📋 Tender Overview
The The Executive's decision to partially reduce gasoline subsidies is justified by the need to reduce the gap between the rich and the poor, as it is the case of rural, urban or peri-urban populations, which have a consumption reduced or zero fuels.
1) FRAMEWORK
1. The allocation of fuel price subsidies is an economic measure and social, resulting from a combination of fiscal policy and income and prices, supported by Presidential Decree No. 206/11 of 29 July, approving the General Bases for the Organization of the National System of Prices and by Presidential Decree no. 283/20, of 27 October, which establishes o Model for Setting the Prices of Crude Oil Products and Natural gas.
2. Although fuel subsidies are aimed at mitigating the impact of the price of this category of petroleum products in the economy in general, as well as make these products accessible to the most disadvantaged populations, it appears that the its impact on public accounts is adverse to the intended objectives, since, leads to a tax cost that tends to increase and be unsustainable in the medium and long-term, at the expense of the State's financial capacity to invest in basic services and social development projects.
3. The progressive and regular increase in the differential between fixed prices and market prices increase the cost assumed by the State and consequently the budget appropriations for the payment of fuel subsidies, which, on the one hand, threatens fiscal sustainability and, on the other hand, the Solvency of the downstream segment of the oil industry, with risk of insolvency of companies in the sector and the scarcity of these products in the market.
4. By December 2022 market prices stood at 452%, 578%, 202% and 279% above the prices fixed respectively for LPG (cooking gas), Illuminating Oil, Gasoline and Diesel, having generated, subsidies at prices of Kz 551 billion, Kz 1.2 billion, and Kz 1.98 billion, respectively in the years 2020, 2021 and 2022, totaling for the reference period the value of Kz 3.73 Billion.
2) CHARACTERIZATION OF FUEL SUBSIDIES
5. Currently, LPG (Cooking Gas), Illuminating Oil, Gasoline and Diesel are fuels subject to the fixed price system pursuant to the partial application of Joint Executive Decree no. 331/20 of 16 December, from which results the granting of price subsidies, calculated by the difference between market prices and fixed prices.
6. Illuminating Oil, gasoline, diesel and LPG (cooking gas), have the prices fixed at Kz 70.00/liter, Kz 160.00/liter, Kz 135.00/liter and Kz 100.00/Kg, respectively; while weighted average market prices of these products, throughout 2022, reached the figures of Kz 476.77/liter, Kz 535,27/litre, Kz 589,86/litre and Kz 488,87/kg respectively (Annex 1)
7. The data show that in 2022, the state assumed a full subsidy of Kz 1.98 billion, with diesel being the fuel that represents the largest weight of this expenditure, amounting to Kz 1.35 billion, which corresponds to 68.1% of the total, followed by petrol with a value of Kz 458.78 billion, corresponding to 23.2% of the total. The accounted value of this type of subsidies, in the year 2022, represents about 92% of the health and education expenditure of the State Budget of the same year, figures amounting to Kz 2.15 billion, which is unbearable from the point from the perspective of the management of fiscal policy.
8. Considering the estimate of prices and quantities, as well as the respective unit subsidy for each product, it is estimated that in the absence of the adjustment of prices, the fuel subsidy by the State reaches Kz 6.73 Billions in the next three years (2023, 2024 and 2025).
9. According to the population projection (34 094 077) and subsidies (Kz 1.82 billion) in 2023, it is inferred that this year, theoretically, the per capita subsidy to the fuel will be Kz 53 405.09, however, in practical terms this subsidy benefits much more the largest fuel consumers, by about of Kz 210 000.00, per capita, widening the gap between the richest and the most poor, to the detriment of the most disadvantaged segments, as is the case of the rural, urban or peri-urban populations with low consumption, or zero fuel, and live with minimal subsistence conditions.
3) EFFECT OF CONTINUITY FUEL SUBSIDIES FOR THE ECONOMY
10.Dada its magnitude and inefficiency in its allocation, the maintenance of subsidies to fuels constitutes a cost and fiscal risk of great magnitude, and not contributes to economic growth by encouraging smuggling into the neighboring countries that practice prices 70% above the price in Angola, creates distortions in relative prices, does not contribute to the sustainability of the largest national public company, as well as does not significantly benefit the layers poorer.
11.In Due to the fluctuation of market prices, the current fixing causes the continuum aggravation of the cost of price subsidies, considering for the period of 2020 to 2025 the cumulative value of the fuel subsidy could reach Kz 8.1 Billion (of which Kz 3.5 billion corresponding to the period 2020 to 2022) that added to the historical debt of public institutions and companies to Sonangol estimated at Kz 600 billion, totals Kz 8.7 billion as the value of State debt to Sonangol for the period in question.
12.This cost level is financially unsustainable, either through the OGE or by tax compensation route, since in the period under review, subsidies to fuels exceeded the total petroleum taxes owed by the Sonangol in 2021 by 70% and it is estimated that they may be higher by 28.5%, 44%, 43%, respectively in 2022, 2023 and 2024, which without compensation space, may reach the cumulative total figure of Kz 2.4 billion, corresponding to approximately 3.5% of GDP (2022) and about 20% of the OGE forecast for 2023.
