The decision by the government to liberalise the fuels market is long overdue and in the best interest of the country.
This column has been on record suggesting that the level of subsidies and transfers that the government is carrying unduly burdens the state, is not the best way to spend taxpayers money and in the case of the fuel subsidy disproportionately benefits those best positioned to pay.
The removal of the subsidy has been hinted for years, not just by Minister of Finance Colm Imbert but his predecessors and it is one of the reasons for the formation of the NGC CNG Company Ltd.
According to the 2021 State Enterprise Investment Programme the NGC was mandated to expand and upgrade its current gas distribution network to supply CNG to filling stations across Trinidad. NGC was further mandated to accelerate the use of CNG as a major alternative fuel in T&T.
Accordingly, NGC incorporated NGC CNG Company Ltd (NGC CNG), a wholly owned subsidiary to implement the CNG Initiative.
The original estimated cost of this initiative for Phases I & II was $2.07 billion for a five-year period.
You see the idea was to give the country an opportunity to transition to a cheaper and cleaner fuel so that it reduced the consumption of petroleum products, which at the time of the initial plan meant more refined products for export sale and it also allowed the country to reduce its carbon footprint.
It frees up resources which the government will hopefully spend wisely as it tries to get T&T out of the economic challenge if faces.
During Monday’s Budget, Imbert told the Parliament that since 2006 the fuel subsidy has been provided at great fiscal costs and in the fiscal period 2006 to 2020, the subsidy payments made by Government was in the vicinity of $25 billion.
“We are of the view that in the context of the projected international oil prices, the fuel market should be liberalised. 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.
I support the decision of the Minister of Finance to liberalise the fuels sector. I am however concerned that the announced plan to divest itself of all NPs service stations could lead to price gouging and the formation of cartels and therefore price fixing.
In a truly free market there is an assumption of supply and demand determining prices. But also built into that assumption is the issue of competition with several buyers and sellers in the market place.
Competition allows for greater efficiency and therefore the best prices and services.
In the context of the sale of the NP service stations and the ability of the gas station owners and operators to set their own prices and therefore determine their own profits, this is in keeping with what happens in a free market. But the central challenge is one of competition.
Let me demonstrate the danger to large parts of the country. If you drive from Guayaguayare to Sangre Grande, a two-hour drive, you only have the option of going to two fuels stations.
In Mayaro there is only one gas station. From Guayaguayare to Mon Repos, San Fernando you have a grand total of four gas stations, a drive of two and a half hours. From Guayaguayare to Chaguanas using the route through Tabaquite, another two and a half-hour drive you will have access to four gas stations.
From Rio Claro to Sangre Grande via Biche you have a total of three gas stations, another two hour drive. In other words in many areas of this country there are monopoly and oligopoly situations and motorists will be at the mercy of those fuel station owners and operators.
I chose these areas not by accident but also because successive studies have shown that these are places that have among the highest levels of poverty in the country.
These are also places where the public transportation services are poor, with two buses a day available to residents.
In addition, these are parts of the country where the road infrastructure is poor, owing to the number of landslips and the use of the road by large trucks carrying heavy equipment to service the oil and gas sector. Vehicle maintenance is high in these parts of the country. It is also a place where 2.5 billion standard cubic feet (bscf) of natural gas a day is produced and over 20,000 barrels of oil per day and where the residents are among the least beneficiaries of government support and services.
How is the government going to protect these citizens? How can the Minister of Finance or the Prime Minister say with a straight face that left to market forces, the people of these area will be protected.
When you are a Port-of-Spain or urban-based political party it is easy to make the error and assume what may work in the urban areas will be good for the rest of the country. This is not the case here. The comparisons to the US situation where you have choice and can go to another service station is based on the ubiquitous nature of service stations there, it does not work in places where choice is limited or as in Mayaro no choice.
These are areas where the drive is so far between service stations that it is not practical to try another station and where CNG was never a viable option owing to the lack of CNG stations. They are places where the residents, as I have said often, are the least beneficiary of government programmes and yet the resources are extracted from these areas.
Yes higher prices may make other people want to construct service stations but what are the barriers to entry? What would the licensing process look like? Are we going to depend on the Ministry of Energy to regulate the industry? This Ministry of Energy that has failed to and cannot regulate the stealing of the country’s resources through illegal quarrying? A Ministry of Energy that is badly understaffed and where the best professionals are quickly snapped up by industry, leading to a revolving door? Surely we could bury our heads in the sand and pretend not to know but the ministry will fall down on the job again.
Imbert says when the market is liberalised in less than three months, the Government does not expect price gouging nor the formation of cartels to fix the price of fuel.
Speaking to journalists after a post-Budget forum hosted by the T&T Manufacturers’ Association yesterday, Imbert insisted that there will be competition among the dealers and therefore no fixing of prices.
“I am not sure that will happen eh. There are in total around 200 gas stations in the country, I don’t think that will happen and I think there will be sufficient competition. But I am taking note of what you have to say.”
Imbert added, “The dealers and the concessioners will in January set the price from the wholesalers and sell it at a price they think is appropriate. So I think there will be competition; that is why we don’t believe there will be any significant change in the price. Once the price of oil remains the same. We don’t think so.”
For too long these areas have been unfairly burdened and unfairly treated by successive governments. For too long there is no thought about how measures affect the whole country and not just the urban centres. This government has focused on the North West and Tobago. It has ignored most of the rest of the country unless, like the road to and port in Toco, it is focused on advancing the interest of Tobago.
I am all for free enterprise and privatisation but the government must in the budget debate starting tomorrow tell us how this measure is going to work so that there is competition and those in rural areas can also pay a fair price for fuel.