THE COUNCIL of Ministers yesterday acquiesced in the five parliamentary parties’ refusal to raise the pump price of petroleum products, and instead to use government funds to subsidise the soaring price of crude oil imports to the island.
The state will subsidise imported oil for an initial period of three months, as insisted by the ruling Disy party last week, when the matter first came before the Council of Ministers, and revisit the issue at the end of that period.
"The cabinet considered it appropriate, taking into account the instability of the price of the world market oil price, to adopt one of the choices put before it by relevant minister," Commerce Minister Nicos Rolandis said, "and not increase the sale price of petroleum products for a period of up to three months, and to cover the losses from public funds."
The state subsidy bucks the trend in most of the rest of the world, where countries are raising the pump prices of petrol, diesel fuel and home heating oil in the wake of Opec’s production cutback and price rises. Greece is raising its pump prices today.
However, the Cyprus Chamber of Commerce and Industry backed the House leadership in insisting on state subsidies for fuel prices instead of a pump price hike, claiming a price rise would hurt the economy by triggering an increase in the CoLA (cost of living allowance), and therefore increase wages.
The oil price subsidy decision was announced by Rolandis after the Cabinet’s regular Wednesday meeting, at which ministers also discussed government policy concerning seawater desalination plant construction.
Yesterday’s Cabinet decision merely validated the refusal of the five parliamentary parties, on February 18, to consider raising the pump price of petroleum products to make up the difference between the $30 per barrel that crude oil costs to import and the price the oil companies are getting at the pump.
House party leaders had rejected day-long attempts by Rolandis and Finance Minister Takis Klerides to persuade them to raise petrol pump prices instead of dipping into state revenues, and throwing Cyprus farther out of line with EU Maastricht Treaty guidelines for participating in European monetary union.
The Maastricht Treaty says a country’s annual deficit may not to exceed three per cent of GDP, and its total debt must be less than 60 per cent of GDP. Cyprus exceeds both thresholds.
Rolandis said three months of state oil subsidies would cost the government £15 million, but he assured that the public money would not be coming from the Defence Fund.
It was to the Defence Fund and consumers’ electricity bills that the government applied the windfall profits it made when oil was $10 per barrel a year ago. At that time, the state refused to lower pump prices, preferring windfall profits to consumer rebates.
However, those windfall profits were not put aside against the prospect of the kind of huge Opec price rises the world is currently reeling from.
Rolandis said, "The government will be watching the whole issue and will have to recoup the amount it will have to give out from surpluses, in the event that prices go down."
"(But) in the event that there is no such reduction in the crude price, the government will look at other ways of restricting the fiscal deficit," he said.
Other alternatives to state subsidy before the Cabinet were raising the pump price of petrol and a combination of pump price hikes and government subsidies. In the end, the parties won out.
