The price of fuel in Cyprus has now become one of the most reliable indicators of the economic pressure facing households and businesses. However much governments may seek to project an image of stability or control, the reality displayed on fuel station forecourts is unforgiving, with prices continuing their steady upward trajectory.
Ongoing instability in the Middle East, combined with international oil prices rising above $90 per barrel, has created serious economic pressures in relation to fuel costs, with 95-octane petrol reaching €1.602 per litre and diesel climbing to €1.856 per litre. In this environment, the impending expiry on 17 September of the reduced excise-duty measure once again makes state intervention necessary.
The intention of the Ministry of Finance to submit legislation extending the 8.33-cent-per-litre tax reduction until the end of November provides a necessary, but temporary, reprieve. If the bill is not approved in time by the Council of Ministers and the House of Representatives, the automatic increase in fuel prices risks pushing costs towards the nightmare scenario of €2 per litre.
However, there should be no illusion about the scale of the problem. Extending the subsidy is merely a modest positive relief measure within a much deeper structural issue.
More than 50% of the final price of fuel consists of taxation, including excise duties and VAT. Although the Republic has already reduced excise duties to the minimum levels permitted under European Union rules, the state continues to collect increased VAT revenues as the underlying price of fuel rises.
The fuel issue does not exist in isolation. It is closely linked to the country's broader and deficient energy policy.
Delays in the arrival of natural gas, the insufficient penetration of renewable energy sources into electricity generation without effective storage capacity, and the heavy costs associated with carbon dioxide emissions penalties are all ultimately passed on to consumers, driving electricity prices sharply higher.
