on petrol price
TRANSCRIPT
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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
Source: Ministry of Finance
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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
Source: Ministry of Finance
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
Source: Ministry of Finance
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
Source: Ministry of Finance
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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
3 MACROECONOMIC EFFECTS
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3. MACROECONOMIC EFFECTS(BALANCE OF PAYMENTS)
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
3 MACROECONOMIC EFFECTS
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3. MACROECONOMIC EFFECTS(BALANCE OF PAYMENTS)
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)
Source: Ministry of Finance
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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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POLICY OPTIONS FOR RESPONSE
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;
POLICY OPTIONS FOR RESPONSE
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POLICY OPTIONS FOR RESPONSE
- Imposed substantial fiscal costs and areinefficient;
- Loss of revenue may require cuts ingovernment expenditure in areas such aseducation and health;
POLICY OPTIONS FOR RESPONSE
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POLICY OPTIONS FOR RESPONSE
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;
POLICY OPTIONS FOR RESPONSE
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POLICY OPTIONS FOR RESPONSE
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;
POLICY OPTIONS FOR RESPONSE
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POLICY OPTIONS FOR RESPONSE
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;
POLICY OPTIONS FOR RESPONSE
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POLICY OPTIONS FOR RESPONSE
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;
POLICY OPTIONS FOR RESPONSE
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POLICY OPTIONS FOR RESPONSE
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