Approximately, three (3) months after implementing a cap of $15.00 per gallon for fuel at the pumps, the Keith Mitchel-led government is now considering raising it to avoid losing millions of dollars due to economic spill offs that will hit locally if the Russian invasion on Ukraine continues to escalate the cost of fuel on the global market.
Energy and Finance Minister Gregory Bowen told reporters on Tuesday that the ruling New National Party (NNP) government may not be able to sustain the $15.00 cap on gas and diesel, which took effect in December if fuel costs continue to rise.
He detailed the government’s plans to address the impact of the “acute” escalation of international fuel prices as an indirect consequence of the fighting between two (2) European countries, as well as the expected rise in the cost of imported goods, during this week’s post-Cabinet media briefing in St. George’s.
Minister Bowen said that “the cost of a barrel of fuel has moved from EC$$79.00” at the time when he had announced the cap on petrol as part of relief measures amidst the pandemic during his 2022 budget presentation last November “to $110.00 in February.”
He pointed out that the government, which collects $5.50 in tax on each gallon of petrol sold, stands to lose approximately “EC$28 million,” this year if the cap is continued amidst increasing fuel cost.
“…That is EC$28 million that we would be giving up (in) taxes collected (at the pump), and giving back to the importers because they have to pay a higher price for the fuel,” he said, pointing to a projected loss of up to “EC$71 million at a higher level scenario if the (fuel) prices go to $21.00 and $22.00 if we remain at the $15.00.”
Minister Bowen stressed that without the cap, the cost per gallon at the pump would have been $17.79 in February, and has jumped by more than $2.00 to $19.41, this month.
He alluded to “see(ing) the economy moving with the cap at EC$15.00,” however, he said, to support economic activity, and the government’s revenue collection amidst the potential shocks posed by the ongoing Russian invasion, considerations are being given to “increasing the cap to about EC$16.00 or $17.00” if fuel continues to increase.
“We have a $5.50 fuel tax, now if we keep it pegged at EC$15.00… all that tax would be eaten up when the price becomes EC$20.50, you take EC$5.50 out, and we could reach that in a month, or two (2) very easily…or we could go past the stage of no fuel taxes, and be dipping into another tax type, for example, personal income tax, or environmental levy. If we keep the fuel price at EC$15.00, we would therefore dip into those to maintain it.
Now, this is not prudent management,” Min. Bowen added, expressing “hope that the prayers around the world will bring peace, and we will get a price for fuel within our limit that even if we use up all our EC$5. 50 per gallon on taxes we will be able to keep a cap, if not 15 maybe 16, it could reach 17 but what we are doing today is to raise the awareness of people of what is to come.”
He warned that consumers can also expect an increase in the cost of electricity if the Russian invasion of Ukraine continues.
“…Remember, what we touched was the non-fuel price. So they (the Grenada Electricity Services Ltd. GRENLEC), will have to pass on the increasing prices.
Last year it went from 48 cents per kilowatt-hour on the fuel price up to 52 cents…and we expect it to reach as much as 58 cents per kilowatt-hour …,” he told reporters.
Increase food prices are also expected, and according to Permanent Secretary in the Ministry of Finance, Mike Sylvester, although high food prices predate the Russian invasion, the country’s ability to import certain items like wheat, and wheat products will also be affected as a result of the war between Russia and Ukraine, which are large-scale producers of wheat, grain, and soya.
Noting that over “$6 million” worth of wheat products is imported annually, PS Sylvester pointed to an “increase in the price of a bushel of wheat from around EC$800.00 to $1, 200.00 in March.”
He alluded to continued pressures “on those prices including from what is considered shortages, or fears of shortages,” which are among the issues driving up food prices.
“Like fuel, these prices will reach us,” PS Sylvester said, noting that “we are price takers, and have no say in how these prices go.”
Reporters were also told that the rate of inflation, which is measured by the Central Statistics Office (CSO) within the Ministry of Finance, monthly, is also expected to “peak” this year, into 2023,” before going back down to its “average of around 2%.”
Before the Russian invasion of Ukraine, the inflation rate was estimated to reach about “3.7% this year, said PS Sylvester, who explained that “last year, the inflation rate was 2.2%,” compared to the estimated “1.6%” that was projected.
The high-ranking public officer said that another option available to help cushion the impending shocks from Russia’s military operation in Ukraine will be to do “direct transfers, and allow the automatic fuel pricing mechanisms that we have…to function freely.”
However, he said that this “can also have an impact on the economy because if you have (the) very prices, especially food and fuel, that can be a drag on the economic activity.”
“So, I think the cap, as the minister has said, where you reduce the amount you take from the tax is a solution…and also very easy to implement,” PS Sylvester added.
Minister Bowen and PS Sylvester also encouraged Grenadians to guard their pockets and spend wisely as the country braces for the negative spill off from Russia’s invasion of Ukraine.