On Petrol Price

7/29/2019 On Petrol Price

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IMPACT OF THE RISING PRICES OFOIL-BASED FUELS ON THE

SAMOAN ECONOMY

HIGH LEVEL REGIONAL POLICY DIALOGUE ON THE FOOD-FUEL CRISIS AND CLIMATECHANGE

9-10 DECEMBER 2008


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BASIC INFORMATION ON SAMOA (contd)

Gross Domestic Product (2006): SAT$1,248.7million; US$455.7 million.

GDP composition (2006): primary sector 11.4%;secondary sector 26.6%; tertiary sector 62.1%.

GDP per capita (2006): SAT$6,969; US$2,543.

Remittances (19902005 average): about 20% of

GDP.

Human Development Index (2004): 0.778, placing

Samoa 75th out of 177 countries, in the mediumhuman development group.Source: Strategy for the Development of Samoa 2008/2012


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UNDERSTANDING THE IMPACT OF RISEIN OIL PRICES ON SAMOAN ECONOMY

1. Main Causes of Oil Price Rise;

2. Price Determination of Petroleum ProductsPrices;

3. Macroeconomic Effects (Balance of Payments

and Inflation)

4. Sectoral Impacts (Transport, Electricity,Commercial and Households)


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1. MAIN CAUSES OF OIL PRICE RISE

High Demand of oil from Emerging Markets and

Developing Economies;

Limited Supply Response;

Sources: Government of Samoa Press Releases, IMF Reports, etc


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2. PRICE DETERMINATION OF OIL BASED FUELSa) Government sets prices;

1. Singapore Exit Price

2. Supplier

Shipment Costs;

Transportation Costs; and,

Profit Margin (fixed);3. Distributor

Domestic Transportation Costs;

Excise tax;

VAGST;

Petroleum Levy (Loan Repayments, etc)

Terminal Fee (maintenance, insurance, etc)

Profit Margin (fixed);

4. Retailers/Petrol Stations

Profit Margin (fixed);

b) Suppliers Price sets in Contract;c) Distributors (Wholesale) Price sets in Price Order;d) Petroleum Stations set in Price Order;


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SINGAPORE PRICES OF CRUDE OIL

AND OIL-BASED FUELSFigure 1: Singapore Prices of Crude Oil and Oil-Based Fuels

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2003 2004 2005 2006 2007 2008 (Jan.-

June)

Average

AnnualPrice(U

Scentsperlitre

Crude Oil

Diesel

Petrol

Kerosene

Source: http://tonto.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm

More than 3 times higher than 2003 Prices


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LANDED PRICES OF OIL-BASED FUELS

Figure 2: Landed Prices of Oil-Based Fuels

0.40 0.370.42

1.09

0.91

1.09

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Diesel Petrol Kerosene

US$

per

litre

Dec-04

Jul-08

Source: Ministry of Finance

WHOLESALE PRICES OF OIL BASED


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WHOLESALE PRICES OF OIL-BASEDFUELS

Figure 3: Wholesale Prices of Oil-Based Fuels

1.81 1.77 1.73

3.84

3.34

3.65

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Diesel Petrol Kerosene

SAT$

Dec-04

Jul-08



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RETAIL PRICES OF OIL-BASED FUELSFigure 4: Monthly Petroleum Prices Per Litre

January 2003 - July 2008

100.00110.00120.00130.00140.00150.00160.00170.00180.00190.00200.00210.00

220.00230.00240.00250.00260.00270.00280.00290.00300.00

310.00320.00330.00

Jan-03

Apr-03

Jul-03

Oct-03

Jan-04

Apr-04

Jul-04

Oct-04

Jan-05

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Monthly Prices

Prices

(sene)

Unleaded Petroleum

Diesel

Dual Purpose Kerosene (domestic)

As expected, retail monthly prices have risen


CHANGES IN RETAIL PRICES FROM


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CHANGES IN RETAIL PRICES FROMJANUARY 2003 TO JULY 2008

Periods Price of UnleadedPetrol

Price ofDiesel

Price of DualPurposeKerosene

(domestic)

January 2003(SAT$ per litre)

1.42 1.41 1.32

July 2008 (SAT$per litre)

3.43 3.93 3.75

AnnualisedGrowth (%)

12.1 14.8 15.8

PercentageIncrease on

2003 Level

142.3 178.5 183.4


ANNUAL SALES VOLUMES OF


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ANNUAL SALES VOLUMES OFPETROLEUM PRODUCTS 2004 - 2007

Figure 5: Annual Sales Volumes of Petroleum Products

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

2004 2005 2006 2007

L

itres

Diesel

Petrol

Kerosene

Petroleum Volumes have been relatively stable



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WORLD, REGION AND NATIONAL DEMANDVOLUMES - CONTEXTUALISATION

1. World Demand 82,000,000 barrels a day;

2. Regional Demand - 40,000 barrels a day i.e. 5

out of 10,000 of World Demand;

3. Samoas Demand - 1,400 barrels a day i.e.4.0

percent of Regional Demand;

