Managing fuel prices in Madagascar
Madagascar is a fuel-importing country. Like many other countries, its main challenge is to provide consumers with a regular supply of fuel at an affordable price. Of course, fuel is used to propel cars and taxis, but it is also needed to generate electricity and to move the machines that produce all types of goods, such as food and clothing. Fuel is thus a product that is essential to the economic growth of the country!
What is the problem today? The Malagasy State, concerned about protecting the population from higher prices, decided to intervene and limit the rise of prices at the pump.
Accordingly, an agreement was reached with the oil companies to control the rising fuel prices by setting a maximum price at which distributors can sell their fuel.
In other words, the price at the pump is sometimes below the real supply cost. When the State pays the difference between the price at the pump and the real supply cost, this represents a fuel subsidy.
What is wrong with this policy? By spending money to keep retail prices below their real supply cost, the State is benefiting the rich, because they consume the most fuel.
The richest 20% consume 85% of electricity generated and the richest 40% account for nearly 90% of the public transportation usage. The poorest use neither gasoline nor diesel, have no access to electricity, and consume very few processed foods, which require fuel to produce. In sum, by spending a great deal of money to limit the increase in fuel prices, the Government is disproportionately helping the wealthiest, and reducing resources available to support pro-poor policies. What options are available to improve the management of fuel prices? (sans voix – off) First, the Government should give priority to the automatic adjustment of retail prices.
Prices at the pump should be adjusted automatically in line with worldwide fluctuations of oil prices. If global oil prices rise, prices at the pump will consequently increase, and if they fall, the consumer will pay less for a liter of gasoline. At the same time, the State should renegotiate and reduce the fixed cost drivers of a liter of fuel, such as the costs of transportation and storage.
At the same time, the State should establish programs targeted at the most vulnerable groups, to cushion the impact of higher prices. Over the medium term, it is important for the State to promote price competition and effectively regulate the sector. To that end, it should: 1- Strengthen the powers of the regulatory agency to improve trade-offs and promote greater competition. 2- And Sell its shareholdings in petroleum companies, to send a strong signal that it is impartial and that it supports the liberalization of the petroleum sector.
Conclusion Although the transition toward renewable energies is ongoing, the demand for fuel will likely increase in the foreseeable future.
The issue of fuel pricing is thus an important one.
Madagascar must find a sustainable solution that enables it to guarantee a reliable, affordable fuel supply without the State have to bear the costs.