewhere to subsidise it,” he said.
He said that the Minister of Finance and the Government would have to take a decision as to how much funding it can find to subsidise fuel, and take some pressure off the population.
“But the population cannot be insulated completely from oil running at $120, $130, $140 a barrel,” he said.
“In short, what I am saying is… do not see the hike in oil price opening up huge possibilities in earnings because the volumes at which we are producing oils now is not the same volume we were producing,” Rowley said.
He said that 2001 was the last year that the subsidy pay-out matched the cost and there was no shortfall. Since then, the Government has had to cover the gap.
Rowley said that by 2002, the subsidy fund was lower than the subsidy to be paid.
“The Government then had to find $142 million to make up to pay that subsidy and every year since then, that is what has been happening—that the subsidy fund could not pay the level of subsidy that was required,” he said.
The Prime Minister also gave some detail on the shortfalls in the subsidy over the years. In 2002, it was $142 million, the following year it was $23 million and then by 2004 it was $712 million.
Between 2006 to 2012, the subsidy crossed one billion dollars.
“Interestingly, oil prices went up drastically in the period 2013 and the subsidy arrangement was still in place,” he said and was $0.4 billion in shortfall.
The next year the subsidy grew to $7 billion, he said, and the Government paid it, “no questions asked”.
“In three years, 2013, 2014 and 2015, the Government of T&T paid $16 billion in fuel subsidies and the question that arises is that the best way to spend $16 billion,” he said.
The Prime Minister said that in 2007, T&T produced 121,000 barrels per day. In 2008, that dipped to 114,000 and by 2010, there were only 98,000 barrels produced. By 2011, it dipped again to 91,000 and by 2012, T&T only produced 81,000 barrels of oil. By 2015, 78,000 barrels of oil were produced.
“Our local production has been going down regardless of who was in office,” he said.
He said it was not that oil was there and not being “picked up” but the older, mature fields were not producing.
“The reason why we had to close down the refinery is because the production level was falling down to this. We had to be buying crude oil to refine because we weren’t producing it,” he said.
Rowley said that if the refinery was in operation now, T&T would have to pay that $128 per barrel price for 128,000 barrels per day to keep the refinery going.
“Guaranteed to lose between $7 and $19 dollars a barrel. You get my drift?” Rowley asked.
He promised to say more in the coming days.