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25.04.2012 Seite 1
3 Dimensions of Fuel Pricing
Political steps and principles
of setting effective fuel pricing mechanisms
Level of Prices
Regulation of Prices
Transparency of Prices
April 2012
Manfred Breithaupt, GIZ
www.giz.de/fuelprices
25.04.2012 Seite 2 Page 2
International Fuel Prices – Current issues
January 2011: Failed attempt to raise fuel prices in Bolivia
January 2012: Semi-successful price increase in Nigeria (from
65 Naira to 141 Naira, back to 97 Naira, after two weeks of
protest)
March 2012: Two price adjustemnts in PRC: Gasoline prices
have smashed the 8 Yuan per litre ($1.27) benchmark
April 2012: Failed attempt in Indonesia (the anounced increase
from 4500 to 6000 Rupiah did not take place)
April 2012: German government considers price monitoring
Spring 2012: Fuel prices are major US election campaign
issue
Fuel pricing remains highly political
25.04.2012 Seite 3 Page 3
International Fuel Prices
Background
• Since 1991 GIZ carries out regular worldwide Fuel
Price Surveys. One of its goals is to provide a
worldwide comparison of retail prices to track / to
highlight energy price policies in developing
countries.
• Currently, data are available for 170 countries for
Diesel and Gasoline, based on (the last) survey in
Mid-November 2010
• Part of World Bank Indicator Set (World Development
Indicators, World Road Statistics, …)
• 2010 Survey available on: www.giz.de/fuelprices
25.04.2012 Seite 4
25.04.2012 Seite 5
25.04.2012 Seite 6 Page 6
Our new "International Fuel Prices
Observatory” factsheets offer
compact information on two pages:
•Price in USD and local currency
(some since 1991)
•Price composition (production costs,
taxes, fees, margins, etc)
•Pricing policy
•Transparency-traffic-signal on price
composition and pricing policy
•Related Links
NEW: Factsheets
Page 1
25.04.2012 Seite 7 Page 7
Our new "International Fuel Prices
Observatory” factsheets offer
compact information on two pages:
•Price in USD and local currency
(some since 1991)
•Price composition (production costs,
taxes, fees, margins, etc)
•Pricing policy
•Transparency-traffic-signal on price
composition and pricing policy
•Related Links
NEW: Factsheets
Page 2
In-depth discussion of fuel
pricing policies
25.04.2012 Seite 8
3 Key Issues
Price Level
Price Composition
Price Changes
25.04.2012 Seite 9 Page 9
Level of Prices: Benchmark lines
EU minimum level
Crude oil price ("Brent“)
US retail price level
Very high
fuel taxation
Fuel taxation
Fuel subsidies
Very high
fuel subsidies
Example: Super Gasoline Tanzania
Crude Oil /
Transport /
Refinery
VAT / General
Revenues
Road
Maintenance
External Costs
25.04.2012 Seite 10 Page 10
1. Principle 1: Cover Production/Transport/Refinery Costs.
Fuel prices cover the full costs of production/import, transport and refining including
depreciation and external costs of production (e.g. environmental costs)
2. Principle 2: Fuel taxes help finance the transport sector.
Fuel taxes can contribute to sustainable development in the transport sector
Road maintenance financing (rule of thumb: minimum of US 10 cents for road
maintenance, including 20 % for rural roads).
3. Principle 3: Internalisation of external costs and incentives for of energy-efficient
transport.
Directly related to fuel consumption and CO2 emissions.
Proxy for other social costs (like accidents (cf. road safety cent, congestion, etc.).
Eco-Tax.
4. Principle 4: Important contribution to general budget revenues.
Major contribution towards financing core state functions such as the health
services, education and security.
As fuel taxes are easy to collect they are a major source of revenue in many
countries.
Subject to full VAT as any other good.
