Jordan.. Fuel Price Increase Revives Debate on "Cost of Subsidies and Actual Taxes"

Amman, Jordan - The Jordanian government raised the prices of several oil derivatives for October on Wednesday, in a move it said was in light of significant increases in global oil and derivative prices, while keeping the prices of kerosene and domestic liquefied petroleum gas unchanged. According to the decision of the Oil Derivatives Pricing Committee, the price of 90-octane gasoline increased by 50 fils per liter to 1.050 dinars, 95-octane to 1.360 dinars, and diesel to 900 fils per liter.

In contrast, the price of kerosene remained at 550 fils per liter, and the price of a 12.5-kilogram domestic gas cylinder remained at 7 dinars. The government stated that the increase "came after a noticeable and significant rise in crude oil and derivative prices due to geopolitical tensions, and it reflected part of these increases on local prices within a gradual policy, aimed at mitigating their impact on citizens and economic sectors."

The increase has reignited the discussion about the difference between the costs used in pricing and the prices paid by consumers. According to the pricing committee in its official statement, which was received by Ofoq News in Arabic, what it termed the "actual approved cost" for diesel in October was about 1077 fils per liter, compared to a selling price of 900 fils, while the cost of kerosene was about 1044 fils compared to 550 fils.

The cost of 90-octane gasoline was about 1112 fils per liter compared to a selling price of 1050 fils, while the cost of 95-octane was close to its price, at about 1360 fils compared to 1360 fils. Fuel stations were crowded immediately after the announcement of the new pricing to obtain fuel before the decision took effect, while activists on social media expressed their dissatisfaction with the increase, even if it was partial, especially for diesel (solar). 255 million dinars..

The pricing committee indicated that the total support and price differences borne by the government since the beginning of the crisis until the end of September amounted to about 255 million dinars (about 360 million dollars), due to the rise in global costs and the failure to reflect the full increases on local prices. The total rose from 170 million dinars at the end of May to 224 million in August, before reaching 255 million at the end of September.

However, the energy affairs expert, researcher Amer Al-Shoubki, disagrees with the government's description of this amount, stating that the 255 million dinars do not represent, in his view, funds that the treasury paid as "direct support," but rather tax revenues that were not collected during the crisis. Al-Shoubki says, in an interview with Afaq News in Arabic, that "the government ultimately reduced the taxes derived from petroleum derivatives" by about 255 million dinars during that period, pointing to the difference between this decline in revenues and direct support, which means, according to his explanation, that the government actually pays to cover the price difference.

Al-Shoubki links this to the specific excise tax on petroleum derivatives, which has been fixed since 2019. He states that the government has become heavily reliant on the revenues it collects from this tax, which was supposed, according to his estimate, to provide the treasury with about 1.25 billion dinars annually (about 1.76 billion dollars).

He considers that fixing the tax, so that it does not change with fluctuations in the prices of derivatives, was a "strategic mistake" from his perspective at the time. In this context, Al-Shoubki mentions that some European countries clearly differentiate between tax reductions and direct support for fuels during crises, citing Poland, which he says reduced taxes on derivatives at one point from about 30% to 8%.

Diesel and Supply Security The impact of the increase does not stop at the consumer, as Al-Shoubki estimates that diesel accounts for about 60% of petroleum derivative consumption in the kingdom, making its price increase likely to transfer to transportation, shipping, and construction costs, and then to the prices of goods and services. Al-Shoubki places local developments in the context of global energy market disruptions, pointing to challenges in refining, supply, and transportation, and to disruptions affecting refined products, especially diesel.

He points out that Russia is a key player in the global diesel market and has renewed its halt on diesel exports, while he noted that the United States has discussed on several occasions the issue of restricting diesel exports amid concerns about the domestic market. Al-Shoubki also warned that the availability of derivatives could become a challenge if the crisis persists, despite the government's announcement of reserves sufficient for about 60 days, considering that this duration may not apply to all derivatives or consumption levels in emergency conditions.

It indicates the possibility of additional depletion of stock if gas supply disruptions lead to increased reliance on diesel for electricity generation. "Extended financial pressure" and Al-Shobki believes that the crisis may continue until 2027, and that the decline in revenues from oil derivatives should not be treated as temporary, calling for financial preparedness for a long-term scenario. He stated that what the government pays annually for debt servicing in installments and interest amounts to about 3.25 billion dollars, according to his estimate, which increases pressure on public finances.

He believes that the decline in local revenues from derivatives, along with the rise in debt servicing, exacerbates the pressures on the government, calling for more transparency in presenting taxes, prices, and subsidies, and for studying targeted support for specific segments instead of general support when the need to mitigate the impact of prices is present.