Burma to fix gas prices

Some 250 privatised petrol stations will open across Burma tomorrow with an apparent fix on prices at 2,500 kyat ($US2.5) per gallon.

But analyst Aung Thu Nyein believes the price fixing is more about security than economics, with fuel price hikes prompting both the 1988 uprising and the September 2007 ‘Saffron Revolution’.

The Weekly Eleven magazine in Burma said that the government will distribute the fuel at 2,350 kyat ($US2.35) on the gallon and forbid retailers from selling above the 2,500 kyat mark.

The problem of fluctuation of gas prices is compounded by Burma’s limited refining capabilities, which have degraded steadily since independence in 1948 through lack of investment and upkeep. As a result, the country is reliant upon imports of refined petrol or diesel – the process of refining crude oil is responsible for around 28 percent of the cost of the finished product.

At present crude prices are relatively low, but the trend over time, particularly with the rapid growth of the BRIC nations (Brazil, Russia, India and China), means that prices are liable to rise. As a result, the oil producing cartel OPEC could increase steadily the cost on the barrel. If a country has the capability to refine oil, pump price can to an extent be controlled.

While international gas price increases will affect this, so will a country’s lack of foreign currency reserves needed to buy refined petroleum products. Many suspect this was the cause of the 2007 price rises in Burma in which both natural gas and petrol rose by around 500 percent, with no official explanation provided.

Australia-based Burma economics expert Sean Turnell points out that much of the Burmese government’s foreign reserve earnings are burrowed away in Singaporean banks in order to hide them from the public accounts, while the ruling generals can also utilise the discrepancy between official and real exchange rates.

But if the junta is unable to make use of the vast profits accrued from natural gas sales at realistic exchange rates, it is liable to run low on foreign exchange reserves. This issue is particularly concerning for them given the stringent US and EU sanctions on Burma that increase costs for business people trading outside the country.

Burmese citizens are also watchful of fuel price fluctuations given their reliance on power generators during the country’s frequent electricity blackouts. Electricity shortages were compounded by a leak on a gas pipeline used to generate electricity on 2 June which left the commercial hub Rangoon some 300 megawatts short of sufficient electricity supply.

A nation like China meanwhile enacts export limitations to control the price of commodities. The lack of a global market for raw materials keeps prices low and in turn keeps the economies higher up the chain flourishing; this is something that both the US and the EU have been heavily critical of.

In the case of Burma, export limitations on natural gas or crude oil, given greater refining capabilities, would help the nearly two billion barrels of proven crude oil reserves in Burma work for the Burmese economy, but at present such a provision seems a pipe dream.

Meanwhile the Burmese government’s foreign currency supervising commission has made what appears a welcome liberalisation by allowing foreign earnings to be used for imports, breaking from previous stipulation that only export earnings could officially be utilised to make imports.

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