Publication: Reforming Fuel Pricing in an Age of $100 Oil
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2013-01
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2013-01
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Increases in world oil prices since 2004 have challenged consumers and oil-importing countries across the world. Oil prices temporarily fell sharply in 2009, only to triple three years later. The oil import share of gross domestic product rose by nearly half among net oil importers in just two years between 2009 and 2011. Governments that control oil product prices have come under pressure to intervene by keeping domestic prices low and effectively subsidizing consumers. This study focuses on the evolving role of oil in national economies, particularly those of developing countries, and proposes a menu of options for drawing a roadmap for pricing policy reform for oil products. In light of events since 2009, it examines how recent price movements have affected countries' vulnerability to world oil price increases, how governments have adjusted domestic fuel prices in response, the consequences of the policy responses, other coping mechanisms to deal with high oil prices and price volatility, the roadblocks to reforming pricing policy, and how to deal with them. This report suggests a menu of options for moving away from sectoral subsidies to market-based pricing, accompanied by an integrated social protection program and complementary policies to reduce consumption through efficiency improvement and fuel diversification. Sending the right price signals and reducing consumption can bring many benefits, ranging from greater supply security to less congestion and pollution from road transport. This report can help policy makers conduct more informed national dialogues on managing fuel pricing and the political economy around it.
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“Kojima, Masami. 2013. Reforming Fuel Pricing in an Age of $100 Oil. © World Bank. http://hdl.handle.net/10986/16524 License: CC BY 3.0 IGO.”
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Publication Drawing a Roadmap for Oil Pricing Reform(World Bank, Washington, DC, 2013-05)In 2011, the median oil imports rose to 5 percent of gross domestic product for net importers. In the past several years, many governments have not passed through the world oil price increases to consumers fully. As a sign of divergent pricing policies, the retail prices of gasoline, diesel, and cooking gas in January 2013 varied by a factor of 190, 250, and 70, respectively, across developing countries. Policies to keep oil product prices low to benefit the economy and protect the poor have had a number of unintended negative consequences, including flourishing corruption in the oil sector and entrenchment of monopoly operators or inefficient firms through which subsidies are channeled, stifling competition and raising costs. 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The evidence presented in this paper suggests that pricing reform often does not have a clear end and should instead be viewed as a continuous process of adjustment and search for mechanisms that take into account the country's institutions and political system, and the oil sector's market structure, infrastructure, and history.Publication Petroleum Product Pricing and Complementary Policies : Experience of 65 Developing Countries Since 2009(World Bank, Washington, DC, 2013-04)Unable to cope fully with steadily climbing world oil prices since mid-2009, many of the 65 countries reviewed in this paper have progressed slowly or even reversed course in reforming pricing of petroleum products. End-user prices in July 2012 varied by two orders of magnitude across the countries. More than two-fifths, including some that had only recently adopted automatic pricing mechanisms, froze the prices of gasoline, diesel, or both for months or even years on end during the study period. When the prices were finally adjusted, the increases were sometimes substantial, leading to large-scale protests, partial or full reversals of price adjustments, or softening of pricing reform policy. Governments' attempts to keep domestic prices artificially low -- through price control, export or quantity restrictions, or political pressure put on oil companies -- have helped curb inflation in the short term, but frequently with serious negative consequences: flourishing black markets, smuggling, fuel adulteration, illegal diversion of subsidy funds, large financial losses suffered by fuel suppliers, deteriorating refining and other infrastructure, and acute fuel shortages causing economy-wide damage. In several countries, subsidies, price controls, and other restrictions have helped protect inefficient refineries and oil marketers. Mitigation responses have included fuel conservation programs; fuel diversification, particularly liquid biofuels to substitute gasoline and diesel; and efforts to lower costs of supply, including strengthening infrastructure, promoting price competition, hedging, negotiating price discounts with exporters, and bulk procurement. Various forms of assistance to consumers have also been offered, especially to households, agriculture, transport, and fisheries.Publication Coping with Oil Price Volatility(World Bank, Washington, DC, 2008-08)Oil is important in every economy; when its prices are high and volatile, governments feel compelled to intervene. Because there can be large costs associated with such interventions, reserve banks, central planning institutions, and think tanks in industrial countries have been carrying out quantitative analyses of oil price volatility for a number of years. This report focuses on fluctuations around trends in oil prices. It examines measurements of oil price volatility and evaluates several different approaches to coping with oil price volatility: hedging, security stocks, price-smoothing schemes, and reducing dependence on oil including diversification. It does not deal with the impact of oil price volatility on countries' macroeconomic performance or with macroeconomic policy responses; these generally have more to do with coping with higher price levels than with higher volatility per se. The study examines oil price volatility largely from the point of view of consumers and does not cover the management of revenue volatility by large oil exporters.Publication Fuel Pricing and Subsidies in Indonesia : Reaching an Equitable and Sustainable Policy(Washington, DC, 2012)Indonesia is an oil producing country and is the only East Asian member of the Organization of Petroleum Exporting Countries (OPEC). 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Chapter three proposes a step-wise transition that will be required to transform the present regime and at the same time opening the oil products market to the beneficial forces of competition and restructuring Pertamina's downstream operations.Publication Mitigating Vulnerability to High and Volatile Oil Prices : Power Sector Experience in Latin America and the Caribbean(Washington, DC: World Bank, 2012)Countries heavily dependent on imported oil to power a significant portion of their electricity generation are especially vulnerable to high and volatile oil prices. In net oil-importing countries worldwide, high and volatile oil prices ripple through the power sector to numerous segments of the economy. As prices move up and down, so does the cost of electricity production, which has far-reaching effects on the economy, fiscal and trade balances, businesses, and household living standards. High and volatile oil prices affect economies at both a macro and micro level. The major direct effects at the macro level are a deteriorating trade balance, through a higher import bill, reflecting a worsening in terms of trade; and a weakening fiscal balance due to greater government transfers and subsidies to insulate movements in international energy markets. At the micro level, investment uncertainty results from the higher risk of engaging in new projects and associated development and sunk costs, which, in turn, affects policy decisions and economic growth. This study responds to the needs of policy makers and energy planners in oil-importing countries to better manage exposure to oil price risk. The study's objective is threefold. First, it analyzes the economic effects of higher and volatile prices on oil-importing countries, with emphasis on the power sector, using examples from Latin America and the Caribbean (LAC). Second, it proposes a menu of complementary options that can be applied over multiple time frames. 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