Hiking Fuel Prices, Subsidies Cut, and Hidden Profits - Chaos and confusion arise from the incomprehensible

Opinion analysis by Yara Dally, Contributor

08/12/2021

Disclaimer: Due to the volatility of the figures used in this article, they might appear different at the time of reading than they were at the time of writing.

Since the start of the year, the price of a tank of 20 liters of diesel surged about 1,008%

A revised price list published by the ministry of energy set the cost of 20 liters (5.3 gallons) of 95-octane petroleum at 302,600 LBP, around $13 at the black market rate. Meaning filling a medium-sized car in Lebanon would cost more than the minimum wage (LBP 675,000). *Tuesday, Dec 7 figures. 

Global Fuel Prices:

Oil prices surged by nearly 3% on Tuesday, December 6 with $71.47 per barrel for the US West Texas Intermediate (WTI) crude future and $74.88 per barrel of Brent crude as some OPEC member countries signaled confidence in the market in addition to rising hopes that the Omicron coronavirus variant would have a less damaging economic impact if its symptoms were mostly mild. Over and above, according to the World Bank report published last October, it is expected that energy prices would increase by more than 2 percent in 2022. US bank JP Morgan, in a more aggressive report, has also revealed that the oil prices could surge by 66 percent in 2022. 

 Domestic Fuel Prices:

If Brent crude prices remain at current levels, it will likely be reflected by an increase in local fuel prices to line with international prices for petroleum products. The impact of changes to crude oil prices is often associated with a lag, as domestic prices are benchmarked to 3 to 4 weeks rolling average of global prices. However, that’s not the only component that comes into account when computing fuel prices locally. Lira devaluation plays a huge role in setting the price as fuel importers buy fuel based on the market price of the Lebanese pound, meaning the higher the devaluation rate of the Lebanese pound against the US dollar, the higher is the price of fuel for Lebanese consumers.

Recently, the Ministry of Energy has launched a new schedule mentioning 10% of the price of imported fuel to be paid at the parallel market rate, and 90% the Sayrafa’s rate, accounting for LBP19,000 per US dollar. Marc Ayoub, an energy researcher at the Issam Fares Institute at the American University of Beirut raised his concerns regarding the latest published fuel schedule.

In an exclusive discussion with The Phoenix Daily, Ayoub mentioned that the inconsistency between the exchange rates existing within the schedule is risking confusion for companies hoarding fuel from previous periods, especially during the fuel shortage crisis. Furthermore, this is also applicable to consumers who are even more confused about the pricing of fuel products.

The below analysis is made using the Nov 15th fuel prices schedule. It’s crucial to mention that there are no impactful discrepancies between what had been issued in the weeks after compared to what has been studied prior to that.

Based on the schedule attached, three to four exchange rates exist. For instance, as diesel oil is fully unsubsidized priced at $671/1000lts and with quick calculation based on the lira amount that was mentioned in the attachment, we conclude that it was measured at LBP 22,873 per dollar. As for the split of 10% at parallel market rate meaning at LBP 22,900 per dollar approx. and the remaining 90% at Sayrafa platform rate; LBP 19,000 per dollar. As an average, between the 10% and 90% split we get approx. LBP 21,000 per dollar. As cited by Ayoub. This results in daily struggle fraught with misery and absurdity. Obscurity and incomprehensibility prevail within the schedule. When computing the overall price for each commodity, a 5 percent profit for importers is included with minimum of $20 and a maximum of $40 per kiloliter, but based on what metrics, and what factors are incorporated within the calculation, wondered Ayoub. Not to mention the “additional profit” entry which neither the amount nor the components considered are known or transparent, added Marc. The right of access to information is enshrined in international treaties and conventions, and recently a law was passed in Lebanon fortifying this right. It is one of the basic rights to enhance transparency and the participation of citizens in public decisions, and most important of all, it is a tool to fight and reduce corruption in the state and public institutions.

The aforementioned circumstances are only increasing the levels of chaos and uncertainty in an already crisis-struck country. According to U.N estimates, 78 percent of the Lebanese population lives below the poverty line, with 36 percent of the population living in extreme poverty. With neither accountability nor reform implementation, Lebanon’s misery will not only persist, but further deepen.