Syria to scrap mammoth gas oil subsidies

Syria will begin lifting huge gas oil subsidies "in less than a few months" after the government takes steps to shield the poor from rising prices, a senior official of the ruling Baath Party said on Thursday.

"The state cannot keep supporting fuel prices to all people in the same way. Gas oil will go up in less than a few months but it will remain less than the international market," Haitham Satayhe told newswire Reuters.

"The reforms will ease the strain on the budget. Smuggling will also lessen because prices in Syria are far lower than our neighbours," said Satayhe, head of the party's information and preparation.

Facing US pressure to isolate Syria, as well as falling oil exports, the Baath party-led government took limited steps to liberalise the economy in the last few years, while keeping a large public sector that employs over a million people.

The budget deficit doubled to 10% of gross domestic product (GDP) in 2007, although the government raised gasoline prices but dragged its feet on lifting more costly subsidies on gas oil, which is widely used in transport and heating.

Gas oil subsidies now cost the treasury more than $9 billion year. A litre of gas oil is sold at 15 US cents at the pump compared to the $1 it costs the state to import.

Satayhe said the government was not looking to make money by raising the price, but to recoup a proportion of its costs.

"We have a losing oil account while the well-to-do buy gas oil at hugely subsidised prices. This situation is unsustainable," said Satayhe, who is one of the most influential men in Syria.

The sensitive subsidies issue was discussed at closed meetings of the Baath Party command last week, he said.

President Bashar Al-Assad told the conference that subsidies would increase for farmers of strategic crops, such as wheat and cotton, and gave directions to beef up a social aid fund for those not on the state payroll, Satayhe added.

"We are talking more of a redirection of subsidies than lifting them completely," Satayhe said.

He said he expected gas oil prices to go up gradually after the government finishes this week distributing coupons entitling each family to 1,000 litres every year at the subsidised price of 15 cents a litre. Syria has a population of 18 million.

"It does not make sense to sell gas oil at the same price for those who consume much more than that," Satayhe said, adding that the coupon plan would help absorb popular backlash.

The official acknowledged, however, that raising gas oil will generate inflationary pressures, with electricity, farming and transport directly affected.

Inflation was 4.4% in 2007 compared with 10.6% the year before, according to official figures.

The Baath Party has monopolised power in Syria since mounting a 1963 coup and embarking on heavy nationalisation of the economy. But resources have been drying up, with population growth running at 2.45%.

Syria exports 180,000-200,000 barrels per day (bpd) of crude oil, sharply less than a few years ago, and imports large quantities of gas oil to counter shortages in domestic output.

Crude oil exports are no longer enough to cover the cost of importing refined fuels. The balance went into a deficit for the first time last year. (Reuters)