Fuel price hikes impact Business, Households

By Mellica McPherson

Have you looked at your electricity bill lately? If you have not, you will probably be stunned by the hike in price. For example, three electricity bills issued in April showed the following additional costs: a bill for $32.58 included a fuel variation of $5.55; a $92.50 bill included a fuel variation charge of $16.96 and a $517 bill included a fuel variation charge of $97. This has been the trend for the last few months. A price quote from two local gas stations (O'Neal Gases and Big Ben's Gas Station) indicated that the price for diesel and gasoline jumped last week from $2.59 per litre to $2.87. And air couriers are putting their prices up because higher fuel prices have added to  their shipping costs.

Ultimately the increase is passed on to the consumer generating higher cost of living and financial stress. This in turn will trigger demand for higher salaries which in turn causes higher costs as well as inflation and sometime recession of the economy.

Countries throughout the world are brain storming on a possible course of action that will soften the impact that the steady rise in fuel will have on their economies. Little is being said in the BVI about this ticklish issue, but the effect that this upward trend will have on the BVI economy is inevitable.

The fuel cost will hit the BVI in more than one area. The tourism sector, which is one of the foundations of the BVI economy, will take a heavy blow since most tourism related services depend heavily on electricity. The restaurants need it to store and refrigerate their groceries and for utilities, so will the hotels, marinas, supermarkets, and many other businesses for the smooth running of their day to day operations.

Even the domestic consumers will feel the pressure as their electricity bill gets more expensive as the fuel price rises.

WATER PROBLEMS TOO

Ocean Conversion, the local privately owned company that sells water to the Government, said that they would endure profit loss if the fuel prices continue to skyrocket. The price increase will hurt their profit, because they signed a fixed-price contract with Government. Although the contract makes provision for inflation hikes, that will not completely erase the effect that this trend will have on their budget since they use both fuel and electricity to produce the required 1,300,000 gallon of water quota.

There is no local businesses that will not be affected by the price increase in electricity and fuel. BVI residents can expect to see an increase in the transportation costs, which includes taxi services and quite likely air transportation.

One local car dealer said that the high cost of gasoline will result in some persons switching to diesel. Unfortunately, the cost of diesel is equally as high or even higher than gasoline and both prices are unstable. As one consumer said, "now is the time that we need the kerosene fridges and other kerosene things".

At the 39th Summit, of the Organization of Eastern Caribbean States, which was held in St. Vincent and the Grenadines, the Heads of Government all agreed that "continuing increase in the price of oil on the world market “would have serious consequences for economic recovery in the various islands and seriously impair their capacity to compete effectively in the international marketplace.” 

OECS member Governments also discussed setting up a task force to advice on energy conservation and alternative energy sources. Other options being considered are the joint purchasing of raw crude oil from Venezuela for processing in Trinidad. Under the proposal, the oil could be owned by the member states instead of companies like Shell and Texaco."

Chairman of OECS, Kenny Anthony (St Lucia's prime minister), has warned that all OECS countries are vulnerable and may have to start to significantly increase energy prices.

FLUCTUATING IMPORT DUTY ON PETROLEUM PRODUCTS

The importation of petroleum products in BVI is a private sector controlled activity. The government normally secures only an import duty, which differs from one year to another. For example, in 1999, the import duty of about 40 cents was charged on each imperial gallon imported. About seven companies do the importation of petroleum products. The larger importers are Shell Antilles and Guianas Ltd. and Delta Petroleum. Others are, Caribbean Atlantic Petroleum Company (CA-PCO), O'Neal Gases Ltd. Virgin Islands Petroleum Ltd., The Big Brothers Service Station and Domino Oil Ltd.

During the 1990s there have been a sharp increase in energy imports. This was due to an increase in economic activities within the territory. A report issued in the year 2000 stated that “by comparing this rapid increase and by considering the rise in fuel costs in the world market, there is a need for the government to educate the masses in efficient use of scarce energy supply otherwise such a big rise in price will continue to bring impact on the disposable income of the consumers.”

The same report pointed out that: “electrical power is a very important element in the development of the national economy and its linkages with other sectors are the most dynamic and deliver the major impact to the entire economy. The BVI Electricity Corporation supplies electricity in a form of energy and lightening to individual homes, industries, commercial enterprises and many more productive institutions. The BVI entire expanding international economy based on tourism and financial services obviously has direct linkages with electricity supply. Just imagine the following situation and what would happen:

without electricity to hotels, marinas and restaurants, 

without electricity supply to facilities, telecommunication,

without electricity supply to banks and other financial institutions,

without electricity supply in offices, homes and industries,

“The answer to this situation is obvious, that is the whole economy will collapse; there will be no more production of goods or services. That is why electricity is considered to be a major element in economic and social development; therefore, the continuous growth of the BVI will depend very much on adequate continuous reliable electrical supply to the entire economy of the territory.”

BVI HAS NO WRITTEN POLICY REGARDING ENERGY

“The government does not have a written policy in place regarding energy. Such policies are essential because they act like a guide for future development of the sector. Therefore, policies should be consistent to ensure that resources are allocated in line with the stated objectives and policies so as to form a basis for rational resource allocation to the sector. The aim is to allocate scarce resources to priority areas rather than spreading limited funds over a wide range of activities, thereby, achieving a more efficient use of the limited resources,” the 2000 report stated.

In 2002, the previous Government of the BVI started negotiations to privatize the BVI Electricity Cooperation. The new administration has given no indications that it will pursue the privatization route.