Peter Wooders IISD-GSI November 20, Getting the Prices Right Chapter 2.1, pp.21-48

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 market- based 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

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