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'Brunei 3rd in Asia's fuel subsidy list'
Wednesday, April 10, 2013
THE fuel subsidy the sultanate gives to its people is
among the highest in Asia when considered as a share of its economy, a
report from the Asian Development Bank (ADB) shows.A ranking of 11
Asian countries that provide a fuel consumption subsidy in the 2013
Asian Development Outlook puts Brunei third, after Bangladesh and
Pakistan.
The fuel subsidies provided by Brunei, which according to the International Energy Agency (IEA) is the biggest net exporter of oil liquids in the Asia Pacific, account for over three per cent of the country's gross domestic product (GDP) as of 2010, the report states.
The Oxford Business Group, in its country report on Brunei for 2011, placed the sultanate's GDP in 2010 at $11.846 billion at constant prices.
The country of about 400,000 people offers fuel prices of between 30 cents and 60 cents at the pump.
Statistics from the country's Royal Customs and Excise Department show that Brunei's prices for Super 92 petrol, as of May 2010, were about 22 cents per litre cheaper than in east Malaysia's Limbang, while Premium 97 was about 27 cents per litre cheaper.
The country produced 155,000 barrels of oil a day in January to September 2012 lower than the 166,000 barrels a day it produced in 2011.
Bangladesh, which tops the ADB list, provides subsidies that eat up five per cent of its GDP. Pakistan, meanwhile, provides subsidies translating to more than four per cent of its economy, according to the ADB.
Vietnam and Thailand trail Brunei, with subsidies accounting for around 2.8 per cent of their respective economies.
Placing sixth was Malaysia, which provides subsidies translating to around 2.5 per cent of its GDP.
Former OPEC member Indonesia, which subsidises fuel by as much as 2.5 per cent of its economy, came in seventh.
Other countries in the list were India, where fuel subsidies are estimated to be around 1.5 per cent of its GDP; Sri Lanka, at one per cent; the Philippines, at around 0.6 per cent, and China, at around 0.5 per cent.
Noting that governments impose consumer subsidies to guarantee affordability and protect households from potential shocks of fuel price increases, the ADB nevertheless stressed that the move artificially reduces the price of energy and encourages over consumption.
Simulations done by the bank show a US$0.25 ($0.30) per litre increase in fuel prices causes a 4.5 per cent decline in the real income of households in the Asia Pacific.
"Such subsidies are well-intentioned, or at least popular, but they increase energy consumption, distort energy development planning, and, when applied unevenly, provide incentives for adulteration and illegal cross-border sales," the report states.
It added that while subsidies were meant to help the poor, the less well-off "benefit little" from reduced fuel prices.
"If the intent is to make energy more affordable to the poor, only the poorest 20 percentile should benefit from the subsidy. In fact, the poor in Asia benefit little from subsidised fuel prices because many lack electricity and gas connections, few own vehicles, and most transport sparingly," it said.
Citing a study by the IEA, the ADB noted that in nine Asian countries with the highest fossil fuel subsidies and two countries in Africa, only 15 per cent of the benefit of kerosene subsidies and five per cent of subsides for liquefied petroleum gas went to the poorest 20th percentile.
In the meantime, the amount that the government shoulders "puts pressure on the budget and external account".
The ADB recommends that economies switch from general transfers to targeted subsidies to benefit the poor and reduce over consumption.
"Poor households are identified for benefits like food distribution, education support, and medical treatment. The energy subsidy could be similarly targeted," it said.
"For example, a cash payment scaled for the energy used by a typical energy-poor household, not tied to the households' energy consumption, would extend access without encouraging wasteful use."
It said this system would give beneficiaries an incentive to use less energy and keep the surplus from the payout to fund other needs.
"This achieves the objective of restraining energy use without creating the perverse incentives that so frequently drive energy systems off track.
"Replacing general energy subsidies with subsidies targeting the energy poor can immediately restrain energy demand without denying those in need. It can go a long way towards laying the foundation for Asian energy security," the ADB said. The Brunei Times
The fuel subsidies provided by Brunei, which according to the International Energy Agency (IEA) is the biggest net exporter of oil liquids in the Asia Pacific, account for over three per cent of the country's gross domestic product (GDP) as of 2010, the report states.
The Oxford Business Group, in its country report on Brunei for 2011, placed the sultanate's GDP in 2010 at $11.846 billion at constant prices.
The country of about 400,000 people offers fuel prices of between 30 cents and 60 cents at the pump.
Statistics from the country's Royal Customs and Excise Department show that Brunei's prices for Super 92 petrol, as of May 2010, were about 22 cents per litre cheaper than in east Malaysia's Limbang, while Premium 97 was about 27 cents per litre cheaper.
The country produced 155,000 barrels of oil a day in January to September 2012 lower than the 166,000 barrels a day it produced in 2011.
Bangladesh, which tops the ADB list, provides subsidies that eat up five per cent of its GDP. Pakistan, meanwhile, provides subsidies translating to more than four per cent of its economy, according to the ADB.
Vietnam and Thailand trail Brunei, with subsidies accounting for around 2.8 per cent of their respective economies.
Placing sixth was Malaysia, which provides subsidies translating to around 2.5 per cent of its GDP.
Former OPEC member Indonesia, which subsidises fuel by as much as 2.5 per cent of its economy, came in seventh.
Other countries in the list were India, where fuel subsidies are estimated to be around 1.5 per cent of its GDP; Sri Lanka, at one per cent; the Philippines, at around 0.6 per cent, and China, at around 0.5 per cent.
Noting that governments impose consumer subsidies to guarantee affordability and protect households from potential shocks of fuel price increases, the ADB nevertheless stressed that the move artificially reduces the price of energy and encourages over consumption.
Simulations done by the bank show a US$0.25 ($0.30) per litre increase in fuel prices causes a 4.5 per cent decline in the real income of households in the Asia Pacific.
"Such subsidies are well-intentioned, or at least popular, but they increase energy consumption, distort energy development planning, and, when applied unevenly, provide incentives for adulteration and illegal cross-border sales," the report states.
It added that while subsidies were meant to help the poor, the less well-off "benefit little" from reduced fuel prices.
"If the intent is to make energy more affordable to the poor, only the poorest 20 percentile should benefit from the subsidy. In fact, the poor in Asia benefit little from subsidised fuel prices because many lack electricity and gas connections, few own vehicles, and most transport sparingly," it said.
Citing a study by the IEA, the ADB noted that in nine Asian countries with the highest fossil fuel subsidies and two countries in Africa, only 15 per cent of the benefit of kerosene subsidies and five per cent of subsides for liquefied petroleum gas went to the poorest 20th percentile.
In the meantime, the amount that the government shoulders "puts pressure on the budget and external account".
The ADB recommends that economies switch from general transfers to targeted subsidies to benefit the poor and reduce over consumption.
"Poor households are identified for benefits like food distribution, education support, and medical treatment. The energy subsidy could be similarly targeted," it said.
"For example, a cash payment scaled for the energy used by a typical energy-poor household, not tied to the households' energy consumption, would extend access without encouraging wasteful use."
It said this system would give beneficiaries an incentive to use less energy and keep the surplus from the payout to fund other needs.
"This achieves the objective of restraining energy use without creating the perverse incentives that so frequently drive energy systems off track.
"Replacing general energy subsidies with subsidies targeting the energy poor can immediately restrain energy demand without denying those in need. It can go a long way towards laying the foundation for Asian energy security," the ADB said. The Brunei Times
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