UAE policy review likely to conclude petrol subsidies need to be cut, says energy minister

Government had requested the report after questions over why domestic fuel prices did not drop after the recent plunge of global oil prices.

The International Energy Agency ranked the UAE the eighth-most generous country in the world in terms of fuel subsidies. Fatima Al Marzooqi / The National

The Ministry of Energy is reviewing its petrol subsidy policy after questions were raised about why prices at the pump had not fallen in line with international oil prices in recent months, the energy minister said yesterday.

The ministry will study UAE petrol subsidies in relation to recent oil market conditions and report to the Cabinet in due course, the energy minister Suhail Al Mazrouei said.

"The study is driven by a question by the [Federal National Council] asking why we have not seen a drop in gasoline prices since the oil price has decreased by 50 per cent [over the past year]," the minister said at a gathering to announce the second annual report on progress towards its energy goals.

The report, titled State of Energy 2016, will be published in October.

However, the minister indicated that the petrol subsidy study was more likely to conclude that subsidies needed to be reduced rather than to address why petrol prices have not fallen with oil prices.

“The answer to [the question from the council] was that [petrol prices] are subsidised, and subsidised heavily, and we are doing the study to see how much subsidies are and to see how much we can reduce it partially or fully,” the minister explained.

“Subsidies always encourage higher consumption and discourage conservation, and that is a concern.”

The minister emphasised, however, that the decision would be one for the Government as a whole and not just for the energy ministry.

“The request is from the Government and it will be up to the Government to make the decision,” he said. “The ministry will just provide a report to the cabinet.”

Countries around the world have been under pressure to reduce energy subsidies to help reduce carbon dioxide emissions.

And none more so than the Arabian Gulf states, where subsidies are among the most generous in the world.

Those that are heavily dependent on hydrocarbon revenue also have been under pressure to reduce subsidies, which were a heavy burden even before the oil price slump hit the Governments’ revenue. The International Energy Agency – the wealthy OECD countries’ energy watchdog – the IMF and the World Bank joined forces at the start of this year to press countries to reduce their fuel subsidies.

The IEA ranked the UAE the eighth-most generous country in the world in terms of fuel subsidies, which it estimated to have an economic value of more than 5 per cent of the country’s GDP in 2013.

The fuel subsidy burden was greatest for Iran, which two years ago spent more than 20 per cent of its GDP on it, while Saudi Arabia followed at more than 15 per cent.

The IMF this month called on the Government to use the opportunity of lower oil prices and tighter budgets to reduce fuel subsidies.

The UAE at the start of this year reduced subsidies for domestic gas and electricity for non-citizens, who make up the bulk of the population. However, just last week the state oil company, Adnoc, reduced the subsidised price of liquefied petroleum gas for the northern emirates from Dh31 to Dh29 for a 25-pound cylinder.

The UAE has among the world’s cheapest petrol prices at US$0.47 per litre, according to data from globalpetrolprices.com this month.

However, average petrol prices in Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and Iran are lower than here.

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