Automatic Fuel Pricing Mechanisms

Transcription

1 Automatic Fuel Pricing Mechanisms David Coady Division Chief Fiscal Affairs Department International Monetary Fund IEA International Conference on Fossil Fuel Subsidy Reform Paris, October 13, 2016

2 Motivation Increasing volatility of international fuel prices Click Incomplete pass-through of international price changes to domestic consumers Click Ad hoc approach to pricing susceptible to recurring energy subsidies Typically advise adoption of AFPM to ensure full pass-through and protect fiscal Click Click to Slide 6 - Objectives of AFPMs 2

3 Jan-1990 Sep-1990 May-1991 Jan-1992 Sep-1992 May-1993 Jan-1994 Sep-1994 May-1995 Jan-1996 Sep-1996 May-1997 Jan-1998 Sep-1998 May-1999 Jan-2000 Sep-2000 May-2001 Jan-2002 Sep-2002 May-2003 Jan-2004 Sep-2004 May-2005 Jan-2006 Sep-2006 May-2007 Jan-2008 Sep-2008 May-2009 Jan-2010 Sep-2010 May-2011 Jan-2012 Sep-2012 May-2013 Jan-2014 Sep-2014 May-2015 Jan-2016 Sep-2016 Increasing volatility in international oil prices Crude Oil Diesel International Oil Prices (US$/barrel) Click back to Slide 2 3

4 Incomplete pass-through in many countries Table 1. Median Pass-Through Coefficients by Country Groups and Over Time Median Pass-Through Coefficients Jan Dec 2006 Jan Jun 2008 Jul Feb 2009 Mar Jun 2014 Jul Dec 2014 Average Diesel median pass-through Advanced Economies Commonwealth of Independent States Developing Asia Emerging Europe Latin America and the Caribbean Middle East and North Africa Sub-Saharan Africa All countries Click back to Slide 2 4

5 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 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Fuel subsidy reform & adoption of AFPM Jordan Domestic and International Diesel Prices (In US cents per liter) Stepped Price Adjustment AFPM adopted No pass through AFPM reinstated 80 International Jordan 20 Feb-08 Dec-10 Aug-12 Aug-14 0 Source: Jordan Ministry of Energy and Mineral Resources, and the US Energy Information Administration. Click back to Slide 2 5

6 Objectives of AFPMs Avoid recurrence of energy subsidies by ensuring full Smoothing can be formally incorporated to reduce domestic fuel price volatility and avoid sharp price increases while ensuring full pass-through over medium term Transferring responsibility to independent pricing body can depoliticize pricing Can facilitate transition to liberalized pricing 6

7 Designing an AFPM Specify the pricing formula Adopt a timeline for updating the components of the pricing formula Establish a rule determining when and by how much retail prices are changed Consider a price smoothing mechanism to reduce short-term price volatility 7

8 Table 1. Fuel Price Structure LCU per liter Gasoline Kerosene Diesel CIF import price (1) FOB price Freight, insurance and fees Taxes (2) Custom duty Excise VAT Other fee and charges Domestic margins and transport (3) Margins (distribution and retail) Transport charges and fees = Pump price (LCU per liter) [(1)+(2)+(3)]

9 Price bands Smoothed variable: retail prices Can be for instance 3, 5, or 10 percent Excise tax/subsidy component is the adjustor Moving averages Smoothed variable : import prices Can be for instance 2, 4, or 6 month moving averages Excise tax/subsidy component is the adjustor

10 Smoothing can reduce price volatility. 90 Retail Prices Under Alternative Pricing Mechanisms FPT PB3 MA6 10

11 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13..but translates into fiscal volatility 35 Net Taxes Under Alternative Pricing Mechanisms FPT PB3 MA6 11

12 Can be adopted as part of reform strategy or at end Full pass-through Price band (3%) Price band (5%) Price band (10%) 60 Oct-13 Sep-13 Aug-13 Jul-13 Jun-13 May-13 Apr-13 Mar-13 Feb-13 Jan-13 12

13 Transition Strategy Outline a clear timeline for reaching targeted fuel tax levels Prepare in advance for the adoption of the pricing mechanism as soon as the targeted tax levels are reached Consider creating an autonomous committee responsible for implementing the new automatic mechanism Prepare a plan for liberalization of pricing over the medium term 13

14 Reform Experience Philippines (mid 1990s), South Africa (late 1970s) and Turkey (early 1990s) transferred implementation to independent body Philippines and Turkey implemented mechanisms as part of transition to liberalized pricing Many others have adopted AFPM more recently Jordan (2005); Mauritania (2012); Morocco (2013); Nepal (2014); Tunisia (2014); UAE (2015) Number of countries have adopted mechanisms with smoothing Cote d Ivoire; Chile, Colombia, Peru, Malawi, Mauritius, Namibia, Thailand, Vietnam India and Malaysia have liberalized fuel prices in

15 IMF resources AFPM Paper: Various tools and resources available on website: IMF Working Paper: How Large Are Global Energy Subsidies? IMF Book: Getting Energy Prices Right: from Principle to Practice IMF Book: Energy Subsidy Reform: Lessons and Implications 15