The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is giving away a sum equivalent to 1 percentage point of gross domestic product (GDP) in pre-tax subsidies to its petroleum and energy sectors, the second-highest number among Caribbean oil importers.

An International Monetary Fund (IMF) working paper, entitled ‘Energy Subsidies in Latin America and the Caribbean: Stocktaking and Policy Challenges’, found that only Antigua & Barbuda among net Caribbean oil importers offered higher pre-tax subsidies to these sectors at 1.2 per cent of GDP.

For the Bahamas, the IMF paper estimated that this nation provided pre-tax subsidies equivalent to 0.4 per cent of GDP for the fuel industry, and 0.5 per cent for the energy sector. Rounding the two combined to 1 per cent, and the implications are that these subsidies cost the Bahamian taxpayer roughly $80 million annually.

And that figure is likely to be even higher, because the IMF paper and its authors admit that the figures “exclude preferential access to fuel” that is given to the cash-strapped Bahamas Electricity Corporation (BEC).

It is allowed to import its fuel at a lower 10 per cent Customs duty rate and 7 per cent Stamp Tax. While this has kept the fuel shipments affordable, and allowed BEC to keep the lights on, it also results in the Government relinquishing significant taxes.

BEC’s total installed capacity nationwide is 438 Megawatts (MW), but its tariffs include “a minimum charge” to cover meter rental costs “and other adjustments”.

“Estimations based on the price-gap approach indicate subsidies in the range of 0.5 per cent of GDP in 2011–13, which are partially financed by fiscal transfers to partially compensate for financial losses at BEC,” the IMF paper said.

“Losses due to inefficient energy consumption and operating system/transmission and distribution averaged 10–12 per cent in 2011–13.”

The IMF paper said oil-related products accounted for around 23 per cent of the Bahamas’ total oil import bill in 2013. Turning to the petroleum/fuel industry, the document added: “The price-setting mechanism for all fuel products entails some ad-hoc adjustments in consumption taxes for price smoothing.

“The implied subsidies (based on the price-gap approach) suggest that they have remained around 0.4 per cent of GDP in 2011–13.” The IMF paper defined the ‘price gap approach’ as the difference between the average price paid by the end or intermediate consumer, and a benchmark price.