# **Assumptions and data sources**

Multi-country estimations necessarily require simplification of assumptions that may not be considered in country-specific studies, but they illustrate what approaches and assumptions can be used where data are scarce, which is the situation in some developing countries. For this reason, the assumptions and data sources used by the IEA and IMF, both of which cover many developing countries, are reviewed in some detail.

The IEA’s estimations are confined to fossil fuels and are based on observed price gaps. Data collection is extensive. To calculate reference prices, various internal IEA and propriety databases are used for five petroleum products, tanker rates for major international shipping routes and by scale, landed LNG spot prices in different parts of the world, pipeline gas prices, and spot prices of coal of varying quality by location. For example, there are five distinct reference prices for coal in China. Trade-parity prices are used throughout for every fuel. Fuel use in district heating is excluded, because reliable end-user prices are rarely available. Fossil fuels used in power generation are captured under electricity. To ensure that reference electricity prices do not become unrealistically high, costs are capped at those of a new combined-cycle gas turbine plant. To the extent that some isolated or small economies do not have financially viable access to natural gas, this assumption could under-estimate subsidies. All prices are annualized, and price-gap calculations are based on annual averages. Averaging over 12 months reduces potential under- or over-estimations arising from lags in price transmission as identified by the European Central Bank (Meyler 2009). Consumption focuses only on subsidized fuels, which requires disaggregation of consumption by fuel grade and consumer category. Where such information is not available, it is estimated based on available sources such as government or industry reports.

The IMF uses a variety of methods, depending on data availability. Coverage of 176 countries for petroleum products means that some markets have very limited local price data. In some cases, only one local price is available for the entire year. In such cases, that price is taken to be representative of the monthly average price and a price gap is computed by taking the difference with the reference price in that month. However, as mentioned in the discussion of price gap in the methodology section, empirical analysis of the time lag in passing through world price changes in countries with complete price deregulation and vigorous price competition suggests that it is probably more appropriate to introduce a time lag of at least a month (Myler 2009), if not longer. For simplicity, the IMF uses a universal cost of US$0.10/liter for international shipping of petroleum products to a non-OECD importing country. Another US$0.10/liter is added for domestic distribution. For a net importer, a total of US$0.20/liter is therefore added to the FOB price of gasoline, diesel, and kerosene to arrive at their respective reference prices. For a net exporter, the domestic distribution cost of US$0.10/liter is canceled by the assumed savings of US$0.10/liter from not having to take the fuel from consumption centers to exporting ports. As a result, no additional costs are added to the FOB price to arrive at the reference price.

The IMF bases a country’s trade status on the sum of crude oil and petroleum products. This means that a major net importer of a specific fuel may be treated as a net exporter, resulting in the reference price being US$0.20/liter lower than it should be. For example, Brunei Darussalam is a net exporter of 31