• Sir Franklyn: ‘Challenge me’ claims of quick fix
• But government fuel taxes are a “wildcard”
• “No budgetary margin” to mitigate the difficulties to come
By NEIL HARTNELL
Editor-in-chief of the Tribune
The Bahamas has no short-term solutions to tackle soaring energy and gas prices, the chairman of a major fuel supplier warned yesterday, adding that tax cuts were likely “out about”.
Sir Franklyn Wilson, chairman of FOCOL Holdings, told Tribune Business that there was nothing the Bahamas could do to offset forces beyond its control as global oil prices, as measured by the Brent Crude Index, reached at one point $139 a barrel yesterday.
This mark, which was reached over fears that the United States, Europe and the Western world would impose an embargo on Russian oil and gas supplies following the latter’s invasion of Ukraine, was just below the all-time high of $147.50 a barrel reached in July. 2008.
As prices fell after German and British leaders eased concerns over a Russian cut, Bank of America analysts reportedly projected global oil prices could reach as high as $200 a barrel – record territory and unexplored – whether Vladimir Putin’s main industry and employees should be punished.
As businesses and households in the Bahamas, already struggling to recover from the economic devastation of COVID-19, prepare for the worst, not all will be negatively affected by soaring gasoline and energy prices. . The Treasury, in particular, could see a revenue windfall as the petrol industry’s tax structure is based on a percentage rather than fixed mark-ups.
While wholesale suppliers such as FOCOL (which operates as Shell) and gas station operators have their price-controlled margins set at $0.33 and $0.54 per gallon respectively, the tax structure based on a percentage from the government means it earns more as the price of fuel goes up.
Pre-VAT analysis showed the government earning $1.06 per gallon in customs duty, then 7% stamp duty on supplies landed, measured by CIF (cost, insurance, and freight). This structure has now changed with the introduction of the VAT, and the government is now thought to earn over $1.50 per gallon of gasoline sold.
Sir Franklyn, although unable to remember how much the Treasury earns, described government petrol taxes as a ‘wildcard’ and the only thing that could be adjusted to mitigate the impact of soaring fuel prices oil on Bahamian consumers.
However, he acknowledged that the Bahamas’ fiscal crisis, with a national debt of $10.6 billion and a deficit of $859 million projected for the current fiscal year 2021-22, meant it was likely only not possible to reduce other taxes – especially after the recent reduction of VAT to 10%. .
“It challenges me,” said the chairman of FOCOL Holdings, when asked if there was anything the Bahamas could do in the short term to offset global developments. “Someone smarter than me might be able to figure something out, but the fact is that the first cost is regulated by prices in world markets.”
With shipping, freight, insurance and logistics costs thrown into the mix, Sir Franklyn pointed out that wholesale and retail margins are set and regulated by government price controls. “So I don’t see what else we can do,” he explained.
The Davis administration has made several noises in recent weeks about the steps it plans to take to ease the pain of soaring energy and gas prices. The prime minister has promised to “consider” returning from Belize, and there has been talk of buying oil directly from Saudi Arabia and using liquefied natural gas (LNG). However, these are long-term efforts, not short-term fixes.
However, when it comes to government fuel taxes, he told Tribune Business: “That is, of course, the wildcard. The government could cut the gas tax, but where is that money going to be made and where will it come from?
“The oil companies, the big oil companies, we are a revenue collector for the government. It’s easy for the government to collect; we do it for them and there are not many officials involved. But I don’t see that as an option.
“We have the deficit as it is. We have reduced VAT and reduced fuel taxes, I don’t find that realistic. I’m not even putting that on the table as an option. Sir Franklyn also claimed rising global oil prices were “not helpful” to wholesalers such as FOCOL or oil traders, given the impact on cash flow and liquidity.
Higher prices mean both have to find more money up front to pay for their fuel supplies. “Higher gas prices mean you have to pay oil suppliers more and you need more money for working capital. It is an additional cost,” he added.
“Oil merchants need more working capital for gasoline. It is an additional cost. The impact is very, very significant and considerably negative. The point is, you need to cover your costs and the means to manage them. It’s a tough environment. We manage closely. This is partly the reason for FOCOL’s strategy of going into renewable energy.
Rising oil prices will also put pressure on the Bahamas’ foreign exchange reserves, which support the unique peg to the US dollar, to pay the country’s fuel import bill. Sir Franklyn said he remembered being on a ‘talk show’ with the late Sir William Allen, a former finance minister, who said fuel imports typically consumed 25% of this country’s foreign exchange earnings.
And he added that all of this was happening at a time when the government had little fiscal room to maneuver due to the explosion in debt caused by Hurricane Dorian and COVID-19. “Hubert Ingraham used to use the term margin; what leeway the government had,” recalled Sir Franklyn.
“The tragedy for the Bahamas now is that, as a result of policies carried out in the recent past, during a significant part of the Christie administration and for much of the Minnis administration, the room for maneuver has disappeared. is a tragedy.