Source: Pacific Islands Forum Secretariat Presentation in Auckland

3 MACROECONOMIC EFFECTS


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3. MACROECONOMIC EFFECTS(BALANCE OF PAYMENTS)

Dramatic Oil Price Rise Actual Petroleum Imports for Financial Year 2007/08 - SAT$182.4 million;

Petroleum Imports (USD exchange rate unchanged) - SAT$161.9 million;

Extra-Payment Amount: SAT$20.50 million

Comparisons

1.44% of GDP (2007);

9.9% of Gross Foreign Exchange Reserves (June 2007); In effect reduced import cover from 4.0 months to 3.6 months;

Source: Central Bank Bulletins and Ministry of Finance



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Cushioned by 7.7% appreciation in Samoan Tala overUS Dollar (December 2004 July 2008);

Excise Tax on Unleaded Petrol Reduction from 40%to 18% of Landed Petroleum;

Excise Tax on Diesel Reduction of 36% to 14% ofLanded Diesel;

Low Pre-tax wholesale margin Petroleum facility

ownership and competitive tendering;Source: Central Bank Bulletins and Ministry of Finance



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Figure 7: Petroleum Imports' Shares of Total Imports and GDP

0

5

10

15

20

25

S

hareofTotalIm

ports(%

)

0

1

2

3

45

6

7

89

10

ShareofGDP

(%

Share of Total

ImportsShare of GDP

Share of Total Imports 12.83 17.66 18.71 18.84 20.64

Share of GDP 6.00 7.43 8.52 9.16 8.93

2003 2004 2005 2006 2007

Source: CBS Bulletins and Ministry of Finance

Share to Total Imports nearly doubled in value; Share to GDP increased by 2.93% within the four years

2.93% 7.81%


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3. MACROECONOMIC EFFECTS

(INFLATION)Consumer Price Index (CPI)

Direct Impact of Petroleum Products on CPI

i.e. 1% rise in fuel imports would directly lead toa 0.04% rise in CPI or 25% in fuel importswould directly lead to a 1% rise in CPI;

(This understates the inflationary effect

as fuel is an intermediate input intoother goods and services)


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4. SECTORAL IMPACTS (TRANSPORT,

ELECTRICITY AND HOUSEHOLDS)



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4. SECTORAL IMPACTS (TRANSPORT)

Land, Sea and Air

Petroleum Products Imports - SAT$137.50million;

SAT$15.46 million (overspending);


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4. SECTORAL IMPACTS (TRANSPORT)

Period: July 2007 - July 2008

UnleadedPetrol

(ULP) Diesel

Dual PurposeKerosene

(domestic)

Percentage Changes 33.2% 59.7% 63.7%

July 2007 Prices 100.00 100.00 100.00

July 2008 Prices 133.22 159.71 163.65


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4. SECTORAL IMPACTS (ELECTRICITY)

Petroleum Products Imports - SAT$14.95 million; SAT$1.68 million (overpayment);

Cost of Fuel 77% of Total Operating Costs;

53% of EPC Overall Costs;

June 2006 July 2008

Import Price of Diesel (excluding Govt charges)increased from SAT$1.66 to SAT$2.80 per litre;

73.5% Diesel Price Increase;

56.6% of EPC Overall Costs;Source: ADB 2007, Samoa Private Sector Assessment: Consolidating Reform for Faster Growth: ADB


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4. SECTORAL IMPACTS

Commercial

Petroleum Product Imports - SAT$23.91 million; SAT$2.69 million (overpayment);

Households

Petroleum Products Imports - SAT$5.98 million;

SAT$0.67 million (overpayment);

POLICY OPTIONS FOR RESPONSE


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Reformed and competitive environment forfuel imports and distribution

small difference between Singapore prices foroil-based fuels and the pre-tax wholesale fuelprice;

continued adherence to an automatic pricingmechanism consistent with Governmentsgeneral economic policy;

maintain commitment in a supply-side shockthat is completely beyond its control;



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- Imposed substantial fiscal costs and areinefficient;

- Loss of revenue may require cuts ingovernment expenditure in areas such aseducation and health;



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Controlling public transport prices squeezes service providers cost-price and

discourages investment;

Targeted cash transfer or voucher programs

offer a first-best solution;

allow for a partial indexation of retail prices tothe price of imported fuel;



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Monetary policy kept tight to protect theeconomy from second-round effects:

rise in imported fuel prices and ease pressureon foreign exchange reserves;

possible adverse effects of higher interest rateson private investment.

tightened monetary policy stance maintained;

the expansionary fiscal policy adopted inFY2009/10;



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Tala Appreciation against the US dollar by close to8% between December 2004 and July 2008

Samoas exchange rate policy has been a

credible anchor;

a policy commitment to maintaining this

stability in the nominal effective exchange rate;



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Medium- to Long-term Policy Option:

Reducing the Reliance on Imported Fossil

Fuels;

Use of Coconut Oil in Diesel Generators;

Allowing the domestic price of fossil fuels torise;



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Preferred Policy Response allow the price mechanism to work

with minimal interference, so that theenergy policy target of shifting to

renewable energy sources issupported;


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FAAFETAI TELE LAVA

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