Higher utility bills help Dubai finances

Raising tariffs for water and electricity has allowed Dubai to save about US$250m in natural gas purchases last year, and postpone the construction of a billion dollar power plant.

Nejib Zaafrani, the chief executive of the Dubai Supreme Council of Energy, said ‘we have done an excellent job in demand management’. Delores Johnson / The National

Higher tariffs for water and electricity allowed Dubai to save about US$250 million (Dh918.3m) on purchases of natural gas last year and postpone the costly construction of a power plant.

Under a tariff structure introduced at the beginning of last year, the Dubai Water and Electricity Authority (Dewa) charges consumers a higher rate as their usage increases and adds a fuel surcharge to utility bills if the emirate is forced to import additional volumes of gas to fire its power plants.

This halved the projected increase in natural-gas demand last year as the tariff established the punitive link between wasteful consumption and high utility bills that is commonplace outside the Gulf.

"They started looking at their consumption, because there was a lot of waste of energy and water," said Nejib Zaafrani, the chief executive of the Dubai Supreme Council of Energy (SCE).

"We have done an excellent job in demand management."

The growth in demand for electricity and water eased to 3 per cent from about 6 per cent in 2010, said Mr Zaafrani. This is in spite of an increase of 3.5 per cent in the number of customers - or an additional 20,000 connections.

In Abu Dhabi, where tariffs have not changed, demand for electricity is forecast to grow by 13 per cent per year over the course of the decade.

The Dubai fuel surcharge in particular has brought down the cost of providing electricity and water in the emirate.

In the hot summer months, increasing use of air conditioning sends electricity demand soaring, and Dewa has to import expensive liquefied natural gas (LNG) to ensure its power plants do not run out of fuel. LNG imports are far more costly than the gas the emirate receives under long-term contracts from Qatar via the Dolphin pipeline, and Dewa has passed on the extra LNG cost to its customers in the form of the surcharge.

Last year, Dubai was able to reduce its LNG imports by six shipments worth a combined $250m, according to Mr Zaafrani.

Customers also pay an increasing rate the more electricity and water they use under a so-called slab tariff. The tariff structure does not apply to Emiratis, whose consumption is subsidised.

The SCE is expecting further reductions in demand as new regulation comes into force. Green building codes, which set minimum standards of energy efficiency and water use, already apply to government departments, and will become mandatory for the private sector in 2014.

"I believe there is a lot of energy to be saved," said Mr Zaafrani.

The new demand growth projections have led Dewa to postpone the award of the Hassyan independent power project, a 1,600-megawatt power plant that was to be operated as a public-private partnership. The project would have cost more than $1 billion.

A consortium around the Abu Dhabi National Energy Company, also known as Taqa, which in turn owns all of the power plants operated in the emirate, was poised to clinch the deal after submitting the lowest bid.

Mr Zaafrani believes it will now be at least three years before the contract for Hassyan will be awarded.

While higher costs deter excessive use of electricity and water, Dubai has to foot the huge bill arising from the sale of subsidised petrol to motorists.

It emerged this week that the Government of Dubai had to pay its petrol retailers Dh5.57bn to make up the shortfall between the cost of supply and revenue from price-controlled sales.

Subsidised petrol is "an issue" for Dubai, acknowledged Mr Zaafrani.

"The prices are federal prices. There are discussions about solutions on this differential, which is gigantic," he said.

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