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Tue, May 27, 2008

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Asian Gov’ts Forced to Slash Fuel Subsidies
Biofuels “Major Factor“ in Rising Food Prices

Asian Gov’ts Forced to Slash Fuel Subsidies
Torn between protecting the poor and saving their budgets, governments across Asia are being forced to slash fuel subsidies as world oil prices smash through 130 dollars a barrel.
Indonesia, Malaysia and Taiwan have decided to wield the axe on multi-billion-dollar subsidies despite fears of unrest as inflation spikes and the region’s poor pay more for fuel on top of the surge in food costs, AFP said.
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As oil touched 135 dollars a barrel on May 23, countries which analysts had criticized for failing to adjust to the new oil price reality were starting to change course.
Even regional giant India, which until last week was happy to see state oil companies lose millions of dollars a day selling discounted fuel, said on May 23 that a price hike was inevitable.
But while most price-setters could see the writing on the wall, China again dismissed rumors that it would change its central pricing system as it focused on containing inflation ahead of the Beijing Olympics.
“In Asia generally, those countries that subsidize oil will be under pressure to remove their subsidies while those that don’t will be under pressure to do something for low-income earners,“ Royal Bank of Scotland economist Euben Paracuelles told AFP from Singapore.
The crude price boom means that Asian consumers are in for a shock as cash-strapped governments loosen price controls to rein in deficits and free funds for spending on health, education and infrastructure.
For countries such as Indonesia, an OPEC member which has historically enjoyed some of the lowest fuel prices in the world, it means the days of ultra-cheap petrol may soon be over.
Jakarta hiked the subsidized gasoline price by 33.3 percent to about 6,000 rupiah (65 cents) a liter on May 24 despite widespread opposition ahead of general elections in April.
That may be welcome news for anyone who has choked on Jakarta’s lead-filled air recently, but the move sparked immediate and sometimes violent protests by students.
Analysts however said Jakarta deserved praise for its decision to cut its fuel subsidies as they mounted to an estimated 14 billion dollars, or three percent of gross domestic product, with the soaring oil price.
To sweeten the pill the administration is providing direct cash transfers to millions of poor families, but even so, the price hike is an electoral gamble.
“The government is taking a big step despite the elections next year and that shows the confidence that they have in terms of being able to handle the fallout,“ Paracuelles said. “It looks like that’s where most governments are heading right now.“
As oil touched 135 dollars a barrel on May 23, countries which analysts had criticized for failing to adjust to the new oil price reality were starting to change course.
“The situation is getting to be alarming. We need to stem the rot in the beginning,“ Indian Petroleum Secretary M.S. Srinivasan said, adding that a “price hike is inevitable.“
The problem of oil prices is particularly acute for India as it imports 70 percent of its crude needs. Rising oil prices, coupled with the global credit crunch have sent the Indian rupee into a tailspin and hit economic growth.
Malaysia also appears to be changing its stance on subsidies--approaching 15 billion dollars or a massive seven percent of GDP--despite setbacks to the government in March elections.
Kuala Lumpur is now reportedly considering a two-tier pricing system to make the rich pay more and cap the subsidy bill at more acceptable levels.
And in Taiwan, the new government of President Ma Ying-jeou moved quickly last week to end a freeze on domestic gasoline prices from June. Power prices will also rise from July accordingly, officials said.
Meanwhile China, whose insatiable appetite for oil is helping to drive crude prices higher, has made it clear fuel costs will remain well below market rates even as its energy needs surge ahead of the Olympics.
China increased retail fuel prices by around 10 percent late last year but the government continues to throw billions of dollars in subsidies at state-owned oil and gas company Sinopec.
Analysts said higher prices in countries such as Indonesia would ease demand for crude but only India and China could take the sting out of the oil markets.

Biofuels “Major Factor“ in Rising Food Prices
New investments and subsidies favoring the production of biofuels should be frozen in an effort to curb food price rises, the United Nations’ new independent expert on the right to food said.
Such a move could send a strong signal that the price of food crops will not keep rising, and thus halt speculation, Olivier De Schutter told a special UN Human Rights Council session on the global food crisis, AFP said.
He also suggested regional or global coordination in setting up grain reserves as a mechanism to curb food commodities speculation.
In remarks that echoed those of Jean Ziegler, his outspoken predecessor as special rapporteur, De Schutter called biofuels a “major factor“ contributing to food price inflation, as their production saps scarce arable land.
He pointed to a study estimating that an extra 100 million hectares (247 million acres) of land would be needed in order for agrofuels to make up five percent of worldwide fuels by 2015. This, he said, would be “simply not sustainable“.
He described as ’unrealistic’ a US plan to require fuel producers to use at least 36 billion gallons (136 billion liters) of biofuel in 2022 and an EU target of biofuels meeting 10 percent of transport energy demands by 2020.
“By abandoning them (the targets), we would send a strong signal to the markets that the price of food crops will not infinitely rise, thus discouraging speculation on commodity futures,“ he said.
“I have therefore proposed a freeze on all new investments and subsidies favoring the production of fuel by growing crops on arable and non-degraded lands, when such lands are suitable for the production of food crops.“
De Schutter also noted the volatility in the commodities market, saying that measures were needed to “discourage such speculative pressures on the prices of food commodities“.
He gave as an example the setting up of grain reserves, coordinated at regional or global levels, as a way to curb speculation.
Global food prices have nearly doubled in three years according to the World Bank.
Soaring oil prices have injected a lethal mix to the problem, as they make transporting food more expensive.
But overall, it is trade restrictions, poor growing weather and rising use of biofuels that rely on staples like corn (maize) that have been blamed for food price inflation.
Biofuels are derived from food produce such as corn, soybeans and sugarcane, and plants such as switch grass and their cellulosic waste.
In response to global warming, industrialized countries have moved to promote such fuels as a greener alternative to traditional fossil fuels. Higher oil prices have meanwhile given impetus to consumers to embrace biofuels.
In recent months, however, biofuels have come under fire for taking up arable land that could be used to grow food--thereby contributing to a shortage in produce and, in turn, higher food prices.

