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Fossil-fuel subsidies round-up: February and March 2011

Following announcements that fossil-fuel subsidies will be phased out, from the G-20, the Asian-Pacific Economic Cooperation (APEC) and a number of independent countries, including Iran, Nigeria and Bahrain, Subsidy Watch has decided each month to highlight important news stories that touch on this theme…

31 January Morocco will have to pay a record US$ 5 billion in fuel subsidies if oil prices remain near US$ 100 a barrel, reports Reuters news agency. The amount would surpass its previous record of US$ 3 billion paid in 2010 when crude oil prices were around US$ 85 a barrel.

2 February New Jersey Governor Chris Christie signs into law a program of long-term incentives to build new power plants in the State, reports the Wall Street Journal. The bill will guarantee ratepayer subsidies to build up to 2,000 megawatts of new natural-gas fired generating capacity. If that capacity were built, ratepayers’ subsidies could amount to more than US$ 2 billion over 15 years.

5 February The Wall Street Journal reports that, over the past weeks, regimes in the Middle East and North Africa have increased food and fuel subsidies in an effort to dampen civil unrest. Subsidies were expected to push these governments further into debt (see "Arab governments turn to subsidies to quell popular unrest" in this issue of Subsidy Watch for more information).

  • Jordan's government announced a surprise pay rise for civil servants and a US$ 125 million package of subsidies for fuel and staple foods.
  • In Syria, the government of Bashar al-Assad reversed subsidy cuts on energy, lifting heating-oil allowances for public workers by 72%.
  • Libya and Algeria moved to relax food taxes or cut prices of staple foods.
  • Morocco's government, which heavily subsidizes food and petroleum, vowed to keep food prices at affordable levels "at any price".

9 February According to a new report by the Australia Institute, in the 2010-11 fiscal year the government will provide A$ 9 billion (US$ 9.25 billion) in subsidies and tax concessions to the mining, gas and petroleum industries.

10 February U.S. House Democrats introduce the “Ending Big Oil Tax Subsidies Act” which seeks to repeal subsidies valued at US$ 40 billion over five years, reports news website Bloomberg. The proposed savings would be used to fund initiatives including clean-energy programs. The bill has been referred to the House Committee on Ways and Means according to govtrack.us, a civic website that tracks legislation in the U.S. Congress.

12 February Thai Prime Minister Abhisit Vejjajiva extends the country’s diesel subsidy until April, reports Thai newspaper The Nation. The government will use its Oil Fund to keep the retail price of diesel below THB 30 per litre (US$ 0.99).

13 February Venezuela spends more than US$ 1.5 billion a year on fuel subsidies that keep the South American country's domestic fuel prices the lowest in the world, reports the Wall Street Journal.

14 February United States President Barack Obama releases his budget for the 2012 fiscal year, proposing cuts to oil, gas and coal subsidies worth US$ 46 billion over 10 years, reports Reuters news agency. The proposed budget also cuts funding for oil and gas research and for hydrogen fuels programs. Republicans oppose cutting subsidies for fossil fuels, saying it would hurt industries that provide jobs while the economy is still fragile.

15 February Reuters news agency reports that the Indian government will bear up to 50% of the subsidy burden of state-run oil companies that arises from selling fuels below cost. Later in February, Reuters reports that the federal government’s budget for 2011-12 provided IDR 200 billion (US$ 4.4 billion) in cash subsidies to state-run oil retailers.

17 February According to Reuters news agency, IMF Director for the Middle East Masood Ahmed tells reporters that while governments may feel the need to increase subsidies to ease social pressures, it would be more effective and affordable to target such assistance at those who need it the most, instead of providing general subsidies that also help the rich.

28 February According to classified documents obtained by Greenpeace, Australian officials had identified 17 fossil-fuel subsidies that might fall within the government’s commitment to the G-20 to phase out fossil-fuel subsidies, despite having told the international forum that no such subsidies existed, reports business newspaper the Australian Financial Review. Greenpeace had accessed the government documents under Freedom of Information laws. As detailed in a blog by subsidy investigators Earth Track, the officials had justified their reporting on the basis that: Australia should not go further than other countries in offering up subsidies for reform; the subsidies were not relevant because they applied to exploration rather than production; and they disputed the fact that the subsidies were inefficient and encouraged wasteful consumption.
 
1 March Despite increasing petrol prices by an average of 9.9%, Pakistan’s government will continue to subsidise oil consumption in the country at a cost of at least PKR 5 billion (US$ 59 million) a month, reports newspaper The Express Tribune.

