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Reforming Fuel Pricing in an Age of $100 OilIncreases 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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Drawing a Roadmap for Oil Pricing ReformIn 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. The path to market-based pricing depends on the starting conditions: the gap between current and market-based price levels, the level of public awareness about the extent of departure from market prices, the degree of market concentration and competition in downstream oil, the subsidy delivery mechanism where subsidies are provided, the robustness of social service delivery, and the perceived credibility of the government. 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.
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Latin America and the Caribbean Region Energy Sector : Retrospective Review and ChallengesDuring the 90s, most countries in Latin America and the Caribbean Region (LCR) supported by the World Bank, implemented a market-oriented reform in the energy sector to promote competition, economic regulation and greater private sector participation, as the main instruments to improve the quality, reliability and efficiency of energy services, and improve the government's fiscal position and increase affordable access to modern energy services for the poor. This report comprises an assessment of the energy sector reform in the region: its achievements, difficulties, lessons learnt and current status; an assessment of the future needs of the energy sector investment and financing requirements, constraints, and challenges; and a review of the role of development agencies in supporting the region's energy needs. The study is not a systematic analysis of the reform experience and needs of individual countries, which is not deemed necessary to define an energy strategy for the region, but rather an analysis of the main themes that are common to most countries, with reference to specific cases of individual countries, based on a review of the documentation available on the reform, and on current energy plans. The power sector reform in the region had a substantial positive fiscal impact. During the past 15 years, private investment in electricity in LCR amounted to about US$103 bn, about 60 percent in divestiture of public assets, and 40 percent in green-field projects. Investments in divestiture peaked at about US$21 bn at the time of the privatization of major distribution assets in Brazil, and almost vanished by 2002. Investments in green-field projects have been more stable during the past 10 years.