25.04.2012
Level of Prices: Principles
25.04.2012 Seite 11 Page 11
0
100
200
300
400
500
600
700
800
900
Nov
07
Dez
07
Jan
08
Feb 0
8
Mrz
08
Apr
08
Mai 0
8
Jun
08
Jul 0
8
Aug
08
Sep
08
Okt 0
8
Nov
08
CF
A F
ran
c /
Lit
er
Pricing mechanisms
Pricing concepts:
Ad-hoc pricing (incl countries
with constant prices)
Automatic adjustments /
regular adjustments based on
formulae
Liberalized markets
Objectives:
Increased acceptance
Lower fiscal implications
Lower political involvement and
risks
Increased energy security by
appropriate fuel pricing
mechanisms
0
200
400
600
800
1000
1200
Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08
RS
A-c
en
ts /
lit
re
0
50
100
150
200
250
300
350
400
450
01.1
0.2
007
01.1
1.2
007
01.1
2.2
007
01.0
1.2
008
01.0
2.2
008
01.0
3.2
008
01.0
4.2
008
01.0
5.2
008
01.0
6.2
008
01.0
7.2
008
01.0
8.2
008
01.0
9.2
008
01.1
0.2
008
01.1
1.2
008
US
-cen
ts /
gall
on
25.04.2012 Seite 12 Page 12
Regulation of Prices
0
200
400
600
800
1000
1200
Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08
RS
A-c
en
ts /
lit
re
0
50
100
150
200
250
300
350
400
450
01.1
0.2
007
01.1
1.2
007
01.1
2.2
007
01.0
1.2
008
01.0
2.2
008
01.0
3.2
008
01.0
4.2
008
01.0
5.2
008
01.0
6.2
008
01.0
7.2
008
01.0
8.2
008
01.0
9.2
008
01.1
0.2
008
01.1
1.2
008
US
-cen
ts /
gall
on
Political vulnerability
Political interference
Temporary price shocks
High Low
Permanent price shocks Low High
Low Medium
Fiscal implications
High Low
Ad-hoc pricing is usually associated
with delayed and/or partial pass-
through
Automatic formulae are usually
associated with delayed but in long-
term full pass-through
Liberalized concepts provide full
pass through with minor delays
Permanent price shocks
vs. vs.
In face of a permanent price shock, the transition from ad-hoc pricing to automatic mechanisms
is politically very costly as huge steps are needed to adjust to international price levels as well as
previously accumulated fiscal burdens are substantial
0
100
200
300
400
500
600
700
800
900
Nov
07
Dez
07
Jan
08
Feb 0
8
Mrz
08
Apr
08
Mai 0
8
Jun
08
Jul 0
8
Aug
08
Sep
08
Okt 0
8
Nov
08
CF
A F
ran
c /
Lit
er
25.04.2012 Seite 13 Page 13
1. Principle 1: Reflect Changes of
Production/Transport/Refinery Costs.
Fuel prices adjustments reflect changes of production/import,
transport and refinery costs including depreciation and external
costs of production (e.g. environmental costs)
2. Principle 2: Allow for inflationary adjustment
Fuel price adjustments allow for adjustment of inflationary
tendencies
3. Principle 3: Limit budgetary consequences
Fuel price adjustements shall limit bugdetary impact and indicate
clear exit strategies (in case of subsidies)
25.04.2012
Regulation of Prices: Principles
25.04.2012 Seite 14 Page 14
Transparency
0.48
0.07
0.10
0.11
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
US
- D
oll
ar
/ litr
e
US average May 2010
Tax
Margins
Refinery
Crude Oil
0.59
0.30
0.01
0.18
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
US
-D
oll
ar/
litr
e
India/ New Delhi
Sales Tax
Education Cess
Excise tax/Cenvat
Balance (Crudeoil, margins,refinery)
Crude+
refinery+
margins
0
0.2
0.4
0.6
0.8
1
1.2
Saudi Arabia
?
Transparency
25.04.2012 Seite 15 Page 15
Transparency
Price without Subsidies
Price with Subsidies
Accessible Information
25.04.2012 Seite 16 Page 16
1. Principle 1: Information on institutional stakeholders in price setting are published
Provide information on institutional stakeholders involved in determination of price
levels and elaboration of price adjustments
2. Principle 2: Principles of price setting are published
Provide information on determinants for pricing, on frequency of updates and the
underlying formula if automatic mechanisms are applied.
3. Principle 3: Information on price composition are published
Publish information on taxation levels and composition of fuel prices
4. Principle 4: Information on prices and price setting are made public in an easy-to-
access, comprehensible and accountable manner
Information shall be displayed on the Web including: Current price data for all fuel
products; Timelines of prices; price components (production and/or import prices,
taxation levels, and other charges); Explanation of structure and modus operandi of
pricing mechanisms (if applied); Underlying legislation.
