15 frequently delayed. Oil companies may also be asked explicitly to carry some of the costs of subsidizing consumers. Under such circumstances, a vertically integrated oil company can use upstream profits to cross-subsidize downstream losses. Companies such as Shell Argentina and Esso Petrolera Argentina that operate only in the downstream segment have no upstream profits to cross-subsidize losses and face greater difficulties.

Some governments have negotiated price discounts with oil companies for certain consumers. The government of the Philippines in 2003 forged an agreement with oil companies to offer a discount on the price of diesel sold to public transport companies (Bacon and Kojima 2006); the discount program is continuing today. In Russia, the government over the last several years has “recommended” that oil companies sell diesel at a discount to farmers twice a year. For the first agricultural season of 2012, the price discount offered was 30 percent, up from 10 percent in 2010 and 2011 (Platts 2012c).

Through “voluntary” price agreements, the government of Argentina for years has put constant pressure on oil companies not to increase prices. Earlier examples of the steps taken by the government are described in Bacon and Kojima (2006, 191–195) and Kojima (2009, 35). Since then, similar actions by the government have continued. In August 2010, the government ordered oil companies to roll back price increases and again threatened to apply the 1974 Law of Supply―which allows the imposition of fines or imprisonment of company executives in the case of shortages of goods, including fuels―following which prices remained frozen until midDecember (IHS 2010e, Reuters 2010c). In January 2012, the government accused oil companies of over-charging cargo transporters, launched an investigation, and later in the month ordered the companies to lower diesel prices for both cargo and passenger transport companies ( _Platts Oilgram News_ 2012b).

Some national oil companies have paid high prices to subsidize consumers, leading to large losses. On account of price freezes to help combat inflation, Petrobras in Brazil has suffered large refining losses; most recently, its refining, transportation, and marketing division reported an annual loss of US$17.5 billion in calendar 2012 (Petrobras 2013). The recent decline in the company’s financial performance, including its first quarterly loss in 13 years posted in August 2012, has been blamed in large part on low domestic fuel prices ( _Economist_ 2012). In China, despite the new pricing mechanism introduced in January 2009, price adjustments have not adhered strictly to the formula, causing large losses to the refining industry. PetroChina and Sinopec, two largest refiners in the country, reportedly suffered combined losses of 96 billion yuan (US$15 billion) in 2011 and 42 billion yuan (US$6.6 billion) in the first half of 2012 ( _Wall Street Journal_ 2012; _Platts Oilgram News_ 2012c; Xinhua News Agency 2012e). India’s three state-owned oil companies supplying subsidized fuels reported combined losses in excess of Rs 405 billion (US$7.5 billion) in the first three months of fiscal 2012/13 starting in April (Reuters 2012d).

# **_Export restrictions_**

Export restrictions reduce domestic prices, with negative consequences for the oil companies and for neighboring countries to which the petroleum products are exported. Argentina, Bolivia, China, Kazakhstan, and Russia are among the countries that have high export taxes, low domestic crude oil prices, or have banned exports. Export bans are prompted by fuel shortages, which in turn arise mostly from artificially low domestic prices.