CUR­RENT FUEL PRIC­ING SYS­TEM IN SAINT LU­CIA

The Star (St. Lucia) - - LOCAL - By Dr. Claudius Pre­ville

I wish to add my voice to the on­go­ing dis­cus­sion about fuel prices in Saint Lu­cia. The prob­lem is fun­da­men­tally the pe­riod of time that gov­ern­ment is us­ing as the ba­sis for its “proxy” CIF price, i.e. twelve weeks over which there is likely to be con­sid­er­able vari­a­tion in fuel prices and hence an av­er­age will not do proper jus­tice to real de­vel­op­ments in world mar­kets.

The pol­icy of gov­ern­ment with re­gards to fuel prices does not help the peo­ple of St. Lu­cia and the econ­omy as it cur­rently stands. There are sev­eral prob­lems with the pol­icy. First, it is cre­at­ing ar­ti­fi­cially high prices for fuel caus­ing Saint Lu­cians to chan­nel into a re­source sig­nif­i­cant amounts of cash that could have been uti­lized to fi­nance other op­er­a­tions. Sec­ond, it is caus­ing the cost of pro­duc­tion of all goods and most ser­vices in the econ­omy to be higher than nec­es­sary. This in turn is caus­ing re­duc­tion in com­pet­i­tive­ness of Saint Lu­cian-pro­duced goods. Third, it is ef­fec­tively cre­at­ing a stran­gle­hold on the econ­omy by de­priv­ing cit­i­zens of the op­por­tu­nity for eco­nomic growth in other sec­tors that could be cre­ated by sav­ings in the fuel cost.

It is im­por­tant to first un­der­stand what an av­er­age is. Av­er­age, as used by gov­ern­ment, is the mean of sev­eral num­bers. It is ar­rived at by adding sev­eral num­bers then do­ing a sim­ple di­vi­sion by the num­ber of num­bers added. This kind of av­er­age is only good when the var­i­ous num­bers be­ing con­sid­ered are rea­son­ably sim­i­lar in mag­ni­tude. How­ever, when there has been con­sid­er­able vari­a­tion in the mag­ni­tude of the num­bers then an av­er­age can be de­cep­tive. To put this in con­text, it is pos­si­ble for a man six feet tall to drown in a swimming pool of av­er­age depth two feet. The rea­son is that while av­er­age paints one pic­ture of the pool depth, it does not tell us that there might be sec­tors of the pool that are sig­nif­i­cantly deeper than oth­ers. The fuel pass through mech­a­nism is only use­ful if we are av­er­ag­ing prices over an in­ter­val in which there has not been too much vari­a­tion.

So for in­stance, we ex­pect prices to be rel­a­tively sta­ble over a short in­ter­val like one week or per­haps a few weeks. But from ex­pe­ri­ence and for a va­ri­ety of rea­sons, prices are never sta­ble over a long in­ter­val of many weeks. There­fore, in or­der that the ben­e­fits of lower oil prices in the in­ter­na­tional mar­kets reach the peo­ple of Saint Lu­cia in a timely man­ner, gov­ern­ment has to re­duce the time in­ter­val over which the av­er­age is cal­cu­lated to come up with a proxy CIF price.

As it now stands, we have two pe­tro­leum im­porters: Ru­bis and Sol. Each im­porter uses its con­tacts to source fuel on the world mar­ket and pays a cer­tain price. Gov­ern­ment sets its proxy CIF price based on a his­tor­i­cal twelve week pe­riod and im­porters are forced to use that price un­til the twelve week pe­riod con­cludes. At the end of the twelve week pe­riod if the ac­tual CIF price paid by im­porters was lower than the gov­ern­ment set proxy CIF price, then the im­porters have to re­mit the dif­fer­ence to gov­ern­ment. If the gov­ern­ment set proxy CIF is be­low the price set by im­porters then gov­ern­ment has to re­mit the dif­fer­ence to im­porters.

The prob­lem is that when the gov­ern­ment set proxy CIF is too high the sav­ings that should be go­ing to pro­duc­ers and con­sumers are ap­pro­pri­ated by im­porters for three months. Hence, im­porters have three months to invest the sur­plus rev­enue as they wish and only after the three months are up do they re­mit the prin­ci­pal amount to gov­ern­ment. In the scheme of things we are look­ing at more than $10 mil­lion dol­lars be­ing mis­al­lo­cated as a re­sult of the cur­rent pol­icy. Ac­cord­ing to my own re­search we im­port ap­prox­i­mately 1.9 mil­lion gal­lons of gaso­line and diesel per month. With the gov­ern­ment set proxy CIF at $8.66, given that im­porters can source fuel for a price in the range of $6 to $7 per gal­lon, the dead­weight loss to the econ­omy is ap­prox­i­mately $3.5 to $4 mil­lion per month.

Now let us put this in con­text. Take a minibus driver who con­sumes 15 gal­lons per day to fill up. If the price is prop­erly aligned to world prices he can save about $30 - $40 per day on fuel alone. This trans­lates to greater abil­ity to buy food and cloth­ing for his chil­dren, pay for their ed­u­ca­tion and his util­ity bills. The same ap­plies for a fish­er­man or farmer.

Con­fi­den­tial data re­ceived from one im­porter shows an im­port price in De­cem­ber 2014 of $6.50 per gal­lon. Gov­ern­ment has re­cently set its proxy CIF price at $8.66 per gal­lon. If we used the De­cem­ber price at $6.50 per gal­lon, the price of a gal­lon of un­leaded fuel in Jan­uary should have been $11.81.

Cur­rently, the re­tail prices for un­leaded fuel in some neigh­bor­ing coun­tries are as fol­lows: Do­minica $11.42, Gre­nada $12.63; St. Kitts $10.75; St. Vincent $12.72; and Saint Lu­cia $13.65. But given Saint Lu­cia’s larger eco­nomic size and con­sump­tion of fuel it fol­lows that the least cost of fuel should be in Saint Lu­cia and not any of th­ese other is­lands.

This pol­icy is clearly do­ing sig­nif­i­cant in­jury to the peo­ple of Saint Lu­cia and there is no log­i­cal rea­son why it should be con­tin­ued for twelve weeks. I call upon the Prime Min­is­ter to ur­gently re­view the pol­icy in place so that or­di­nary Saint Lu­cians will ben­e­fit from lower fuel prices to the ex­tent that we should.

Since this is an is­sue of na­tional in­ter­est, I would be happy to avail my ser­vices to the gov­ern­ment if needed.

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