2 March Trinidad and Tobago’s Energy Minister Carolyn Seepersad-Bachan says that the country’s subsidy on gasoline for 2010 was US$ 360 million, according to newspaper the Trinidad Express. She also says that the subsidy will need to be reduced in the future because of rising oil prices and the need for greater fiscal discipline.

8 March China's majority state-owned oil company Sinopec Corp commences internal subsidies to its refineries of CNY 770−800 (US$ 118 to US $122) for each tonne of extra gasoline produced, reports Reuters news agency. The policy is intended to boost gasoline production. Sinopec is also reported to be limiting its exports.

10 March The Chilean Government rushes to Congress a fuel-price subsidy bill to protect consumers from the increases in fuel prices, reports the Wall Street Journal.

10 March Fuel subsidies in the Middle East and North African region could reach US$ 300 billion this year, over 7% of the area’s GDP, if international oil prices remain at around US$ 120 per barrel and domestic prices are held constant, according to estimates from the The Economist newspaper. Qatar and Iran are the only countries to have so far had the courage to raise domestic fuel prices. Food subsidies, wage rises and cash handouts are also being offered by most governments in the region. In addition, the oil and gas exporters are promising significant investments in infrastructure. Reuters analysis in the following week notes that instability in the region is likely to hold back subsidy reform for some time, which will hamper efforts to reduce carbon emissions or adopt renewable energy alternatives. (See "Arab governments turn to subsidies to quell popular unrest" in this issue of Subsidy Watch for more information)

11 March Malaysian newspaper The Star reports that the government will need to allocate another MYR 4 billion (US$ 1.3 billion) for its fuel subsidy if international oil prices remain at current levels (over US$ 100 per barrel).

11 March Newspaper The Vientiane Times reports that the Lao Government is said to be considering a new fuel subsidy, according to the community website Lao Voices. The proposed subsidy would see the government lose more than LAK 70 billion (US$ 8.7 million) a month through fuel subsidies.

14 March Mozambique is set to increase its 2011 budget by 45% to maintain food and fuel subsidies, reports AFP news wire.

15 March The Indonesian Finance minister says that if crude oil prices remain over US $90 for all of 2011, the fuel subsidy may increase to a range of IDR 110−140 trillion (US$ 12.6 billion to US$ 16 billion), depending on the currency's appreciation, according to financial information firm Dow Jones. A week later, an Indonesian parliamentary commission approves a government plan to continue fuel subsidies, reports Reuters news agency.

17 March The National Iranian Oil Products Distribution Company’s managing director says that the country saved US$ 1.8 billion in fuel consumption after implementing its subsidy reform plan, reports the Tehran Times. Iran will save “at least” US$ 15 billion in fuel in the next Iranian year, according to an Iranian official quoted in an article by news website Bloomberg.

20 March Investigative journalism by the Sri Lankan newspaper The Sunday Times reveals that the Sri Lankan Treasury issued bonds to cover debts of the state power company, the Ceylon Electricity Board, amounting to around LKR 52 billion (US$ 470 million).

23 March The Canadian federal budget includes a measure that will gradually reduce incentives for oil sands producers. The adjustments are expected to increase federal revenues by about C$15 million (US$ 15.4 million) in the 2011-12 fiscal year and C$ 30 million (US$ 30.8 million) in the following year. The budget documents state that the measures constitute further action by Canada in support of the commitment by G-20 leaders to rationalize and phase out fossil fuel subsidies. The Pembina Institute, a Canadian think tank dedicated to promoting sustainable energy, called the measure a "minor subsidy adjustment" and noted that the budget still "leaves more than $1 billion in tax breaks for oil companies on the table."

26 March The Philippines government plans to grant fuel subsidies to the transport sector to ease the effects of higher world oil prices, according to newspaper the Manila Standard Today. The government would issue fuel cards to jeeps and buses that would give drivers a three-peso discount (US$ 0.07) per litre of gasoline or diesel.
29 March Thailand’s Finance Minister Korn Chatikavanij says that the diesel subsidy will continue until July, reports Thai newspaper The Nation. The government previously said that the subsidy would be removed in April.

31 March The Mozambican government will shortly abolish general subsidies for food and fuel and replace them with subsidies targeted at low income earners, reports news website AllAfrica.com. Since May 2010, the fuel price for diesel has been frozen at MZN 31 (US$ 0.97) per litre, and that of petrol at MZN 37 (US$ 1.20) per litre. By the end of 2010, the government had paid fuel companies US$ 147 million in compensation.
 
For readers interested in keeping track of fuel-pricing developments worldwide, GIZ's monthly Fuel Price News is an invaluable resource that announces publications and events, and major fuel-pricing news stories in different regions of the world. For more information see: http://www.gtz.de/en/themen/29957.htm

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