Published in the April 20, 2013 issue of The Brunei Times. Click here for original article.
Over $500m spent on fuel subsidies in 2011, strain on coffers
Saturday, April 20, 2013
THE sultanate spent more than half a billion Brunei dollars on
fuel subsidies in 2011, putting a "tremendous strain" on the national
coffers, an official of the Asian Development Bank told The Brunei
Times.
Minsoo Lee, senior economist in the Macroeconomics and Finance Research Division of the Economics and Research Department of ADB, said in an email interview that the sultanate spent US$470 million ($580.283 million) on general fuel subsidies in 2011.
This meant that the government shouldered US$1,159, or $1,431.84, of the fuel costs of each person in the country, he added.
"The government provides very generous subsidies to ordinary citizens through a variety of pathways, including electricity, LPG (liquefied petroleum gas, or cooking gas), and transport fuels," Lee said.
"The costs of these programmes do weigh upon a government, even one with substantial financial resources. Transport fuels are held perhaps 45 per cent below market costs and are part of the overall energy subsidies," he added.
Transport fuel in the sultanate, said to be lowest in the region, ranges from 30 cents to 60 cents per litre at the pump.
Data from the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH show that Brunei pays for almost half of the cost of the fuel that motorists buy at the pump.
On its website, the organisation noted that the commercial cost of gasoline with a 92 octane rating is at 92 cents per litre, but only retails for 51.9 cents per litre, with the sultanate covering the remaining 40.1 cents.
"The subsidy for diesel is even higher," it said, as it noted that the commercial cost for the fuel is at 91 cents per litre while it only sells at 31 cents, with the government shouldering the remaining 60 cents.
The GIZ draws up a database on fuel prices, taxes, price policies for countries in the world on behalf of the German Federal Ministry for Economy Cooperation and Development.
"Reallocating fiscal resources to infrastructure, health and education would spur growth and make it more inclusive," Lee said.
Earlier, the Ministry of Health proposed before parliament a $366.479 million budget for this year, to cover for payroll, additional manpower, purchase of medicines, hospital upgrades, procurement of laboratory equipment and health promotion, among others.
Social services, for its part, was given a $351.6 million outlay from the development budget to support projects in education, health, national housing and human resources, it was earlier reported.
The Ministry of Development has earmarked $313.2 million for the 2013/2014 financial year, for flood control projects, improvements in road safety, and public housing services.
The Ministry of Education, on its part, gets a bigger budget allocation than the amount the government spent to subsidise fuel in 2011. The ministry presented a $759.128 million budget for 2013/2014, up 3.8 per cent $731.066 million the previous fiscal year at the ninth Legislative Council proceedings.
The allocation was made for teachers' salaries, overhead costs, school buses, purchase of educational equipment, and training for teaching staff.
The budgets for these ministries, however, do not take into account support that may come from the 10th National Development Project, which was given $1.05 billion for this fiscal year.
Lee noted that while popular, selling fuel below true market prices "increases energy consumption, distorts energy development planning, and damages the environment".
Reducing the real price for diesel or electricity, he said, weakens incentives to conserve on energy and inhibits the development of renewable resources, which Brunei has been pushing for.
"Worse, the main beneficiaries of energy subsidies are not the poor. If the intent is to make energy affordable to the poor, only the poorest 20 percentile should benefit from the subsidy," he said, adding that in Asia, only five to 15 per cent of the subsidy benefits go to the poorest of the poor.
Lee also said that Brunei's ability to produce oil does not make it less vulnerable to the impacts of fuel subsidies, noting that the country's affluence is critically dependent on the energy sector.
"The oil and gas sectors account for nearly two-thirds of Brunei's GDP (gross domestic product), roughly 95 per cent of Brunei's export revenues and about 90 per cent of government revenues," he noted.
"This dependence on a single natural resource makes the economy vulnerable to fluctuations arising from energy markets. In common with other small oil and gas exporting countries, the economy is subject to pressures from swings in global prices and domestic production issues," he added.
In the recently released ADB Development Outlook 2013, the bank ranked Brunei the third biggest provider of fossil fuel subsidies in Asia when considered as a share of a country's economy.
In the list of 11 Asian countries, Brunei, which provides subsidies of over three per cent of its GDP, or the total value of goods and services produced by a country within a period, trailed Bangladesh, at five per cent of its GDP, and Pakistan whose subsidies cover more than four per cent of its economy.
According to the report, a US$0.25 per litre increase in fuel prices causes a 4.5 per cent decline in real income of households in Asia and the Pacific.