25.04.2012
Transparency of Prices: Principles
25.04.2012 Seite 17 Page 17
Fuel Price & Regulation Map
0
200
400
600
800
1000
1200
Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08
RS
A-c
en
ts /
lit
re
0
50
100
150
200
250
300
350
400
450
01.1
0.2
007
01.1
1.2
007
01.1
2.2
007
01.0
1.2
008
01.0
2.2
008
01.0
3.2
008
01.0
4.2
008
01.0
5.2
008
01.0
6.2
008
01.0
7.2
008
01.0
8.2
008
01.0
9.2
008
01.1
0.2
008
01.1
1.2
008
US
-cen
ts /
gall
on
0
100
200
300
400
500
600
700
800
900
Nov
07
Dez
07
Jan
08
Feb 0
8
Mrz
08
Apr
08
Mai 0
8
Jun
08
Jul 0
8
Aug
08
Sep
08
Okt 0
8
Nov
08
CF
A F
ran
c /
Lit
er
Very high
fuel taxation
Fuel taxation
Fuel subsidies
Very high
fuel subsidies
Transparency / Targeting
Monitoring /
Information
25.04.2012 Seite 18 Page 18
Passive or No Regulation
Ad-hoc Regulation
Rational Regulation
Very high
fuel taxation
Fuel taxation
Fuel subsidies
Very high
fuel subsidies
X – Price increase
without reform of regulation
and limited transparency
√ – 2nd step: Reform of
regulation (move towards
formulae based pricing
mechanism with regular price
review)
√ – 3rd step: Gradual
price increases (e.g. with
indexation)
Objective: Move towards
rational pricing, increase
transparency and improve
targeting of subsidies
Objective: Increase
transparency, build trust
through accountability and
de-politize fuel pricing
Objective: Increase
transparency through
government-sponsored
monitoring and
√ – 1st step:
Increase
transparency (of
composition of
prices and of
regulatory approach)
Fuel Price & Regulation Map
25.04.2012 Seite 19 Page 19
Fuel Price & Regulation Map: Empirical evidance (under prepration)
Price
Ad-hoc Regulation
Rational Regulation
Passive or No Regulation
25.04.2012 Seite 20 Page 20
Fuel Price vs Total Consumption (incl US)
Liberia French Polynesia Rwanda Nepal Mali Sierra Leone Madagascar Malawi Suriname Guinea Tajikistan Swaziland Barbados Mozambique Palestine Congo (Brazzaville) Guyana Mauritius Macedonia Zambia Cote dIvoire (IvoryCoast)
Zimbabwe Ethiopia Korea, North Cambodia Togo Burkina Faso Congo (Kinshasa) Nicaragua Paraguay Brunei Tanzania Uruguay Uganda Cuba Bangladesh Botswana Namibia Mongolia Burma (Myanmar) Cameroon Kenya Honduras Luxembourg Benin El Salvador Tunisia Sri Lanka Kyrgyzstan Panama Morocco Bolivia Jamaica Ghana Bahrain Angola Sudan and South
Sudan Costa Rica Singapore Guatemala Dominican Republic Jordan Turkmenistan Qatar Peru Libya Syria Norway Lebanon Yemen Uzbekistan Pakistan Oman Algeria Chile Turkey New Zealand Kuwait Taiwan Ecuador Philippines Kazakhstan Colombia Vietnam United Arab Emirates Argentina Iraq Egypt Thailand Ukraine Nigeria Korea, South Malaysia South Africa France India Venezuela Indonesia Australia Brazil Saudi Arabia United Kingdom Germany
Canada Russia Mexico Japan
China
United States
1
501
1001
1501
2001
2501
3001
3501
4001
4501
5001
5501
6001
6501
7001
7501
8001
8501
9001
9501
0 50 100 150 200 250 300
Co
ns
um
pti
on
of
Mo
tor
Ga
so
lin
e (
Th
ou
sa
nd
Ba
rre
ls p
er
Da
y,
20
08
)
Gasoline Price in US Cents (2010) Source: United States Energy Information Administration
25.04.2012 Seite 21 Page 21
3 Key Messages
0
200
400
600
800
1000
1200
Nov 07 Dec 07 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08
RS
A-c
en
ts /
lit
re
0
100
200
300
400
500
600
700
800
900
Nov
07
Dez
07
Jan
08
Feb 0
8
Mrz
08
Apr
08
Mai 0
8
Jun
08
Jul 0
8
Aug
08
Sep
08
Okt 0
8
Nov
08
CF
A F
ran
c /
Lit
er
1
2
Introduce sensible regulatory approach
Reflect market forces (Global Demand vs Global Supply)
Acceptance ; Continous Adaptation of Patterns
Introduce (earmarked) taxes and duties: internal infrastructure costs, external costs, VAT
Acceptance ; Accountability
Crude Oil /
Transport /
Refinery
VAT / General
Revenues
Road
Maintenance
External Costs
25.04.2012 Seite 22 Page 22
Crude Oil /
Transport /
Refinery
?
3 Key Messages
3
Increase transparency
Acceptance ; Accountability
3-level approach with improved regulation, higher
transparency and targeted introduction of taxes can
help to reduce subsidies and / or increase sustainability
25.04.2012 Seite 23 Page 23
[email protected] www.giz.de/fuelprices