Following announcements that fossil-fuel subsidies will be phased out, from the G-20, APEC and a number of independent countries, including Iran, Nigeria and Bahrain, Subsidy Watchhas decided each month to highlight important news stories that touch on this theme ...

4 May  According to Bangladeshi news website bd EnergY LinK, in the past year Bangladesh's government has approved the installation of 15 fuel-oil power plants, which will either result in electricity price rises or a subsidy of 5,000 crore taka [US$ 0.72 billion] a year. Government officials stated that tenders had not been used in contracting the work because new generating capacity was urgently needed.

11 May  News website livemint.com reports that India has submitted a detailed plan to the G-20 about how it will phase out its inefficient energy subsidies, to be discussed when Prime Minister Manmohan Singh meets with other G-20 leaders at the Toronto Summit on 26-27 June.

13 May  Iranian President Mahmoud Ahmadinejad announces that his government will begin implementation of subsidy reform on 23 September, the beginning of the second half of the Iranian year, reports Bloomberg Business Week. According to the Tehran Times, the administration is currently compiling information that will help them set up a social assistance system. In the place of subsidies, bank accounts will be opened for families deemed eligible to receive support and money will be transferred to them directly. President Ahmadinjad stated that the first payments will be deposited into these family accounts two months prior to the implementation of subsidy cuts. A few days later, Bloomberg Business Week reports that Iranian Deputy Central Bank Governor Hossein Ghazavi says that reform will strengthen the Iranian economy in the face of tougher U.S. sanctions.

13 May  Writing for the Center for American Progress, Sima J. Gandhi publishes two articles about oil company subsidies, the first summarizing the nine different tax expenditures that United States President Barack Obama has proposed to eliminate in his 2011 budget, and the second analysing the effective subsidies available to oil company BP in the clean-up of the Gulf Coast oil disaster, due to caps on its liability to pay damages.

13 May  An economic consultant has called for the reinstatement of fuel subsidies in Zambia, reports newspaper The Post Online. Professor Oliver Saasa argues that subsidies are needed in order for Zambia to achieve its growth targets and that some control is justifiable given that, "in my view [the recent 13% price increase] is not purely market driven".

14 May  According to news website Downstream Today, hosting an article from Dow Jones Newswire, China has struck a US$ 23 billion deal to build three refineries in Nigeria. The article notes that this is an important deal for Nigeria, as U.S. and European investors have refused to build refineries in the past because the country's high fuel subsidies offer businesses little or no room for profit. A senior Nigerian official has said that this will "help put China 'in the running'" for increased access to Nigerian oil supplies.

19 May  According to Indian newspaper The Financial Express, the Indian government is considering giving PSUs - 'public sector undertakings', a term used to refer to majority government-owned companies - the right to sell petrol and diesel at market prices in order to achieve its fiscal deficit target of 5.5% GDP for fiscal year 2010/11. The article states that the recent drop in oil prices to US$ 70 a barrel as a result of the Eurozone crisis is seen to be a good opportunity to reform price subsidies. It does not state when or how a decision will be made. It does confirm, however, that Finance Minister Pranab Mukherjee has committed that future petroleum subsidies will not be paid for in government bonds, making them easier to track as an item of annual expenditure.

22 May  Subsidy reform is one of four major strategic objectives in Pakistan's proposed federal budget for 2010-2011, reports newspaper Dawn. The article states that 60 billion Pakistan rupees (US$ 0.7 billion) previously funding an electricity tariff differential will be withdrawn. Next year, the only remaining energy subsidies are to be arrears on differential petroleum prices and electricity tariffs for Pakistan's Federally Administered Tribal Areas (FATA). A day later, the Daily Times reports that government representatives admit the continuing "war on terror" and power subsidies may increase the country's budget deficit over the benchmark agreed with the IMF, in the emergency bailout package reported on in the last issue of Subsidy Watch.