Japan Electricity Prices
Tokyo Electric Power Co Ltd , Asia’s biggest power producer, said it may consider raising electricity rates as it tries to cope with sky-high oil prices.

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Uruguay Drought Creates Energy Crisis
First, the escalators stopped. Then shadows crept across the city in what appeared to be an epidemic of dead light bulbs.
According to Miamiherald, as winter approaches, Uruguay has found itself in the grips of an intensifying energy crisis, brought about by a three-month drought that has crippled the country’s hydroelectric power generators. The scarcity--at a time of record high prices for imported oil--is prompting strict conservation measures.
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For a while, the drought had little impact in Uruguay’s capital, where nearly half of all Uruguayans live and there is ample drinking water. But after the third unusually dry month in a row, President Tabare Vazquez has initiated Phase 2 of the national “Plan to Save Energy,’’ ordering businesses and homeowners to cut their energy use deeply.
To avoid the first scheduled blackouts since 1989, half of all elevators and escalators at shopping malls and supermarkets must be put out of service. At apartments and private homes, lights in gardens and patios are now contraband, lending the appearance of abandonment even at upscale buildings with underground garages and water views. Noncompliance is punishable by energy shutoffs ranging from three hours to five days.
“To overcome this energy crisis,’’ Vazquez said in his executive order, “we need everyone’s commitment.’’
Rainfall returned to parts of the country in recent days. But it did not appear to be enough to compensate for the dry months and allow a lifting of the restrictions.

Cutting Energy Use
In many places, such as shopping centers, the conservation recommendations are largely in place. To cut energy use by 10 percent, for example, elevators at the national energy company’s headquarters have been programmed to stop at alternate floors, employees are being sent home at sundown and signs in shadowy hallways direct staff to the marble stairways for short trips.
“Without a doubt, people are worried,’’ said Claudia Viurrarena, browsing a jewelry display recently at the Punta Carretas mall, where the walls are papered with signs apologizing for the frozen escalators. “The predictions are bad.’’
Along Montevideo’s main downtown boulevard, 18 de Julio, the energy crisis is also apparent. At the display windows at the Indian Emporium, the eight flood lights that normally brighten leather boots and wool sweaters are now strictly ornamental.
It is unusually quiet at the Artemis electronics shop, chockablock with motorcycles, washing machines and coffee makers, where 30 television sets normally compete for attention.
“It’s much easier to sell a TV with images and sound,’’ said manager Fernando Perez, 37. “This complicates things.’’
The scarce rainfall registered first in agricultural areas, where vegetable and fruit growers watched their irrigation ponds dry up and their customers at farmers’ markets grumbled about undersized apples and pears.
Vazquez initiated the first phase of the conservation measures on April 14, banning outdoor entertainment at night and instructing public agencies to cut energy consumption by five percent.

Below Average
In all, Uruguay received 3.3 inches of rain from March 1 through May 10, 4.4 inches below average, according to the National Institute of Agricultural Research. It rained less than an inch last month, and there has been no significant rainfall in May.
That has so slowed the Rio Uruguay, on the western border, and the Rio Negro, in the center of the country, that Uruguay’s four hydroelectric plants are almost completely disabled. In the Rio Negro, the government is preserving what little water remains at the dam for the winter months. On the Rio Uruguay, the largest dam, by the city of Salto, is operating at 20 percent of capacity and the energy it produces is shared with Argentina.
Normally, the dams are the pride of Uruguay, producing 80 percent of the country’s energy needs, according to government statistics. Last winter, they satisfied all domestic demand, idling the costly oil-fired plants in Montevideo.
Now, those plants are burning imported oil day and night to feed the grid, draining the government treasury. The state energy company, UTE, already has spent more than $300 million in 2008, after budgeting $340 million for the entire year.
The price of the oil UTE buys, though heavily subsidized to forestall electricity rate hikes, recently jumped by 5 percent. It has almost doubled in the past two years, although that increase has not been passed along to customers.
Even operating at capacity, Uruguay’s power generators are falling short. With no domestic oil or natural gas, the country is now at the mercy of Argentina and Brazil to provide electricity because the oil-fired plants in Uruguay are already operating at capacity.
“If it rains, we’re independent,’’ said Magdalena Marinoni, one of three members of a government commission implementing the president’s energy saving plan. “If it doesn’t, we’re not.’’