The Mozambican government will gradually increase fuel prices, with monthly rises of no more than 10 per cent, between April and August, until the price at the pumps is in line with market prices.In this way, the government will gradually eliminate the subsidies it is currently paying to fuel distribution companies in order to keep the price of diesel and petrol artificially low, according to Planning and Development Minister Aiuba Cuereneia, in an interview published in Thursday’s issue of the independent daily “O Pais”, explaining the measures announced by the government on Tuesday night.These measures replace general subsidies with subsidies targeted at the most vulnerable strata of Mozambican society. “The country does not have the capacity to live off subsidies”, stressed Cuereneia.As the price of fuel rises, so the fuel subsidy for passenger transport operators will kick in. The deal between the government and the owners of the minibuses (“chapas”) that provide much of the country’s urban passenger transport is that, if the price of diesel goes above 31 meticais (about one US dollar) a litre, the government will pay the difference. This arrangement was reached in the wake of rioting over fare increases in February 2008.Since May 2010, the government has held the price of diesel at 30.98 meticais – just two centavos short of the subsidy threshold. As from April, it seems certain that the diesel price will exceed 31 meticais a litre, and so the government will be obliged to pay the subsidy to the chapa owners.But in August that subsidy too will be scrapped – instead, Cuereneia said, the government will introduce a system of bus passes for workers and students. Thus the subsidy will be paid, not to the transporters, but to some of the people being transported.The new passes complement those that already exist on the Maputo bus company, TPM, for the elderly and for veterans of the national liberation struggle.The bus pass subsidy “will be directed at those who work and those who study”, said Cuereneia. “Currently the government is even subsidizing transport for those who want to go to the beach. We want the subsidies to be channeled to the people who really need them”.People who are self-employed, working in the informal sector, will not have access to the new passes. “This is a selective process”, said Cuereneia.
But the government hopes that people who work in the informal sector will gradually formalize their businesses, and start paying taxes. When that happens, those employed in this sector may gain access to the new bus pass.Currently fuel subsidies are costing the government around 120 million dollars a year, Cuereneia said. He expected the bus pass subsidy to cost just one million dollars.He admitted that the spiralling price of oil on the world market has forced the government’s hand. “Perhaps if the situation had remained the same as in December, we would not have to take these measures”, he said. “We are taking them because we forecast an increasingly complicated and worsening situation”Cuereneia said that, when the 2011 budget was presented to parliament in December, the government forecast an average 2011 price of oil of 69 dollars a barrel. But it is currently at 115 dollars a barrel, producing a situation “completely different from what we had foreseen”.As from July, the government also plans to scrap the current subsidy for the wheat flour used to bake bread. This has allowed all urban Mozambicans, rich and poor alike, to eat bread at unrealistically cheap prices.The government is replacing the flour subsidy with a basic food basket aimed at the poorest strata in Mozambican cities. This basket (consisting of such goods as grains, bread, vegetable oil, beans and second grade fish) will be sold at subsidised prices to anyone with an income equal to or lower than 2,000 meticais (about 65 US dollars) a month.When he first spoke about the food basket, on Tuesday, Cuereneia used the word “wage”, which gave the impression that only people earning wages in the formal sector could benefit. But he told “O Pais”, that the government envisages 1.8 million people living in Maputo and the 10 provincial capitals as being eligible for the food basket – which is much larger than the entire formal sector of the urban economy.The major task ahead was to register all these people, licence the shops where they will obtain the food basket, and put in place a system for subsidizing these shops. The subsidy will be paid once the price of the goods in the basket exceeds 824 meticais a month.Existing food subsidies, such as those paid to the indigent poor by the National Social Welfare Institute (INAS) or in the shape of snacks given to school children, will continue.Cuereneia dismissed the idea voiced in some quarters that the All-Africa Games, to be hosted by Mozambique in September, are just a waste of money. “Despite all the problems, we cannot opt out of the international community. We need it, and we need to continue projecting the image of our country beyond its borders”, he said.Furthermore, the games were not simply a cost, since the houses, stadiums and other facilities under construction would not be used solely for these games. “While we may not make a profit, we shall at least have compensation for what we are spending”, he claimed.Asked about the repeated calls by some economists and much of the press to renegotiate the contracts signed with mega-projects in order to eliminate their fiscal benefits, Cuereneia remarked “when people talk about mega-projects, they talk with a lot of emotion, and a country can’t be run on the basis of emotions”.Even those countries which have renegotiated contracts with mega-projects “did not do so in the pages of the press”, he added. “We are talking about an economy in which any bad signal that is given could damage our objectives”.Furthermore the contracts were all different. “There is not one contract for everybody”, Cuereneia said. “You have to analyse each of contracts clause by clause, and some of these projects are reaching the end of their tax exemptions. They had ten years, and as from the next year they enter the normal tax regime”.New mining mega-projects, such as the open-cast coal mines of the Brazilian company Vale and Riversdale of Australia, have contractual terms completely different from those offered to the first of the mega-projects, the Mozal aluminium smelter. Riversdale has told reporters that the only fiscal benefit it enjoys is exemption from customs duties on imported mining equipment.