23 May  Rumours circulate that the Malaysian government intends to remove subsidies to sugar and petrol, although they are denied by Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail, according to newspaper The Star. It observes that 24.5 billion ringgit (US$ 7.4 billion) was spent on subsidies in 2009, representing 15.3% of total spending, and of which 5.6 billion ringgit (US$ 1.7 billion) was due to fuel subsidies. Reuters news agency reports a day later that subsidy cuts are to be discussed in an upcoming Cabinet meeting, and likely to be implemented gradually over a period of five years. The government think tank which recommended the cuts originally envisaged them taking place every six months, starting on 1 June, though this is now so soon that it is no longer thought to be feasible. On the same day, The Star announces that the government intends to hold an "open day" on 27 May in order to "get feedback" on removing subsidies. It is not clear who will be able to attend the open day, nor how their feedback will be taken into account.

24 May  As part of its national Energy Day, the Brunei government holds a "no-subsidy day", in which all petrol stations are to charge commercial prices for gasoline and diesel products sold to motorists, reports The Brunei Times. The objective of the day is said to be to "raise awareness", but conflicting messages seem to emerge as to its purpose. Government Energy Division spokesperson Pg Hj Harun emphasizes that price reform is not being considered and that the day should make people "thankful to the government because out of 366 days in a year, during 365 of them the public enjoys [a] subsidised price". He also notes, however, that the day will help people "appreciate" what it will mean if subsidies are removed in the "distant" future.

According to news website BruDirect.com, the day before the price rise petrol filling stations experienced a heavy influx of customers stocking up on fuel, with some stations extending their opening hours to cater to the high demand. Following the event, the site recorded mixed opinions from the general public. Among those who found it positive, one suggested that the hike should have lasted longer than a day, and others saw it as an important reminder that low-cost fuel would not be available forever. Others saw it as a good way to promote energy conservation. In a separate article, BruDirect.com reportedthat the government is considering a similar and extended price hike at the same time next year, and has confirmed that the purpose of the stunt was to make sure, "it doesn't come as a shock when, eventually, the subsidy is removed". State broadcaster Radio Televisyen Brunei has reported total government subsidies in 2009 to have been worth US$ 153 million.

25 May  In the wake of the BP Deepwater Horizon underwater oil disaster off the Gulf of Mexico, Los Angeles Times journalists Kim Geiger and Tom Hamburger ask why the United States oil industry has received billions of dollars in tax and royalty relief to encourage offshore drilling, among a range of other subsidies throughout their history. According to the article, a 2008 General Accounting Office report concluded that out of 104 jurisdictions around the world, only 11 receive a smaller cut of oil profits than the U.S. government, and many of the subsidies originally granted when oil prices were low, around US$ 18 a barrel, continue despite current prices of US$ 70 a barrel. The Center for Responsive Politics states that in 2009, the oil and gas industry spent US$ 174.7 million and registered 788 lobbyists to influence lawmakers and regulators.

26 May  The Vancouver Sun, among a number of Canadian newspapers, picks up a Canwest News Service article about a leaked secret memorandum, sent to Canada's federal Finance Minister Jim Flaherty by senior bureaucrats in his department, urging him to deliver on the country's commitment to phase out fossil-fuel subsidies. The memo,available for download from the Pembina Institute, explains why the fossil-fuel sector may not merit preferential treatment, as well as laying out two choices for the Minister: "lead by example", by phasing out tax breaks to producers of oil, gas and coal, or "seek to minimize commitment", by arguing for a definition of the G-20's pledge that would not include Canada's subsidies to fossil-fuel producers.

26 May  According to Middle East division of Yahoo!, Yahoo! Maktoob, Yemeni Finance Minister Nouman al-Suhaibi has made a public statement that subsidies are the biggest danger to Yemen's economy, representing a waste of government revenues that do little to benefit the poor. The article reports that Yemen is in the process of cutting subsidies gradually, with two fuel price rises having taken place already in 2010. Unlike fuel price increases in 2005, which incited riots in which 22 people were killed, these recent hikes have taken place without incident. Yemen has allocated a budget of US$ 10 billion for 2010, and it is thought that this year's budget deficit will be around US$ 2.5 billion. Economic growth in 2011 is predicted to fall from 7% to 5% due to falling oil production.

