A rel­a­tively easy ad­just­ment for UAE con­sumers

The Pak Banker - - OPINION - Saadal­lah Al Fathi

IT is one week since the dereg­u­la­tion of petrol and diesel prices in the UAE and we have not seen the usual protests that of­ten ac­com­pany such moves in other coun­tries. This is in­deed a sign of ac­cep­tance by con­sumers to the price changes.

The rea­sons for ac­cep­tance are mul­ti­fold. First the tim­ing of the dereg­u­la­tion is most ap­pro­pri­ate as crude oil and prod­uct prices in the in­ter­na­tional mar­ket is al­most half what they used to be in June 2014 and if the dereg­u­la­tion was ef­fected at that time, the price ad­just­ment would have al­most dou­bled prices.

The sec­ond rea­son is the level of ad­just­ment of ga­so­line price up­wards and the more welcome diesel price ad­just­ment down­ward. On a sim­ple av­er­age for all grades of ga­so­line, the rel­a­tive in­crease in prices per litre is about 25 per cent, which does seem to be high ex­cept when look­ing at the ab­so­lute change of the same av­er­age of about 43 fils a litre, which may trans­late into Dh25 per fill.

The third rea­son is the trans­par­ent mech­a­nism set up for fu­ture monthly ad­just­ments. Prices from now on will be linked to in­ter­na­tional prod­uct prices. The new Ga­so­line and Diesel Prices Com­mit­tee headed by Dr Matar Al Nyadi, un­der-sec­re­tary at the Min­istry of Energy, will meet on the 28th of ev­ery month to set fuel prices for the fol­low­ing month.

The com­mit­tee is made up of rep­re­sen­ta­tives from the min­istries of energy, econ­omy and fi­nance and CEOs of oil dis­tri­bu­tion and mar­ket­ing com­pa­nies in the coun­try. And there­fore is likely to cover in its dis­cus­sions the in­ter­ests of con­sumers, pro­duc­ers and dis- trib­u­tors of fu­els. This is re­ally a new experiment as in de­vel­oped coun­tries, prices are left to the com­pa­nies to ad­just or not and of­ten with a time lag.

Fi­nally the ad­just­ment of the diesel price sig­nif­i­cantly down­wards, with con­sumers now pay­ing 85 fils a litre less than what they used to pay. This has given more cred­i­bil­ity to the whole op­er­a­tion as it is now as­sumed that the gov­ern­ment is for ra­tio­nal­i­sa­tion of prod­uct prices rather than just en­hanc­ing its own fi­nances. Ac­cord­ing to OAPEC An­nual Sta­tis­ti­cal Re­port of 2014, the UAE con­sump­tion of ga­so­line in 2013 was 158,700 bar­rels a day while diesel con­sump­tion was 79,000 bar­rels. Of course con­sump­tion has risen by now, but let us make ap­prox­i­mate cal­cu­la­tions based on the above num­bers. We will find that the gov­ern­ment and its com­pa­nies will make ap­prox­i­mately Dh174,000 a day dur­ing this month as the to­tal in­crease in ga­so­line rev­enue is close to the re­duced rev­enue of diesel.

The monthly ad­just­ment if any is likely to be small - up­ward or down­ward - com­pared to the ini­tial ad­just­ment un­less crude oil prices go through the roof again. This is ex­tremely un­likely given the sur­plus in sup­plies that is now avail­able or ex­pected. The ad­just­ment and the per­cep­tion that prices may rise again will pro­mote ra­tio­nal­i­sa­tion of driv­ers' be­hav­iour in not only re­duc­ing con­sump­tion but seek­ing more ef­fi­cient ve­hi­cles in the fu­ture. It will also en­cour­age more peo­ple to use public trans­port, es­pe­cially with the way these ser­vices are likely to de­velop in more than one emi­rate of the UAE. The online poll on Gulf News is very en­cour­ag­ing as 40 per cent of re­spon­dents said they will be driv­ing less, 30 per cent said they will not be af­fected and the oth­ers will also cut their fuel con­sump­tion some how. Any re­duc­tion in con­sump­tion will un­doubt­edly have en­vi­ron­men­tal ad­van­tages in re­duc­ing emis­sion and avoid­ing con­ges­tion on roads, es­pe­cially if peo­ple start shar­ing their cars and taxis. The re­duc­tion in diesel prices will have a mea­sur­able ad­van­tage for con­struc­tion com­pa­nies and may re­duce the cost of long-haul trans­porta­tion and ma­jor projects.

The rat­ing agency Moody's cal­cu­la­tion that 'scrap­ping fuel sub­si­dies will cost UAE res­i­dents an av­er­age of $387 (Dh1,420) per head this year' may be too high be­cause it is based on an IMF cal­cu­la­tion which as­sumes oil prices at $58 a bar­rel while cur­rent prices are be­low $50 a bar­rel. At least it is too early to make such con­clu­sions. The credit agency Fitch said that the re­moval of sub­si­dies in the UAE may set a 'pos­i­tive fis­cal prece­dent' for other GCC coun­tries. Oman is re­ported to be dis­cussing cut­ting sub­si­dies this year to also pre­vent smug­gling of fuel to the UAE.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.