Shadow Pricing Indigenous Energy: Its Complexity and Implications

Abstract

Developing country responses to energy price changes have indicated that price, as a signal of the value of this commodity, has been as marked in influencing choices in the producing sector as in the consuming sector. The development of coal, oil, natural gas, and geothermal resources has become more viable as a result of the dramatic rise in oil prices in the 1970s. In the Asian region, the higher-cost petroleum resource accumulations (relative to those in the Middle East or North America) became economically attractive to foreign investors, although the degree of investor response has varied according to specific country contractual terms.¹ Still, two divergent pricing policy trends have emerged in response to developments in the international energy market. While underpricing of consumer energy products was generally the rule rather than the exception in Asian developing countries in the 1970s, the opposite has been emerging as an approach to pricing indigenous energy resources at the supply point, especially in the net-oil importers (see Table 6.1). The approaches, in place or suggested, may be summarized as follows: (1) At one end are cases where governments are concerned about providing producers the opportunity to reap “excessively high profits” if prices are allowed to rise to import parity levels. Resources tend to be priced below their true economic costs.