World low fuel prices not passed on to consumers

Local gas prices twice NY’s …

… Govt tax revenues and company profits soar

With the monumentally high fuel prices in the country even amid the prevailingly record-low world-market prices for crude oil, the Guyana Government and private oiled companies continue to hoard millions of dollars at the expense of taxpayers who are forced to pay exorbitant prices for fuel while the Administration enjoys the luxury of purchasing cheaper oil. As would be expected, when crude oil prices slump on the international market, Government would instruct the state-owned service station Guyana Oil Company Ltd (Guyoil) to considerably lower its prices so that Guyanese can benefit. In fact, this has been the case for almost every other State worldwide: consumers are paying significantly less as a direct result of the oil industry’s current downturn. Prices in New York are half that of the prices in Guyana, even though both are purchasing old at the same price. Crude oil prices have been hovering around US$40 per barrel yet Guyanese are forced to pay $190 per litre while diesel will now be sold for $161 per litre. This was the most recent reduction announced by government which took effect October 16. Prior to that, gas was being sold for $199 per litre while diesel went for $168 per litre. Consumers are contending that this reduction is insignificant, given the incredibly low prices Government is paying for oil. Guyoil was created to undercut the prices at the private gas stations, with the long-term objective of making the private service stations lowering its prices too in order to remain competitive. At Rubis gas stations, prices are $190 per litre for gas and $162 per litre for diesel. At Shell gas stations, prices are $190.90 per litre for gas and $162.90 per litre for diesel.

Economic impacts According to the mid-year economic report released by the Finance Ministry, Government has been raking in mega revenues as a result of the lower international oil prices and by not passing on the savings to consumers and businesses, as is being practised in other countries. The report stated: “Public enterprises recorded a surplus of $4 billion in the first half of 2015, compared to a deficit of $2.5 billion recorded for the same period in 2014. This is mainly on account of improved performance by Guyoil which realised an overall surplus of $1.7 billion for the period under review compared to a deficit of $0.9 million reported in first half 2014. The main contributory factor to the improved performance by Guyoil was the reduced cost of fuel. While there was a 16.7 per cent decrease in the sale of fuel products, this was compensated by a $5.3 billion reduction in the payment to creditors as a result of a significant decrease in the acquisition costs of fuel in the first half of 2015.” What this means is although less fuel was imported, Guyoil made a profit of $1.7 billion as opposed to a loss of $0.9 billion in the comparable half year of 2014. This means Guyoil took in $2.6 billion that could have ended up in the pockets of Guyanese vehicle owners. This would have been pumped into the economy in consumer spending, creating a virtuous cycle as a stimulus for other business activities. Additionally, Government increased the duties collected by the Guyana Revenue Authority (GRA) on the commodity while allowing Guyoil to make premium profits, in spite of the “reductions” it has imposed. The Mid-Year report stated that while overall: “Customs and trade tax collections remained stable at $5.9 billion, in the first half of 2015… Excise tax collections totalled $15.2 billion, an increase of $2.9 billion. This resulted from a $3.2 billion increase from petroleum products.” The report continued: “Increases in petroleum products were due to increase in excise tax rates applicable on imports of gasoline and diesel oil in 2015 when compared to the rates applicable in 2014.During the period January to June 2014, the excise tax rates applicable on gasoline and diesel oil were 20 per cent and 15 per cent respectively as compared to 50 per cent and 45 per cent, respectively, from January 20 to June 31, 2015.” In essence, this means the previous People’s Progressive Party/Civic (PPP/C) Administration had more than doubled the taxes on gasoline (20 per cent to 50 per cent) and increased by almost than 100 per cent the taxes on diesel (25 per cent to 45 per cent). The new A Partnership for National Unity/Alliance for Change (APNU/AFC) Administration has since continued that policy although since the change in government the economy has flattened out and badly needs stimuli from all quarters to get it moving upwards. Furthermore, businesses would undoubtedly benefit tremendously from cheaper fuel. For example, the rice industry uses large quantities of fuel and the lower prices would have meant the difference between the losses presently being felt greater than profits. Many businesses bypass the Guyana Power and Light (GPL) and generate their own electricity, and lower fuel prices would have had a direct buoyant effect. GPL bought most of its fuel from Suriname at the world market cheap prices, and it also was allowed to make huge profits, since its rates were approved by the Public Utilities Commission two years ago when fuel was more than two-and-a-half times costlier. All of these pressures have helped to dampen business activity in comparison to our competing economies even in the region. As did the PPP/C Administration, the present G overnment has made an obligatory gesture towards reducing gasoline prices but the argument remains that these reductions are nowhere near what is justified to get the economy going, especially amid Guyana’s current economic downfall.