In T&T: STEP ON THE GAS. Economist urges Govt to set timetable to reduce fuel subsidy

6 June 2012


Country before self? How much is the fuel subsidy worth to you?

Independent Senator Subhas Ramkhelawan yesterday called on Government to devise a timetable for reducing the $4 billion gas subsidy.

Don’t wait till the economic situation forces a drastic reduction because “your back is up against the wall”, he advised.

Ramkhelawan, who said he was “very worried about the economic predicament” of the country, said he did not want a scenario where Government would have “no choice” but to “make a precipitous adjustment to gas prices”. Since this, he said, would lead to vast increases in the cost of living.

He was speaking in Parliament during the debate on the Supplementary Appropriation Bill which seeks approval for the Government to spend $1.5 billion more in this fiscal year. Ramkhelawan said this was a politically hard decision ( reducing the gas subsidy) “but when you have transfers and subsidies comprising 53.9 per cent of your revenues … and 46 per cent of expenditure, it is time to wake up and smell the coffee”.

Pointing out that transfers and subsidies to households moved from $1.3 billion in 2000 to $8.12 billion in 2011, Ramkhelawan said: “That is a fantastic statistic and the question is whether it is sustainable. And the answer is straight, simple, clear. It is not sustainable.”

He said his fear was that politics would continue to trump economics until such time it is clear there was no other option.

Outside of the subsidies for the household sector, Ramkhelawan said it had to be pointed out Caribbean Airlines (CAL) is not getting a fuel hedge, but “call a spade a spade”, it was a subsidy.

“Let us set aside the ruse,” he said. As the PNM senators laughed and deskthumped, Ramkhelawan said the “ruse” (of describing it as a hedge) was not invented by the People’s Partnership, but by the former minister, Mariano Browne. “I speak for no political party. And what we have is a fuel subsidy a.k.a hedge of $273 million,” he said.

He said while the three years of decline reflected the world economic order, the issue for the country was “what were we doing to engender economic growth in some shape or form”. He said there was cause for concern for what was happening in the energy sector. The level of gas production had fallen and the level of reserves was dwindling. He said there were no new finds to take the country into a new gas era similar to what occurred in the mid-1990s. “So where are we going to hang our hat and say we would move forward confidently. … I am not seeing that in the immediate future,” he said.

Ramkhelawan said the country has depended on foreign direct investment of a capital intensive nature in the energy sector for many years. And because energy is an important part of the economy, the country would have to continue depending on energy for the near future.

However, Ramkhelawan said, most capital intensive projects have a pay-back of 15 to 18 years or 20 years. “If you put down a methanol or LNG plant, you want to make sure that you have gas supplies for that entire period of 15 to 20 years. … And that is the core of our problem. We have nine to ten years of gas reserves. We are short of the marker and we have turned from the beautiful swan (to the ugly duckling). And international investors are concerned. They need to know they have gas for the duration of their projects and that is what is missing,” he said.

Ramkhelawan said the country was five years behind in terms of the generation of new gas finds. He said even with a change in the tax regime, it takes seven to 10 years to commercialise any new gas. “What happens in the interim- between 2012 to 2019? And that is if we find gas,” he said.

This situation was critical because half of the GDP comes from the energy sector, much more is dependent on energy sector in terms of distribution, retail and services sectors and half of the revenues come from the energy sector and over 80 per cent of exports come from this sector, he noted.

Responding to a comment from the Government bench, Ramkhelawan said he was not concerned with when the gas production started to fall – whether it was three years ago or 2007. “That is mere political bantering. I am speaking about the economy and I am not speaking for the Government or for the Opposition,” he snapped. “I am speaking for the country. That is the only thing I am concerned about! Who runs the country is of little consequence, it is how they run it !” he added.

Ramkhelawan said he was not being a pessimist but a pragmatist who had seen some of these indicators before in the mid 1980s.

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