28 May  According to International Institute for Sustainable Development (IISD) website Climate-L.org, the OECD has underlined the need to reform environmentally harmful subsidies at its Ministerial Council Meeting, which focused on, among other things, green growth. It emphasized in particular the importance of the OECD's work on phasing out fossil-fuel subsidies in the medium term. Minutes from the Ministerial are available from the OECD's website.

28 May  The Malay Mail reports that a "subsidy rationalisation framework" for Malaysia has been unveiled at the Subsidy Lab Open Day at the Kuala Lumpur Convention Centre. The plan, summarized in full by the Mail, and prepared by a government body called the Performance Management and Delivery Unit (Pemandu), includes increasing fuel prices by 10 sen (US$ 0.03) every six months for the next five years. Senator Idris Jala, launching the framework, announced that if Malaysia's budget deficit were to increase by 12% every year, fuelled by subsidies, the country could go bankrupt by 2019. He argued that subsidies could be reformed progressively for fuel, electricity, sugar, flour, cooking oil and public health services, with compensatory policies being planned for low-income groups. In an article the following day, the Mail adds that 66% of the 200,000 people who participated in an SMS poll on subsidies were in agreement that they should be reduced, with 66% preferring it to happen over three to five years. According to The Star Online, Jala warned, "We don't want to be another Greece." Jala's opening presentation can be downloaded from the government's Transformation Programme website.

31 May  Chairman of Crescent Petroleum, Hamid D. Jaffar, observes that subsidies to natural gas in the Middle East are causing problems for gas companies because of the extra demand they create, reports news website Zawya. Saudi Arabia is said to sell its gas reserves at US$ 0.75 per million British Thermal Units (MMBTU), compared to US$ 4.01 per MMBTU on international markets. The article also notes that Iran and Qatar, with two of the largest reserves of natural gas in the world, have suffered shortages due to the low price charged for the gas.

31 May  China announces a 24.9% increase in natural gas prices and announces plans to abolish its two-tiered pricing system for industrial and household consumers, reports Reuters news agency. The stated reason for the price rise was that natural gas is a cleaner burning fuel and its supply should therefore be encouraged. The National Development and Reform Commission (NDRC) also noted that China "is short of gas resources" and that it was necessary to ration gas last winter. Zhang Xinfa, an analyst at Galaxy Securities, stated that, "China's oil price is now basically linked to international markets." At the same time as announcing gas price increases, the NDRC also announced that pump prices for gasoline and diesel would be cut by 4%.
 
3 June  According to Istockanalyst and a number of other online news websites, the 21st Century Business Herald reports that an un-named offical with China's Ministry of Land and Resources has leaked information about a possible future subsidy for domestic shale-gas production. The source claimed that the Ministry of Land and Resources, the Ministry of Commerce and the National Energy Administration were in agreement over the scheme, though it still needed approval from the Ministry of Finance.

3 June  The Times of India reports that, according to government documents, India is expected to express disatisfaction with the G-20's commitment to phase out fossil-fuel subsidies at a meeting of G-20 Finance Ministers in Busan, South Korea, on 4 June. The article says that India plans to note that the G-20 initiative does not take into account subsidies to alternative energy sources that could be damaging to the environment, and that the focus on consumer subsidies to the exclusion of producer subsidies should be questioned. The government documents are also said to have expressed concern over a number of assumptions in the report, including the use of the "price-gap approach" to estimate subsidy levels in different countries.

3 June  New Zealand announces the formation of a group of countries who intend to support and pressure the G-20 to follow through on their commitment to rationalize and phase out their fossil-fuel subsidies, the Friends of Fossil-Fuel Subsidy Reform. Sweden is another confirmed member, and other developed and developing country members are to be announced in the future. The statement was made by New Zealand's Deputy Commissioner to Australia, Vangelis Vitalis, at the launch of the Global Subsidies Initiative's (GSI) series of fossil-fuel subsidy reports Untold Billions, and can be viewed on the GSI website.

