Energy subsidies versus economic efficiency: Practical and theoretical issues in the case of brunei darussalam

Abstract

Energy prices in Brunei are highly subsidised and have not changed for over twenty years. Electricity is priced at approximately B$0.06 (US$0.044) per kWh and petrol (gasoline) varies from B$0.36 (US$0.26) per litre for regular to a maximum of B$0.53 (US$0.38) per litre for premium unleaded. With oil and natural gas prices at relatively high historical levels and the government attempting to reduce its influence on the economy and promote privatisation, the increasing size of the subsidies has come to the attention of policy makers. This paper considers likely market prices for energy in Brunei given current institutions and infrastructure and discusses issues associated with removal of the subsidies in this unique economy.