But the government hopes that people who work in the informal sector will gradually formalize their businesses, and start paying taxes. When that happens, those employed in this sector may gain access to the new bus pass.Currently fuel subsidies are costing the government around 120 million dollars a year, Cuereneia said. He expected the bus pass subsidy to cost just one million dollars.He admitted that the spiralling price of oil on the world market has forced the government’s hand. “Perhaps if the situation had remained the same as in December, we would not have to take these measures”, he said. “We are taking them because we forecast an increasingly complicated and worsening situation”Cuereneia said that, when the 2011 budget was presented to parliament in December, the government forecast an average 2011 price of oil of 69 dollars a barrel. But it is currently at 115 dollars a barrel, producing a situation “completely different from what we had foreseen”.As from July, the government also plans to scrap the current subsidy for the wheat flour used to bake bread. This has allowed all urban Mozambicans, rich and poor alike, to eat bread at unrealistically cheap prices.The government is replacing the flour subsidy with a basic food basket aimed at the poorest strata in Mozambican cities. This basket (consisting of such goods as grains, bread, vegetable oil, beans and second grade fish) will be sold at subsidised prices to anyone with an income equal to or lower than 2,000 meticais (about 65 US dollars) a month.When he first spoke about the food basket, on Tuesday, Cuereneia used the word “wage”, which gave the impression that only people earning wages in the formal sector could benefit. But he told “O Pais”, that the government envisages 1.8 million people living in Maputo and the 10 provincial capitals as being eligible for the food basket – which is much larger than the entire formal sector of the urban economy.The major task ahead was to register all these people, licence the shops where they will obtain the food basket, and put in place a system for subsidizing these shops. The subsidy will be paid once the price of the goods in the basket exceeds 824 meticais a month.Existing food subsidies, such as those paid to the indigent poor by the National Social Welfare Institute (INAS) or in the shape of snacks given to school children, will continue.Cuereneia dismissed the idea voiced in some quarters that the All-Africa Games, to be hosted by Mozambique in September, are just a waste of money. “Despite all the problems, we cannot opt out of the international community. We need it, and we need to continue projecting the image of our country beyond its borders”, he said.Furthermore, the games were not simply a cost, since the houses, stadiums and other facilities under construction would not be used solely for these games. “While we may not make a profit, we shall at least have compensation for what we are spending”, he claimed.Asked about the repeated calls by some economists and much of the press to renegotiate the contracts signed with mega-projects in order to eliminate their fiscal benefits, Cuereneia remarked “when people talk about mega-projects, they talk with a lot of emotion, and a country can’t be run on the basis of emotions”.Even those countries which have renegotiated contracts with mega-projects “did not do so in the pages of the press”, he added. “We are talking about an economy in which any bad signal that is given could damage our objectives”.Furthermore the contracts were all different. “There is not one contract for everybody”, Cuereneia said. “You have to analyse each of contracts clause by clause, and some of these projects are reaching the end of their tax exemptions. They had ten years, and as from the next year they enter the normal tax regime”.New mining mega-projects, such as the open-cast coal mines of the Brazilian company Vale and Riversdale of Australia, have contractual terms completely different from those offered to the first of the mega-projects, the Mozal aluminium smelter. Riversdale has told reporters that the only fiscal benefit it enjoys is exemption from customs duties on imported mining equipment.
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