4 June  The German Environment Agency announces that US$ 59 billion - almost a fifth of the country's budget - is spent annually on subsidies that damage the environment,according to the San Francisco Chronicle. Half of this is said to support carbon-based fuels such as oil and coal for electricity generation or for running industrial machinery. Germany is one of the G-20 nations that have committed to rationalize and phase out its fossil-fuel subsidies.

5 June  The G-20 releases a statement, following the meeting of its Finance Ministers and Central Bank Governers in Busan, South Korea on 4 June, noting, "We welcome the strategies and timetables provided by many G-20 members for rationalizing and phasing out inefficient fossil-fuel subsidies that encourage wasteful consumption. We are discussing the final report by the IEA, OPEC, OECD and World Bank on the analysis of the scope of energy subsidies and suggestions for the implementation of the Pittsburgh commitment."

6 June  Pakistan allocates Rs 126.7 billion (US$ 1.5 billion) to subsidies in its 2010/11 budget, announces the Daily Times. Although this is 6% above the amount allocated in the previous fiscal year, actual subsidy spending in 2009/10 was substantially higher than planned, at Rs 229.0 billion (US$ 2.7 billion) or 1.5% of GDP. The commodities and institutions being subsidized include the Karachi Electric Supply Company, wheat, sugar and the Utility Stores Corporation.

6 June  According to The Financial Times, a new study by the International Energy Agency (IEA) estimates that 37 large developing countries spent US$ 557 billion on oil, natural gas and coal subsidies in 2008. Fatih Birol, Chief Economist at the IEA in Paris, states: "I see fossil-fuel subsidies as the appendicitis of the global energy system which needs to be removed for a healthy, sustainable development future." Three days later, the OECD also releases a statement on fossil-fuel subsidies, emphasizing that their removal could lower greenhouse gases by 10%. The OECD adds that subsidies in developed countries are difficult to estimate but may be as high as US$ 100 billion a year.

7 June  The Jakarta Globe reports that Indonesia's consumption of subsidized fuel is forecast to increase this year, from 40.1 million kiloliters to 42.5 million kiloliters. Although the government has committed to eliminating all fuel subsidies by 2014, it announced earlier in the month that fuel subsidies would not be reduced in 2010. Government representatives have stated their commitment to continue with plans that would limit access to the subsidies for high-income households.

7 June  Nigeria's Finance Minister Olusegun Aganga states that Nigerians do not benefit from the country's oil subsidy, according to national newspaper the Daily Independent. At a workshop in Abuja, the Minister asserted that the spending instead enriches people in the oil industry, who smuggle fuels into neighbouring countries. Aganga noted the 1 trillion naira (US$ 6.6 billion) of borrowed money that has been spent on oil subsidies in the past three years and contrasted it with the high level of domestic debt, standing at 3.44 trillion naira (US$ 22.6 billion), equivalent to 14% of GDP.

8 June  Bloomberg Business Week reveals that India has delayed a decision to raise gasoline and diesel prices, due to concern over high inflation. Oil Secretary Sthanunathan Sundareshan states that the group is likely to reconvene in ten days in order to reach a decision. If carried through, it would be the third price increase in 2010. Reuters news agency reports that the delay will give the government time to convince political allies that price hikes are necessary.

10 June  Malaysian Prime Minister Najib Razak sets out a five-year plan to reform subsidies, reports Reuters news agency. The moves aim to cut the nation's subsidy spending from 18.3 billion ringgit to 15.7 billion Ringgit (from US$ 5.7 billion to US$ 4.9 billion), although a comprehensive outline of its contents is not reported. It is not clear if it embraces the plans proposed late last month at the Subsidy Open Day in Kuala Lumpur by Senator Idris Jala, drawn up by government body the Performance Management and Delivery Unit (Pemandu). Critics have expressed their doubts that the government will be able to see through the changes, with more than half of respondents from a poll stating that they expect the reforms to be fouled by weak implementation. The Star Online reports that Razak has confirmed that "lower income group[s] and those who are most vulnerable will be given assistance to mitigate the impact of any subsidy reduction on their cost of living".

