Taxpayer subsidy brought forward to keep refineries open

Taxpayer subsidies for local oil refineries will be brought forward to offset the severe economic effects of the coronavirus pandemic, protect local jobs and suppress fuel prices.

The Morrison government will on Monday announce a production payment of 1¢-per-litre, which will commence from January 1 to ward off the risks of domestic refineries being forced to shut down.

The payments are part of Australia’s comprehensive fuel security package announced in the October budget, which is designed to secure the nation’s long-term fuel security.

“The COVID-19 pandemic continues to place immense pressure on our refineries and the many Australians employed in the fuel sector,” Energy Minister Angus Taylor said.

“The production payments will help the industry withstand the economic shock of this crisis, protecting local jobs and industry, bolstering our fuel security and shielding motorists from higher prices.”

Viva Energy warned in October its Geelong refinery would close in the absence of a rescue package from the federal and Victorian governments.

Australia’s other three refineries are also struggling, having reduced output following the COVID-19 pandemic because of lower demand for travel.

As well as preserving a vital industrial capability on national security grounds, local refineries also help suppress the price of fuel in Australia, the government says.

Government modelling indicates bowser prices would increase by about 1¢ a litre if all of Australia’s four remaining oil refineries were to close.

Under the brought-forward arrangement, 1¢ will be paid to oil refineries for each litre of primary transport fuel (petrol, diesel, and jet fuel) for six months from January 1, 2021.

The details of the package will be outlined in this week’s mid-year economic and fiscal update (MYEFO) and will cost $83.5 million.

The government intends to change the payment to a market mechanism from July 1, 2021, and is negotiating with the industry on the details.

To be eligible for the payment, refineries will need to agree to operate for the program’s duration and commit to an open-book process and long-term self-help measures.

“We have worked closely with the sector to design and implement our comprehensive fuel security package,” Mr Taylor said.

Extracted from AFR

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