FOSSIL FUEL TAXATION AND SUBSIDY POLICY Mr BERA Arsonina Director of Pollution Management Ministry of Environment, Ecology and Forests Madagascar

Madagascar`s General Information Big Island in eastern africa, inbetween Indian Ocean and Mozambique Channel at 400km from Maputo Mozambique (nearest distance from african continent) : 590,000sqkm Population:23,201,926 (july 2014 est.) GDP :8.7 billion USD (2010) GDP per capta: 478 USD per annum whereas power purchasing parity (PPP:1,000USD ) 2013 est. GDP Composition by sector in 2013 est. Based: 27.3% (agricul); 16.4%(industry);56.3%(services) Unemployment rate:3.8 compared to active population (2010) Inflation rate:10% annually (2012) Population below poverty:poor household:76.5%; extreme poor people: 56.5% (2012) Gini co-efficient:0.365(2005) to (2010) Fresh water consumption : 16.5 cuKm per year (2005) whereas domestic:2%; industry: 1% ; agricul:97%; Per capta : 1,010cumetre per year.

FOSSIL FUEL TAXATION Pass-through between end-2003 and mid-2008, Madagascar itself possesses the following data ( source:IMF 2010): – On average, such an increase in fuel price results in decline in household real income.Otherwise the wealfare should be widely impacted from fuel price increases even in small amount of USD per litre in fuel price is substantial. The impact might be direct or indirect – Madagascar underwent average tax rate about : 0.02 USD(end-2003) rather than huge tax about 0.42USD per litre in mid-2008 Pass-through (end 2003 to mid-2008) and price increase – Gasoline 161% – Diesel 146% – Kerosene 101% Average :140% Fiscal cost compared to GDP : -2.5% of GDP In fact, retail price increses end 2003 to mid-2008 (USD per litre) Gasoline :0.97 Diesel : 1.09 Kerosene:0.75 Average : 0.98 Adjustment Factor by fuel Product Gasoline : 0.27 Kerosene:0.42 Diesel : 0.32 LPG : 0.30 Pass-through of international price changes ( ) in percent 228(2004), 138 (2005); 183(2006); 146(2007); 140(mid-2008)

Subsidy policy Government facing different difficulties to institute reforms to fossil fuel subsidies Meeting with resistance resulting in quick policy reversal With risen price, popular protests requiring policy-makers to take measures to solve the the increase in the cost of living Being scare of social unrest and political instability As rapid solution, subsidies are tangible way to deliver services in return for political and social peace as bargaining tool. So when it is introduced, population is already used to it they do not accept the change into subsidy removal because few people have little confidence that the money saved from subsidies suppression will be wisely in the profit of the poor group Sustainably, phasing out in line with pathway to clean renewable energy should be an opportunity for Madagascar because of 80% of total energy is used by rural population as cooking wood based.

Subsidy policy contd. Some imported photovoltaic materials as solar pannels, underwent tax free to encourage people to comme up popularising little bit the use of alternative energy (solar energy) because of electricity price getting higher and higher due to fossil fuel –based international market Low electricity consumption bubble operation with price subsidised by government to be sold at national electricity distribution facilities And so forth.

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