You are here

Switch to CNG will cut fuel subsidy by $1.7bn

Friday, September 13, 2013
Fuel Subsidy Trend

Frank Look Kin, technical adviser to the Minister of Energy and Energy Affairs, says the Government and not motor vehicle owners will benefit more from the conversion of vehicles to the use of compressed natural gas (CNG). Look Kin made the comment at the end of an address to members of the Energy Chamber at the Cara Suites hotel in Claxton Bay on Wednesday morning.


He was delivering a speech on behalf of Energy Minister, Kevin Ramnarine, who, he told guests, had to fly to Venezuela for a meeting with his Venezuelan counterpart on the exploration of cross-border gas resources. 



On the benefits of CNG conversion, Look Kin said, “Analysis has shown that for different vehicles, service classes like taxis, buses, commercial and private vehicles, and those that are fuelled by diesel and gasoline, the payout time for the average owner would be between two years and probably as high as up to ten years.”


He said this was because the conversion costs, especially for a diesel vehicle, are very high and there are different types of conversions for a diesel vehicle. On the other hand, the economics of conversion, the conversion benefits to the Government for the savings of fuel subsidy, would achieve a payout time, very often, in under one year.”


Look Kin saidif the public could be persuaded to make the conversions, “the owners will not necessarily benefit, but the Government is the one that will benefit most because of the reduction in subsidy, assuming the price remains the same as it is right now.” 



He said that it was because of this realisation that the National Gas Company (NGC) two months ago agreed to allocate $500 million to finance the construction of 22 CNG stations and the conversion of 17,500 vehicles to the use of CNG in Phase One of a five-year programme. 



Investing in CNG
“The estimated expenditure of converting 20 per cent of the vehicle population at the end of the five years – that’s 100,000 vehicles and 72 stations - is estimated at $2.07 billion,” he said. However, he said the annual benefit of this investment from the end of the year-five of the investment period “would be a reduction of 358,000 tonnes of carbon emissions avoided since CNG is a cleaner-burning fuel. It would also make available $2.7 billion worth of liquid fuels for export and it will also reduce the current fuel subsidy by $1.7 billion.”


He added, “On the other hand, this allocation of some 50 billion cubic feet (bcf) of gas will cost the Government $300 million. “So you can see, there is a substantial weight on one side in terms of benefit to the country in terms of the environment, in terms of additional export earnings, and in terms of reduction in the fuel subsidy.”


He said the Government had long recognised increasing the price of fuel would impact the cost of living since gasoline and diesel are critical components in the transport of goods and people, and any change in the price of fuel will have an impact on the cost of living. But he said this impact should not be to the extent that transportation service providers adjust their cost whenever the price of fuel is increased.



Factoring in cost of fuel
Look Kin said fare increases were primarily due to unwillingness by service providers to accept that fuel as a component of the price of transport is very often ten to 20 per cent of the total cost of the provision of a service. 


“And, therefore, a change in the price of that fuel should not translate into an equal or greater percentage change in the price of the service. And that happens all too often. If there is a ten per cent increase in the price of fuel, fares tend to go up by ten, 15, 20 per cent when fuel prices do not constitute the whole operating cost or the overall operating cost of providing the service.” 


He said the Government has been trying for five years to encourage the public to make greater use of CNG as a transportation fuel. However, motorists have been reluctant to make the switch in spite of global acceptance of CNG as a fuel to the extent that an estimated 19 million vehicle owners use it and global conversions are growing annually at 30 per cent.


Look Kin said the Ministry of Energy and Energy Affairs favours the introduction of CNG as an alternate fuel, which is viable, economic and an operational alternative to gasoline and diesel as a transportation fuel. “They (the Government) are saying that until CNG is accepted as an alternate fuel and people have an alternative to go to, then there will be consideration of a change in the fuel price,” Look Kin said.


User comments posted on this website are the sole views and opinions of the comment writer and are not representative of Guardian Media Limited or its staff.

Guardian Media Limited accepts no liability and will not be held accountable for user comments.

Guardian Media Limited reserves the right to remove, to edit or to censor any comments.

Any content which is considered unsuitable, unlawful or offensive, includes personal details, advertises or promotes products, services or websites or repeats previous comments will be removed.

Before posting, please refer to the Community Standards, Terms and conditions and Privacy Policy

User profiles registered through fake social media accounts may be deleted without notice.