Jordan.. Raising fuel prices revives the debate over the “cost of subsidies and actual taxes”

Amman, Jordan - On Wednesday, the Jordanian government raised the prices of a number of petroleum derivatives for October, in a move that it said came in light of the significant increases in the prices of oil and derivatives globally, while keeping the prices of kerosene (kerosene) and household liquefied petroleum gas unchanged. According to the decision of the Petroleum Derivatives Pricing Committee, the price of octane 90 gasoline rose by 50 fils per liter to 1,050 dinars, octane 95 to 1,360 dinars, and diesel to 900 fils per liter.

In contrast, kerosene remained at 550 fils per liter, and the price of a 12.5-kg domestic gas cylinder was 7 dinars. The government said that the increase “came after a noticeable and significant increase in the prices of crude oil and derivatives as a result of geopolitical tensions, and that it reflected part of these increases in local prices within the gradual policy, with the aim of limiting their impact on citizens and economic sectors.”

Between cost and price The increase revived the discussion about the difference between the costs approved in pricing and the prices paid by the consumer. According to the Pricing Committee, in its official statement, a copy of which was received by Ofuk News in Arabic, what it called the “actual approved cost” of diesel in October amounted to about 1,077 fils per liter, compared to a selling price of 900 fils, while the cost of kerosene amounted to about 1,044 fils, compared to 550 fils.

The cost of 90 octane gasoline was about 1,112 fils per liter, compared to a selling price of 1,050 fils, while the cost of 95 octane gasoline was close to its price, at about 1,360 fils, compared to 1,360 fils. Gas stations were crowded immediately after the announcement of the new price for fuel, hours before the decision took effect, while activists on social media expressed their dissatisfaction with the increase, even if it was partial, especially for diesel (diesel). 255 million dinars..

The Pricing Committee indicated that the total support and price differences borne by the government from the beginning of the crisis until the end of September amounted to about 255 million dinars (about 360 million dollars), as a result of the rise in global costs and the failure to fully reflect the increases in local prices. The total rose from 170 million dinars at the end of May to 224 million in August, before reaching 255 million at the end of September.

However, energy affairs expert and researcher Amer Al-Shobaki disagrees with the government’s characterization of this amount, saying that the 255 million dinars do not, in his reading, represent money paid by the treasury as “direct support, but rather tax revenues that were not collected during the crisis.” Al-Shoubaki said, in an interview with Ofoq News in Arabic, that “the government as a result reduced the taxes generated from oil derivatives” by about 255 million dinars during that period, pointing out the difference between this decrease in revenues and direct support, which, according to his explanation, means that the government actually pays to cover the difference in price.

Al-Shoubaki links this to the special lump-sum tax on oil derivatives, which has been fixed since 2019. He says that the government has become largely dependent on the revenues it collects from this tax, which, according to his estimate, was supposed to provide the treasury with about 1.25 billion dinars annually (about 1.76 billion dollars).

He considered that fixing the tax, so that it would not change with changes in derivatives prices, was a “strategic mistake” from his point of view at the time. In this context, Al-Shoubaki says that some European countries clearly distinguish between reducing taxes and direct support for fuel during crises, citing Poland, which he says reduced taxes on derivatives in one period from about 30% to 8%.

Diesel and security of supply The impact of the increase does not stop with the consumer, as Al-Shobaki estimates that diesel constitutes about 60% of the consumption of petroleum derivatives in the Kingdom, which makes the increase in its price transferable to the costs of transportation, shipping, and construction, and then to the prices of goods and services. Al-Shoubaki places local developments in the context of turmoil in the global energy market, pointing to challenges in refining, supplies and transportation, and disruptions affecting refined products, especially diesel.

He points out that Russia is a major player in the global diesel market, and that it has renewed its cessation of diesel exports, while he said that the United States has also discussed on more than one occasion the issue of restricting diesel exports amid concerns about the local market. Al-Shoubaki also warned that the availability of derivatives may become a challenge if the crisis lasts for a long time, despite the government’s announcement of a stock sufficient for about 60 days, considering that this period may not apply to all derivatives or levels of consumption in emergency conditions.

He points to the possibility of additional depletion of stocks if gas supply disruptions lead to increased reliance on diesel for electricity generation. “Extended financial pressure” Al-Shoubaki believes that the crisis may continue until 2027, and that the decline in revenues from oil derivatives should not be treated as temporary, calling for financial preparation for a long-term scenario. He said that what the government pays annually to service the debt in terms of installments and interest amounted to about $3.25 billion, according to his estimate, which increases the pressure on public finances.

He believes that the decline in domestic revenues from derivatives, in addition to the rise in debt service, is exacerbating the pressure on the government, calling for more transparency in the presentation of taxes, prices, and support, and for studying targeted support for specific segments instead of general support when there is a need to mitigate the impact of prices.