The impact is partly direct, as households have to spend more on fuel, and partly indirect, as prices for goods and services increase with higher embedded energy costs, the report added.
Brunei 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.
The Brunei Times
Minsoo Lee, senior economist in the Macroeconomics and Finance Research Division of the Economics and Research Department of ADB, said in an email interview that the sultanate spent US$470 million ($580.283 million) on general fuel subsidies in 2011.
This meant that the government shouldered US$1,159, or $1,431.84, of the fuel costs of each person in the country, he added.
"The government provides very generous subsidies to ordinary citizens through a variety of pathways, including electricity, LPG (liquefied petroleum gas, or cooking gas), and transport fuels," Lee said.
"The costs of these programmes do weigh upon a government, even one with substantial financial resources. Transport fuels are held perhaps 45 per cent below market costs and are part of the overall energy subsidies," he added.
Transport fuel in the sultanate, said to be lowest in the region, ranges from 30 cents to 60 cents per litre at the pump.
Data from the Deutsche Gesellschaft fur Internationale Zusammenarbeit (GIZ) GmbH show that Brunei pays for almost half of the cost of the fuel that motorists buy at the pump.
On its website, the organisation noted that the commercial cost of gasoline with a 92 octane rating is at 92 cents per litre, but only retails for 51.9 cents per litre, with the sultanate covering the remaining 40.1 cents.
"The subsidy for diesel is even higher," it said, as it noted that the commercial cost for the fuel is at 91 cents per litre while it only sells at 31 cents, with the government shouldering the remaining 60 cents.
The GIZ draws up a database on fuel prices, taxes, price policies for countries in the world on behalf of the German Federal Ministry for Economy Cooperation and Development.
"Reallocating fiscal resources to infrastructure, health and education would spur growth and make it more inclusive," Lee said.
Earlier, the Ministry of Health proposed before parliament a $366.479 million budget for this year, to cover for payroll, additional manpower, purchase of medicines, hospital upgrades, procurement of laboratory equipment and health promotion, among others.
Social services, for its part, was given a $351.6 million outlay from the development budget to support projects in education, health, national housing and human resources, it was earlier reported.
The Ministry of Development has earmarked $313.2 million for the 2013/2014 financial year, for flood control projects, improvements in road safety, and public housing services.
The Ministry of Education, on its part, gets a bigger budget allocation than the amount the government spent to subsidise fuel in 2011. The ministry presented a $759.128 million budget for 2013/2014, up 3.8 per cent $731.066 million the previous fiscal year at the ninth Legislative Council proceedings.
The allocation was made for teachers' salaries, overhead costs, school buses, purchase of educational equipment, and training for teaching staff.
The budgets for these ministries, however, do not take into account support that may come from the 10th National Development Project, which was given $1.05 billion for this fiscal year.
Lee noted that while popular, selling fuel below true market prices "increases energy consumption, distorts energy development planning, and damages the environment".
Reducing the real price for diesel or electricity, he said, weakens incentives to conserve on energy and inhibits the development of renewable resources, which Brunei has been pushing for.
"Worse, the main beneficiaries of energy subsidies are not the poor. If the intent is to make energy affordable to the poor, only the poorest 20 percentile should benefit from the subsidy," he said, adding that in Asia, only five to 15 per cent of the subsidy benefits go to the poorest of the poor.
Lee also said that Brunei's ability to produce oil does not make it less vulnerable to the impacts of fuel subsidies, noting that the country's affluence is critically dependent on the energy sector.
"The oil and gas sectors account for nearly two-thirds of Brunei's GDP (gross domestic product), roughly 95 per cent of Brunei's export revenues and about 90 per cent of government revenues," he noted.
"This dependence on a single natural resource makes the economy vulnerable to fluctuations arising from energy markets. In common with other small oil and gas exporting countries, the economy is subject to pressures from swings in global prices and domestic production issues," he added.
In the recently released ADB Development Outlook 2013, the bank ranked Brunei the third biggest provider of fossil fuel subsidies in Asia when considered as a share of a country's economy.
In the list of 11 Asian countries, Brunei, which provides subsidies of over three per cent of its GDP, or the total value of goods and services produced by a country within a period, trailed Bangladesh, at five per cent of its GDP, and Pakistan whose subsidies cover more than four per cent of its economy.
According to the report, a US$0.25 per litre increase in fuel prices causes a 4.5 per cent decline in real income of households in Asia and the Pacific.
The impact is partly direct, as households have to spend more on fuel, and partly indirect, as prices for goods and services increase with higher embedded energy costs, the report added.
Brunei 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.
The Brunei Times
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