Linda Hutchinson-Jafar, Business Writer

Conrad Enill, Trinidad and Tobago's energy minister, confirmed review but said it was at preliminary phase. - file

The Patrick Manning administration has signalled a review of the annual US$320 million (TT$2 billion) subsidy on Trinidadian gasoline and diesel fuel, read by analysts as an early warning of a likely pull back of state support and eventually higher pump prices.

"We are conducting a preliminary examination of the issue in relation to expenditure in other areas of the economy," Energy Minister Conrad Enill confirmed.

Trinidad is an oil producer, but it also imports crude mainly from Venezuela, and is therefore exposed to volatile world prices.

Motorists in Trinidad and Tobago currently pay US$0.50 per litre for gasoline at the pumps compared to drivers in nearby Barbados who pay US$1.35 per litre, and about US$0.90 for Jamaicans.

Trinidad does not plan to completely remove the subsidy, according to Junior Finance Minister Mariano Browne, but is examining the degree of the cut to offset increased government spending on oil imports.

"The level of the subsidy has continued to escalate and we may have to consider not wiping it away entirely, but certainly reducing it," said Browne.

"It's early stages, early stages. No decision has been made in that regard, but it is something that has to be looked at. It's on the table."

Heavily subsidised

All petroleum fuel products in Trinidad and Tobago are heavily subsidised as a deliberate policy of the government since 1974 with the passing of the Petroleum Production Levy and Subsidy Act.

The legislation sets up a mechanism for the collection of a levy from oil producing companies and the payment of a subsidy to wholesaler National Petroleum (NP), a state operated company, to compensate for selling products to consumers at the fixed retail prices.

Over the period 1996-2005 the petroleum subsidy amounted to US$655 million, or an average of US$65 million per year.

The subsidy is also tax deductible for oil producing companies, so government also incurs additional opportunity cost in revenues foregone.

A change in the tax regime limited the production levy to 3.0 per cent of the gross income from crude production but the cap was increased to 4.0 per cent in 2004, with the exception of companies producing less than 3,500 barrels per day (bpd).

The introduction of the cap means that government bears the part of the cost not covered by the levy.

Critics opposing the reduction of the gas subsidy say removing it will lead to an increase in inflation, but those who are for it say it could force Trinidadians to start conserving on energy usage.

Business operators were mor with the former position, saying higher pump prices would put additional burden on consumers already battling high food prices.

"It will impact very heavily on the cost of living. The cost of transportation will go up and there will be a drastic increase in the cost of goods and services. Government would be well advised to come clean and tell the nation all the reasons why it will be necessary," said businessman Leonard Bradshaw.

Eliminate 'harmful' subsidies

However, economist Mary King said in support of a cut that 'harmful' subsidies on gasoline and electricity that are environmentally damaging should be eliminated.

"Instead, governments should provide support for energy conservation techniques," she said.

Describing subsidies as a major mis-allocation of resources, King said subsidies, where they are employed, should target specific households but not everyone.

Economist Dr Eric St Cyr also supported the reduction in the subsidy and urged the Manning administration to act on it though, he acknowledged, it could hurt the administration politically.

"It's going to have both economic, that is, inflationary impact and political fallouts, but my view is that we have to tackle it," he said.

business@gleanerjm.com