BUSINESS MONDAY: Government not going the subsidy route

WHILE Government has taken a decision to put a cap on the Value Added Tax levied on fuel, it appears it will not be going the route it went several years ago in implementing a subsidy on fuel products and electricity.

Some weeks ago Prime Minister Mia Amor Mottley announced the cap in an attempt to offer some relief to consumers complaining about high energy prices.

The subsidy, as undertaken by a previous BLP administration on the Barbados National Oil Company (BNOCL), created some headaches for the then officials of the company.

It came about after Barbadians had complained vociferously as they are doing now, about high prices they were paying for petroleum products and food caused by escalating imported oil and other energy products.

The Central Bank of Barbados reported that in 2007 food prices, similar to now, increased 7.1 per cent following an eight per cent increase the previous year. All other prices in the basket of goods and services increased.

The response by the Government was to run the subsidy through the BNOCL to bring some relief to consumers fuming about the increased cost of living.

But it created problems for the BNOCL. The oil company incurred losses that sent its profitability tumbling and as said in a debate in the House of Assembly threatened its viability.

Currently, higher energy and other prices including food have Barbadians hopping mad. One of them took to the airwaves to declare that Government is not at fault, suggesting instead that it has to do with the international price of energy which has an impact on almost everything done in this country.

“The imposition of subsidies on petroleum products and electricity severely impacted the operations and cash flow position of the Marketing Division of the parent company,” Winton Gibbs, the Acting General Manager at the time.

The net operating income of the BNOCL fell from $13.29 million in 2007 to an operating loss of $69.89 million in 2008 and a further operating loss of $51.18 million in 2009, it was further revealed by the official.

“This in turn impacted the Group, which incurred an operating loss of $69.1 million in 2008 and a further operating loss of $48.8 million in 2009,” he revealed.

That situation was resolved after the subsidy was removed and a pricing mechanism introduced to ensure that the cost, insurance and freight (CIF price) formed the basic of the retail pricing of the product.