Ministry explains higher fuel prices “St. Maarten not in position to provide a subsidy”

POSTED: 09/21/12 1:10 PM

GREAT BAY – The Ministry of Economic Affairs, Transportation and Telecommunications has published an extensive explanation about the recent increase in fuel prices. This is the ministry’s reaction:

“Gasoline prices are affected by a composition of various factors, including, on-going Organization of Petroleum Exporting Countries (Opec) production trends; oil inventory levels; demand from developing non-OECD countries; demand trends from more mature OECD economies; market altering events from bad weather to political upheaval; financial market activity which also induce speculators that can drive up the prices.

Currently there is a mix of the aforementioned developments. For instance, analysts have forecasted that the expectation that the Federal Reserve will take action to keep interest rates lower until the end of 2012, will help the US economy, but should also boost oil prices because demand for energy should pick up.

In addition as a small non-oil producing country, the effects are harder felt and the cost to the end consumer higher. The local prices of refined petroleum products follow the trend of the price of crude oil on the international market.

However, there is a lag in the prices changes, which is due to the fact that Sint Maarten is fully import dependent and the shipments of the petroleum products are usually every three to four weeks.

For discussion purposes, if the wholesaler purchases 1,000 gallons at a higher price, that is the price the product will be sold for on the market until that stock is completed. This means if the prices decrease, within that period, the local market will continue paying for the higher price, and vice versa.

As such, Sint Maarten cannot always respond as quickly to the international price changes, so even though internationally the prices are decreasing, the local prices may still remain high until a next fuel shipment arrives on the island.

Additionally, the final consumer tank price is made up of different factors, including taxes (Naf.0.29 guilder cents per liter), transportation cost, insurance, freight, port and landing fees and the Wholesaler and Retailer profit margins.

These price components are added to the base rates, and are inevitably higher than what we see in the United States.

In addition, the prices of gasoline on the surrounding islands may vary and are higher (Grenada 3.00) or lower (Aruba 2.447, Curacao 2.327 guilders) due to the fact that some islands subsidize the petroleum products, or have their own oil refinery. According to the Bermuda government in September 2012, gasoline prices hit an all-time high this year to date, 4.03 guilders per litre.

With no natural gas available, almost all Caribbean islands except for a handful must import and the prices of petroleum products are very expensive compared to the USA and Canada.

The options available to most Caribbean islands are to subsidize. However, subsidizing must be funded, which result in a higher tax burden elsewhere, such as Value Added Tax (VAT),

Consumption Tax, Property Tax, or tariffs (including domestically produced products) and Import Duties, therefore other taxes are levied to cover the costs.

Sint Maarten is not in the position of providing a subsidy as the tax burden on the general public will have to increase in order to provide these subsidies.

Instead, the Ministry sets maximum prices in order to mitigate high price increases. For example, the reason for the recent price increases (August 29 and September 4, 2012) for gasoline are due to the fact that government levelled out the initial price increase of 24 Antillean cents over several weeks.

The levelling out is used as a strategy to spread out the burden of the high price increase on the end consumer. The third most recent price increase of 12 Antillean cents (September 19), was due to the abovementioned international developments.

The Ministry is looking at all available options to try and lower the burden on the consumer. In order to provide relief for the public, the Ministry commissioned Soab (Stichting Overheids Accountant Bureau) to review the gasoline and diesel margins of the wholesaler, retailers and LPG distributors.

Further, the study will look at the price build-up to determine if any changes are possible. Global oil prices have now been volatile for the past 10 years, compared with historical trends, with sharp volatility characterizing the markets since the latter half of 2007.

Managing oil price volatility is a constant challenge for all Caribbean islands. The Ministry is committed to reviewing all feasible available options to lower the burden for the end consumer.

The Soab report is expected to be finalized at the end of December.”

 

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