Asia's subsidised oil
http://news.ft.com/cms/s/39c52cba-0f84-11da-8b31-00000e2511c8.html
Published: August 18 2005 03:00 Last updated: August 18 2005 03:00
Governments in Asia have devised all sorts of exotic measures to mitigate the damage inflicted by higher oil prices on budgets and import bills.
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The Philippines has threatened fuel rationing. China has tried to reduce summer air-conditioning costs by increasing the temperature of government offices. Indonesia briefly restricted night-time television broadcasts, and the president has taken to wearing casual, cooler shirts to encourage the frugal use of electricity.
Yet these are empty gestures if consumers continue to burn subsidised fuel and remain insulated from the reality of rising world oil prices. Asian governments are not the only culprits, but the impact of their recklessness is particularly severe: big Asian oil importers accounted for half of global incremental demand for oil last year, and the reluctance to let higher retail costs constrain demand continues to put upward pressure on market prices.
China, the second biggest oil user after the US, is one of the offenders. Retail prices of most fuels are controlled and the domestic refined oil price has risen only 15 per cent this year, against 30 per cent for crude oil.
Chinese state-controlled refiners are left to carry the financial can, and have been understandably reluctant to sell their products at a loss. This has led to fuel shortages in southern China, exposing the government to the threat of the angry protests it was trying to avoid by fixing prices in the first place.
Indonesia's painful dilemma demonstrates the folly of subsidies. Susilo Bambang Yudhoyono, the president, bravely raised fuel prices by 29 per cent on March 1, but rising oil prices wiped out all the budgetary gains by the end of that month. This year the subsidies are expected to cost $14bn - 13 times what the central government plans to spend on health and education combined, and nearly three times the cost over five years of rebuilding Aceh after the December tsunamis.
Mr Yudhoyono's mistake was that he altered prices but not the mechanism for setting them. That not only leaves the state to pay the bill when prices rise but leads Indonesians to conclude that their government - not the world market - is responsible for any change in the absurdly low price of petrol,currently at 24 US cents a litre.
There is a case for subsidising kerosene used by the poor for cooking, but most fuel subsidies disproportionately benefit rich car-owners and electricity consumers. Like many unnecessary and complicated rules they also spawn bureaucracy, encourage corruption and promote smuggling to neighbouring jurisdictions with higher prices.
Inefficient power stations and vehicles and wasteful consumers already squander too much energy and generate unnecessary pollution in Asia.Subsidies make it all worse, and they are a trap that governments need to dismantle before further price rises make escape politically impossible.
Published: August 18 2005 03:00 Last updated: August 18 2005 03:00
Governments in Asia have devised all sorts of exotic measures to mitigate the damage inflicted by higher oil prices on budgets and import bills.
//
The Philippines has threatened fuel rationing. China has tried to reduce summer air-conditioning costs by increasing the temperature of government offices. Indonesia briefly restricted night-time television broadcasts, and the president has taken to wearing casual, cooler shirts to encourage the frugal use of electricity.
Yet these are empty gestures if consumers continue to burn subsidised fuel and remain insulated from the reality of rising world oil prices. Asian governments are not the only culprits, but the impact of their recklessness is particularly severe: big Asian oil importers accounted for half of global incremental demand for oil last year, and the reluctance to let higher retail costs constrain demand continues to put upward pressure on market prices.
China, the second biggest oil user after the US, is one of the offenders. Retail prices of most fuels are controlled and the domestic refined oil price has risen only 15 per cent this year, against 30 per cent for crude oil.
Chinese state-controlled refiners are left to carry the financial can, and have been understandably reluctant to sell their products at a loss. This has led to fuel shortages in southern China, exposing the government to the threat of the angry protests it was trying to avoid by fixing prices in the first place.
Indonesia's painful dilemma demonstrates the folly of subsidies. Susilo Bambang Yudhoyono, the president, bravely raised fuel prices by 29 per cent on March 1, but rising oil prices wiped out all the budgetary gains by the end of that month. This year the subsidies are expected to cost $14bn - 13 times what the central government plans to spend on health and education combined, and nearly three times the cost over five years of rebuilding Aceh after the December tsunamis.
Mr Yudhoyono's mistake was that he altered prices but not the mechanism for setting them. That not only leaves the state to pay the bill when prices rise but leads Indonesians to conclude that their government - not the world market - is responsible for any change in the absurdly low price of petrol,currently at 24 US cents a litre.
There is a case for subsidising kerosene used by the poor for cooking, but most fuel subsidies disproportionately benefit rich car-owners and electricity consumers. Like many unnecessary and complicated rules they also spawn bureaucracy, encourage corruption and promote smuggling to neighbouring jurisdictions with higher prices.
Inefficient power stations and vehicles and wasteful consumers already squander too much energy and generate unnecessary pollution in Asia.Subsidies make it all worse, and they are a trap that governments need to dismantle before further price rises make escape politically impossible.
posted by Marcel at 8:58 AM
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