Rise in fuel: the government can do better

Rise in fuel: the government can do better

In view of the evolution of the prices of refined products, professionals foresee a further rise in the price of diesel per liter and a slight drop in that of petrol.

According to an expert surveyed by Médias24, on the basis of the prices stopped on Friday June 24, the expected average increase is 1.60 DH for diesel. The decrease in gasoline would be 0.70 DH.

On this basis, the liter of diesel which is around 15.60 DH should go to more than 17 DH. Gasoline could drop below 17 DH. This will depend on each trader’s strategy.

The price monitoring that we carry out has shown that not all operators pass on increases/decreases in the same way and that price changes now take place outside the traditional fortnightly meeting.

If the increases continue at the same rate, it will not take more than a month for the scenario of a liter at 20 DH to materialize, whereas it was unlikely a few months ago.

Government silence

At the point where the market is, the question is no longer to know what the operators will do, but rather whether the government will react or not?

On June 6, questioned by elected officials on this subject, the Minister of Economy and Finance Nadia Fettah replied: “We are monitoring developments and will take the necessary and efficient measures at the appropriate time”.

We would like to know the “necessary and efficient measures” that the government reserves “at the appropriate time”. And then, is there another better time to act?

On this subject, the government opposes each time the aid measure to carriers. This aid aims to reduce the impact of inflation on these operators to avoid cascading price increases on other sectors. Is it effective? Is it efficient? We have no answers to these questions.

We can say that it has the merit of existing, but it remains insufficient. Could the government have acted differently or otherwise? Can he do more today? According to several sources surveyed by Médias24, the answer is yes.

Hedging, an option considered but not activated

The first option which should have been activated at the end of 2021 is hedging. During the discussion of the 2022 Finance Bill, the risk of soaring prices mainly concerned butane gas and, in a more secondary way, hydrocarbons.

Faced with this risk, the minister had declared that hedging was being considered. But it will not be activated, in any case according to official data communicated by the government.

Admittedly, no one saw a Ukrainian-Russian war coming which would aggravate an international context disturbed by the pandemic. Nevertheless, Morocco could have activated this option. By resorting to hedging, international organizations would have borne the current price difference between what was provided for in the PLF and market prices. And that could have maintained price stability. According to a connoisseur of the sector, hedging would have been a possible option despite the exit of hydrocarbons from the compensation basket.

A financial engineering solution that could have been interesting, but which is no longer so today given the economic situation.

Taxation, an option still possible

The other option, the only one that can be activated quickly, is to use the tax lever to reduce the pressure on citizens. Several countries are considering it such as Japan, Canada, Poland or more recently the United States.

To lower prices at the pump, Joe Biden on Wednesday (June 22) urged Congress to pass legislation suspending a federal gasoline and diesel tax for three months.

In Morocco, this option can significantly lower prices. The TIC represents 2.42 DH on the price of a liter of diesel and 3.76 DH for gasoline. A temporary suspension of the TIC would immediately and mechanically lower prices by 2.42 DH and 3.76 DH.

“That would impact the balanced budget”, we will certainly be told. At the end of May, net revenue from ICT on energy products reached 6.6 billion dirhams.

In 2021, these revenues reached 16.7 billion dirhams. For 2022, the government expects a revenue of 17.15 billion dirhams. A non-negligible amount, of course, but in a difficult context, the government can use financial engineering and its skills to imagine mechanisms to use this lever to reduce price pressure.

Still on the tax lever, another measure is possible, that of VAT! It is Ad valorem and represents 10%. It changes according to the purchase value. The more the price increases, the more its value increases as well as its impact in the final price. So why not act through this mechanism to reduce prices even a little? At worst, we can leave to the citizen part of this VAT boosted by the rise in prices.

When the international purchase price is 800 dollars per ton, or 8 DH per liter (to simplify the calculation, editor’s note), it represented 0.80 DH. With a price of 1,300 dollars, it represents 1.30 DH in the final price.

According to the latest TGR bulletin, VAT on energy products recorded a increase of 85.7% at the end of May 2022 or +2.5 billion dirhams. Here again why not retrocede these unexpected receipts as was the crisis?

The legislative process allowing such a measure to be put in place can be accelerated in view of the tense context.

These measures above can be combined with an effort on the part of distributors who have in the past benefited from a favorable wind, and who can now show proof of citizenship. Admittedly, here too the margins have been reduced because of the crisis, but an effort is still possible!

Note that we have tried to contact the Minister of Economy and Finance on this file, we have had no return. Here are the questions we asked him:

– Have you measured the impact of transport aid on the economy and on citizens?

– Have you considered other support measures to mitigate the price increase on consumers? If so why ? If not why ?

– Why was the hedging not activated? Has it been considered?

– A return to the subsidy is excluded and not desired, but why does the State not temporarily retrocede all or part of the TIC (2.42 for diesel and 3.76 for gasoline) to relieve the consumer ?

– If the option of the TIC risks disturbing the State budget because it is a fixed quota and programmed in the forecasts of receipts, what about the VAT? The VAT is Ad valorem and therefore the more the price increases, the more its value increases. Why not act through this mechanism to reduce the pressure on citizens a little?

Economic diplomacy, a recourse to consider

Beyond the prices, there is also a risk on the availability of the product. This leads the experts surveyed by Médias24 to say that the State must also intervene in this case.

They advise a permanent follow-up of the operators to guarantee the supply and why not envisage grouped purchases with the intervention of the State to better negotiate the commissions of the traders. An option that can also significantly reduce international purchase prices, because the negotiation is done at the state level.

This component, rather concerns the supervisory department, in particular the Minister Leila Benali, who is also careful not to speak on the subject of fuels.

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