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Fuel Subsidies Cost Cameroon Over XAF2,000B in 10 Years

Fuel Subsidies Cost Cameroon Over XAF2,000B in 10 Years

Paru le jeudi, 08 février 2024 12:17

Minister of Water and Energy (MINEE) Gaston Eloundou Essomba, on Tuesday, stated that the government’s decade-long subsidy of petroleum products has led to substantial revenue shortfalls, with losses exceeding 2,000 billion CFA Francs over the past ten years. The peak of these losses was observed in 2022 when the state’s expenditure on petroleum product subsidies accounted for about 25% of its budget resources.

The government’s decision to freeze pump prices following the 2008 hunger riots, triggered by a rise in petroleum product prices, has resulted in the state bearing the cost of the gap between the actual price of refined imported crude and the pump price. “Throughout 2022 and 2023, skyrocketing global oil prices have created a widening gap between what we pay for imported fuel and what it costs at the pump. With prices frozen due to government policy, consumers enjoyed lower prices while the government took a big hit, footing the bill for importers. This unsustainable subsidy on fuel is draining the public treasury dry,” Minister Essomba stated.  

According to the government official, the shortfall is calculated based on actual import quotations, including petroleum product quotations published by PLATT’S –a division of S&P Global well-known for its comprehensive coverage of the commodities markets, the euro/dollar parity published daily by specialized institutions, and the trader’s premium. “Take, for example, two shipments of 10,000 tons of diesel each, imported in January 2024. On January 10th, the price per ton was $808.25 according to quotes by PLATT’s and the exchange rate was 1.0843 euros per dollar. By January 29th, the price had dropped to $742.90 and the exchange rate was slightly higher at 1.0953. Even though these shipments arrived within the same month, these small changes added up to a big difference. We lost XAF569 million on the first shipment and a whopping XAF1 billion on the second! That's an XAF431 million variation in the value of the two shipments due to a mere $50 per ton price difference and a tiny shift in the exchange rate,” he illustrated.  

Cut in Subsidies

Fuel subsidies have become untenable due to a double whammy of fluctuating global oil prices and a volatile US dollar exchange rate, the MINEE explained. He indicated that these factors, coupled with occasional cash flow issues, have led to persistent shortfalls and disruptions in fuel supply. "This state subsidy of fuel at the pump has become virtually unsustainable for the public treasury," he declared. To address the situation, the government has been forced to significantly reduce subsidies, resulting in recent price increases for gasoline and diesel. "Faced with this situation, it has become imperative to significantly reduce these shortfalls," Essomba emphasized.

On February 3rd, Cameroon raised gasoline and diesel prices by roughly 15%, seeking to stabilize fuel supply and combat speculation. A liter of gasoline now costs XAF840 compared to 730 previously, while diesel is priced at XAF828 versus 720 earlier. According to the government, the measure aims to guarantee a stable supply of petroleum products and curb speculation in essential goods. But above all, to reduce the subsidy bill, "in an international context marked by inflationary tensions due, on the one hand, to the Russian-Ukrainian crisis, which is having a major impact on world trade, and, on the other, to the recent armed conflict in the Middle East between the State of Israel and Hamas, as well as its sub-regional ramifications." The increase follows a similar price hike in 2023.

In his end-of-year address, President Paul Biya said the first pump price adjustment carried out last year reduced the subsidy bill by XAF640 billion. He also estimated the bill was over a trillion CFA Francs in 2022 adding that as the subsidy continues to weigh on public finances, the country would have no choice but to lower subsidies again. 

Finance Minister Louis Paul Motaze confirmed savings of nearly XAF1,000 billion. from subsidy cuts. These savings, said Communication Minister René Emmanuel Sadi, will be "redirected" towards priority infrastructure projects. For MINEE Essomba, the savings will be channeled toward the "highest priority" infrastructure sectors.

Patricia Ngo Ngouem

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