A few days later, public debate takes place over how to define a subsidy, as estimates published by Pemandu at the end of May of RM 76 billion (US$ 23.7 billion) were controversially higher than those stated at a later date by the Treasury, RM 18.6 billion (US$ 5.8 billion). Blog Justice for All reports that, according to a Minister in the Prime Minister's Department, the difference was due to the Treasury only accounting for direct subsidies, and Pemandu accounting for direct and indirect subsidies from all public sources. Notably, the Treasury did not include the RM12 billion spent on petroleum subsidies by national oil company Petroliam Nasional Bhd (Petronas) as the amount "was not borne directly by the government".

15 June  India's next Ministerial meeting to decide whether or not to increase fuel prices is "postponed indefinitely", reports news agency UPI, due to worries about increasing inflation.

16 June  According to blog Blue Wave News, the United States Senate votes against an amendment that would repeal tax subsidies for large oil companies worth US$ 35 billion over ten years. The resulting increase in revenues would have been used to decrease the country's budget deficit and invest in energy efficiency and conservation.

17 June  Ecuador's Production Coordination Minister Nathalie Cely announces that a government study of subsidies is to be released in 30 days, according to the Dow Jones Newswire. The main purpose of the study is to improve subsidies for domestic cooking gas, although it seems it will cover all fuel subsidies. The article states that preventing misuse of the subsidy could save around US$ 200 million a year.

17 June  A number of blogs begin to refer to the existence of a petition to the G-20, run by online advocacy community Avaaz, urging countries to follow through on their pledge to reform fossil-fuel subsidies. At the time of writing, Avaaz do not state when the petition began, nor the number of signatures to date.

21 June  Canadian newspaper The Globe and Mail runs an editorial on fossil-fuel subsidies, arguing that the G-20 is a good forum for highlighting the issue, but not for bringing about reform. It points out that only seven of the world's top fifteen subsidizers are in the G-20, and none of them are in the G-8. It concludes that a larger consensus is required before countries are likely to take action.

22 June  New Zealand Associate Minister of Energy and Resources Pansy Wong returns from an APEC Energy Ministers' Meeting in Japan, which she pronounces successful,according to news website Voxy.co.nz. She notes that APEC Ministers called for the removal of inefficient fossil-fuel subsidies, "a measure that New Zealand supports".

22 June  Egypt's Oil Minister, Sameh Fahmy, announces that fuel subsidies are expected to cost 72 billion Egyptian pounds (US$ 12.6 billion) in fiscal year 2010/11, as opposed to 68 billion Egyptian pounds (US$ 11.9 billion) in 2009/10, reports Reuters news agency. Fahmy adds that the government plans to restructure the subsidies in order to target them better at low-income Egyptians, though no further details are given.

23 June  Currency website xe.com reports that the Indonesian government plans to curb the supply of subsidized fuel from September this year. Evita Legowo, Director General of Oil and Gas at the Ministry of Energy and Mineral Resources, stated that subsidized fuel would be available for public transport and motorbikes, but that certain cars - the criteria for which are currently being decided - will no longer be eligible to use the reduced-price fuel.

24 June  A draft of the G-20 Leader's Statement is leaked, due for release after the G-20 Toronto Summit on 26-27 June, and it appears to soften last year's commitment to phase out fossil-fuel subsidies, reports the Financial Times. The document describes member-specific approaches to reform as 'voluntary', and is widely criticised by environmental groups.

24 June  European news website EurActiv.com reports that the European Union is planning to extend subsidies to the coal industry until 2023, as part of a plan to close its mines permanently. The article speculates that the leak of this news may be embarrassing, given the upcoming G-20 Toronto Summit, and the EU's prior commitment to phase out fossil-fuel subsidies. According to a Reuters article, it would be the sixth such extension of state aid since 1965, and environmentalists have said it makes a "mockery" of pledges to phase out fossil-fuel subsidies. WWF environment campaigner Mark Johnston comments that, although the draft indicates acceptance that coal mining can no longer be justified as an energy security issue, "12 years is unreasonably long". Later in the week, a blog post by the New York Times notes that Germany and Spain are the EU's biggest coal subsidizers, having spent € 2 billion (US$ 2.5 billion) and € 1 billion (US$ 1.3 billion) in 2009 respectively.

