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Impact of Oil Prices - June 5, 2004

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Impact of Oil Prices

Good Morning St. Lucia,

Today I want to touch on a matter of urgency that affects all of us in St. Lucia, the rest of the Caribbean and the entire world. I speak of the continuing rise in oil prices on the international market and its implications for us in St. Lucia.

In part, I am prompted to address you on this issue, not only because of the volatility in the price of fuel, but also because of a recent discussion with fishermen in my constituency.

One fisherman told me the government should give to fishermen the same level of rebate on gas which it provided to taxi drivers. I had great difficulty trying to convince him that the government did not subsidize the cost of fuel for taxi drivers. I explained that there was an arrangement for a rebate on gas purchases for minibus operators who were members of cooperatives established by and for minibus owners and drivers. The government agreed to the rebate in order to avoid increases in bus fares to commuters. That agreement has now ended. I pointed that fishermen who were owners of boats received a 75 cents rebate on each gallon of gas -- up to 3,600 gallons per year -- as part of an arrangement that has been in place since 1972. This is so despite the fact that the price of fish was no longer controlled.

It was clear that my fisherman friend was not aware of just how much the government has been doing to keep the prices of fuel down at the gas pump for motorists Ė and indeed for fishermen. He was unaware that gas prices today are 41% higher than they were at this same time last year; or that the same gallon of fuel is now 51% higher since May 2002 when petroleum prices were last adjusted in the local economy.

I reminded the fishermen that for quite some time I have been talking about the need for us to keep our eyes on the international oil market. Today, every single Caricom government (except Trinidad & Tobago which produces oil and natural gas) has had to take or prepare to take measures to shield their economies against the effects of the increasing oil prices. Dominica has already raised its price per gallon to EC$8.49 for the second time in six months. On Friday, June 4, the government of Barbados increased the price of gasoline by 18 cents a litre, diesel by 10 cents a litre and kerosene by 10 cents per litre. It means therefore that the price of a gallon of gas in Barbados will move from $9.10cents per gallon to $9.80 cents per gallon. Jamaica and Guyana have both announced that they will have to review or adjust local prices; and the Heads of Government of the OECS have all indicated that should the current price rise continue each country will have to review its pricing mechanism in order to safeguard economic growth or revival prospects. Here in St. Lucia, as you know, the price of gas at the pump remains, for the time being, at $7.75 per gallon.

With prices on the world market reaching a high of US$42.33 per barrel on June 1, 2004, windfall profits will be earned by OPEC states. However these states have now promised to increase daily production by two million barrels per day for a world market that consumes 80 million barrels per day. This may have the effect of keeping prices from going higher, but it is not expected to decrease the price of gas at the pump significantly.

Some of you may wonder why we have to be concerned about the world market price when we buy fuel from Trinidad & Tobago a sister CARICOM State. The fact is that we do not buy fuel from Trinidad & Tobago at lower or reduced prices. Instead, we have to buy it at the same world market price. So that, if the world market price is US$41 dollars per barrel we must pay exactly that amount to our suppliers and no less.

If the price of fuel increases overseas, then we will have to expect that the price of what we import will increase. Any increase in the price of fuel on the world market will result in an increase in the cost of production of goods, higher transportation costs and higher electricity costs. We may well see movements in the prices of imported products because of the increases in the price of fuel. Indeed, the cost of worldwide travel has increased because airlines have been forced to introduce a fuel surcharge since they have to pay more for aviation fuel.

It is against this background that I have to urge you to continue to monitor the oil prices because they can have grave consequences for our ability to continue to do today as we have done for so long in the past. How long we continue to protect the consumer at the gas pump depends, at this time, not on the good will of the government but on our ability as a nation to continue to sustain losses of several million dollars each year. You should, therefore, expect changes -- more likely increases in the price of fuel in the near future Ė unless, of course, there is a dramatic reduction in the world market price.

Even though we are helpless in the face of the oil giants, there are some things we are empowered to do. For one, we can do more to conserve on our use of energy. We can do less of those things that make us use more fuel, gas or electricity. We can intensify our use of more efficient energy sources, such as solar energy versus electricity for hot water baths. And we must continue the search for more efficient energy sources such as the harnessing of solar, wind, water, geothermal and other forms of energy that may be in abundance in our part of the world.

On this note I would like to leave you with the assurance, as Prime Minister, that your government will continue to do all thatís within its means to find the best solutions to the problems that may arise. Some things we will be able to do and some we may only be able to try. But there are also those things we just simply canít do anything about but to adjust to the new reality. One thing you can be sure of, however, is that our government will continue to do all it can to ensure that our people continue to enjoy the best in the circumstances, even while facing up to the new realities of a fast changing world.

Meanwhile, those of you who have e-mailed me will receive your replies to your questions this week.

Thank you for listening and please do enjoy the rest of the week!


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