Getting the Prices Right
Chapter 2.1, pp.21-48
Peter Wooders
IISD-GSI
November 20, 2012
www.iisd.org/gsi
Contents of this presentation
• Introduce a set of common reference points
• Based on IISD-GSI observations
• Pathways for fuel price reform
• 3 Do’s and 2 Don’ts of energy pricing policies
• Feedback from GIZ-GSI Eschborn workshop
• “Smart Fuel Price Regulation”, Nov. 8-9, 2012
Pathways for fuel price reform: the destination
Do #1: Design energy pricing reform in four
dimensions
1. Budgetary transfers/taxation involved in fuel
price formation
2. Pricing: Ad hoc/ automatic/ free market-based
3. Transparency: of policies, price composition
4. Enforcement of pricing policies
1st dimension: Budgetary transfers /
taxation involved into fuel price formation
What is the right price level?
Don’t (#1) look for a “secret formula” of the
energy price that would correspond to a
certain level of a country’s development
In general, P = MC (Price = Marginal Cost of supply)
The real question: who pays the P….
…consumers or government?
2nd dimension: Pricing mechanisms
Ad hoc pricing – any possible
number of ways….
Formula-based pricing – with or
without price stabilization fund
Free market-based pricing –
nothing around your neck!
3rd dimension: Transparency of policies
and price composition
4th dimension: Real-life enforcement of
pricing policies
Fuel pricing reform and deregulation of the
downstream industry in the Philippines
Transitions can be fast or gradual in two
dimensions:
• Budgetary transfers/taxation
• Switching between ad hoc/automatic/free marketbased pricing
E.g. possible “fast tracks” for a
country with ad hoc pricing….
Transitions can only be gradual in the other
two dimensions:
• Increasing transparency of government
regulations and price composition
• Improving enforcement of the pricing policies
Do #2 : Give preference to gradual approach
Don’t (#2) think of energy price reform as a
stand-alone issue. It’s always part of a bigger picture
• Successful reform = efficient transport sector, economy?
Do #3: Look at options to reduce energy prices
beyond subsidies
• address the fundamental components of the marginal cost of
energy supply such as the costs of energy production,
transportation and distribution, as well as taxes
Regulators’ common issues
•
Making the market run properly ongoing challenge
•
Dieselisation of transport fleet/the economy
•
Global refining unbalanced, margins increasing
•
Looking at non-oil transport fuels (NGVs, etc.)
•
Deregulation of fuel prices is the target. But…
•
Market prices cannot be passed onto all customers at
all times – how to stabilise/smooth prices
•
Tax: postpone if prices high? But raise more revenue?
•
How to mitigate impacts? Who is responsible?
A network of fuel market regulators:
possible activities (near-term)
•
Monthly newsletter
•
Annual meetings (similar number of people)
•
EnergyWiki - country factsheets, GIZ format
•
Peer-review of pricing policies in a country
o
by other countries
•
Thematic trainings
•
In-depth research reports on key topics
•
Topic #1: dieselisation of transport fleet
THANK YOU FOR
YOUR ATTENTION!
www.iisd.org/gsi