25 June  The Indian government announces that it will reduce fuel subsidies, reports theNew York Times and a number of other newspapers. Policymakers state that gasoline subsidies will be stopped completely, and diesel, kerosene and natural gas subsidies will receive slightly lower levels of support. It is thought that the move will save the government and state-owned oil companies US$ 5.2 billion, although the move has come under criticism from the Communist Party of India. Several days later, Reuters reports that Indian opposition parties are preparing a national strike in protest.

26 June  According to a poll commissioned by the Climate Action Network, two thirds of Canadians would like their government to show leadership by announcing plans to eliminate subsidies to the fossil-fuel industry at the G-20 Toronto Summit, reports The Vancouver Sun. The newspaper states that "the poll surveyed 1,158 Canadians and is considered accurate within 2.88 percentage points, 19 times out of 20".

27 June  The G-20 Toronto Summit comes to a conclusion, and a Leaders Statement is released without reference to "voluntary, member-specific approaches", language that had been leaked in a draft of the statement, and was heavily criticised by environmental groups earlier in the week. According to Reuters news agency, sources say that the text was strengthened at the urging of the United States. Although no concrete steps towards subsidy reform were announced, the Leaders Statement promised to review member countries' progress at future Summits. According to multimedia news website Voice of America, environmental groups 'blasted' the Summit, having expected to see more concrete proposals for reform, among other initiatives to combat climate change and promote clean energy. Following the Summit, the individual strategies and timelines for reform submitted by G-20 countries are not made public.

28 June  News agency Dow Jones Newswires reports that Thailand's National Energy Policy Council has agreed to extend a subsidy for liquified petroleum gas (LPG) and natural gas for vehicles for another six months. The decision is to be put before the Cabinet the following day, along with a number of other measures, including a suggestion to provide free electricity to low-income households and free travel on certain kinds of public transport. Thailand is a member of the Asia-Pacific Economic Cooperation (APEC), which agreed to phase out fossil-fuel subsidies in November last year.

29 June  Indian Prime Minister Manmohan Singh announces that India will allow market pricing of diesel, reports Reuters news agency, although no timeline is given for the reform. The analysis argues that the government's opposition is too divided internally to respond to the move with any significant threats. Indian newspaper the Deccan Chroniclereports that shares of public sector oil companies have risen markedly since the decision to deregulate petroleum prices four days earlier, and that they continue to rise. It notes, however, that a number of concerns still exist, including the fact that the government has reserved the right to intervene if crude oil prices spike in the future.

30 June  In a leaked submission to the G-20 Toronto Summit, the Australian government claimed to have "no inefficient fuel subsidies", reveals the Sydney Morning Herald. Environment groups and the Australian Greens have accused the government of playing with words in their definition of ‘subsidy', and countered that the fossil-fuel sector receives US$ 5 billion a year, though mostly in fringe benefits. The article also notes a 2007 study by Chris Riedy of the Institute for Sustainable Futures, who estimated an annual subsidy of US$ 9 billion, including state subsidies.

30 June  Lachen Achy, of the Carnegie Endowment for International Peace, publishes an analysis of the relationships between budget deficits and fuel subsidies in the Middle East and North Africa (MENA) region's oil-importing countries - Morocco, Tunisia, Egypt, Jordan and Syria. The article argues that these subsidies are poorly targeted and place a growing burden of their governments' budgets. It notes that Jordan, Syria and Tunisia have already made some headway in reforming their subsidies.
 
For readers interested in keeping track of fuel-pricing developments worldwide, GTZ's monthly Fuel Price News is an invaluable resource that announces publications and events, and major fuel-pricing news stories in different regions of the world. For more information see: http://www.gtz.de/en/themen/29957.htm