Group of Seven nations called for an end to the oil subsidies used in China, India and Indonesia to shield domestic consumers from high energy prices.``It should be avoided to artificially lower domestic energy prices through fiscal measures,'' G-7 finance ministers and central bankers said today in Tokyo. ``It works against market- based adjustment of energy demand.''
The G-7 also called on oil producing countries to increase production and refining capacity, noting that rising fuel prices and the risk of inflation are risks to global growth. An end to energy subsidies might cut demand in some of the world's fastest growing economies, easing pressure on prices.
``Subsidies in places like China, India, Indonesia, have led to artificially high levels of demand,'' said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong. ``There's probably a better way of spending that money rather than subsidizing energy.''
Indonesia may spend 106.8 trillion rupiah ($11.5 billion) this year in capping fuel prices and spend an additional 44.2 trillion rupiah on keeping power costs below market rates, the Finance Ministry proposed last month.
In China, the government pays compensation to refiners who sell their product to consumers at below-cost prices. In the past two years China paid Sinopec, Asia's largest refiner, 15 billion yuan ($2 billion) as compensation.
India's government partly compensates refiners for selling fuels below cost by giving them bonds. Indian Oil Corp. and other refiners received 112.5 billion rupees ($2.8 billion) of bonds from the government on Jan. 18.
``If oil is priced correctly in the market, then it provides valid signals to businesses and encourages the adoption of alternative energy sources, which will be more successful in limiting demand and price increases,'' said Maguire.
The G-7 consists of the U.S., the U.K., Canada, Italy, France, Germany and Japan. Its members account for two-third of the global economy.
India's government partly compensates refiners for selling fuels below cost by giving them bonds. Indian Oil Corp. and other refiners received 112.5 billion rupees ($2.8 billion) of bonds from the government on Jan. 18.
``If oil is priced correctly in the market, then it provides valid signals to businesses and encourages the adoption of alternative energy sources, which will be more successful in limiting demand and price increases,'' said Maguire.
The G-7 consists of the U.S., the U.K., Canada, Italy, France, Germany and Japan. Its members account for two-third of the global economy.
Source: Bloomberg|By Jason
No comments:
Post a Comment