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**Country E R Pricing** **<u>policy and strategy</u>**

# **Fuel supply conditions**

<!-- Start of picture text --> 700<br>600<br>500<br>400<br>300<br>200<br>U.S. Gulf Coast spot price<br>100<br>Retail in Metropolitan Region<br>0<br>Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13<br>Protests : Taxis and mini-buses went on strike in Oct 2011,<br>protesting fuel price hikes and asking to be included in transport<br>policy, including subsidies.<br> / liter of diesel<br>Pesos<br><!-- End of picture text -->

**Hedging** : Hedging is explicitly regulated by law. **Information** : The National Energy Commission (Comisión Nacional de Energía, CNE) posts monthly average prices of all fuels by region, dating back to Jan 1994. A resolution issued in Jan 2012 require that prices of gasoline, diesel, kerosene, CNG, and automotive LPG at each filling station be published on CNE’s Web site, and they are ranked in order of increasing or decreasing price depending on the viewer’s preference. Resolution No. 60 issued in Jan 2012 requires that each filling station enter price information in a national online price database, which is published on CNE’s Web site, and also made available on iPhone, BlackBerry, and Android. The Web site displays minimum and maximum prices, the address of each filling station, prices, and the date and time of the last price change. Retailers are required to enter new prices no earlier than 15 minutes before price changes are implemented.

|China<br>√<br>**Pricing policy**: A new mechanism introduced in Jan 2009 bases fuel|**Supply**: The 2012 worldwide refining|
|---|---|
|<br>prices on a 22-day moving average of a basket of crude oil prices.<br>When the average is below US$80/bbl, prices move relatively freely<br>and refiners are expected to earn “normal” margins. Between US$80<br>|survey of the_Oil and Gas Journal_reports<br>54 refineries with combined capacity of 7<br>million bpd at end-2012.|
|and US$130/bbl, domestic prices are responsive but refiners no<br>|**Fuel shortages**: There have been frequent|
|longer make a profit. Above US$130, tax measures are used to keep|fuel shortages as refiners cut back on|
|domestic prices low. Although price adjustments are triggered if the<br>|production to minimize financial losses.|
|22-day moving average changes by more than 4% from the previous<br>|Severe diesel shortages forced thousands of|
|price-setting level, concerns about inflation often delay the<br>|filling stations to shut down and others to|
|implementation of price increases. Retail prices were changed only|ration in late 2010 as firms turned to diesel|
|three times in 2008, eight times in 2009, four times in 2010, three|power generation when power was rationed|
|times in 2011, and eight times (half of which were price reductions)|to meet the national energy intensity target|
|in 2012. In Jul 2011, government cut or removed import duties:|for 2006−10. Power shortages in May 2011,|
|eliminated them for diesel and jet fuel (both previously 6%), and|caused in part by the failure of power tariffs|
|reduced them to 1% for gasoline (5%) and fuel oil (3%). In Aug|to keep up with rising coal prices as well as|
|2011, government moved to monthly adjustments of jet fuel prices.<br>|hydropower shortages, led to surging|
|The price increases in 2011 were fractions of global price increases.<br>|demand for diesel, which led government to|
|The scale of these losses are consistent with government’s own<br>|impose a temporary ban on diesel exports.|
|statement that, according to the 4% rule, the prices should have been<br>|Price cuts in Oct 2011, the first in 16|
|raised nearly triple the actual increases. Government canceled value-<br>|months, led to serious diesel fuel shortages.|
|added tax (VAT) on fuel imports in 2008, and announced a 5% sales<br>|The Xinhua News Agency has partially|
|tax on oil and gas in Oct 2011. The most recent proposal reported|blamed hoarding by refiners and traders|
|for pricing would allow oil companies to set prices as long as world<br>|before price increases for fuel shortages.|
|oil prices are between US$40 and US$130 a barrel, while shortening<br>|This behavioral response to the price|
|the averaging period to 10 days. Wholesaleprices of diesel set by|adjustment mechanism is one of the reasons|