Utility bills to rise as Dewa eyes price hike

Dubai's state-owned utility has asked for government permission to raise power and water tariffs for the first time in a decade to fund a $19 billion expansion and cover surging costs, a document given to investors showed.

The government has not changed the rates the Dubai Electricity and Water Authority (Dewa) charges its customers since 1998 although production costs have surged, driven by a rise in fuel prices, according to a prospectus handed to investors at a sale of bonds.

"While there are no expected tariff increases in the short-term, Dewa is seeking government approval for an increase in electricity and water tariffs in the future across all customers as a whole," it said in the document.

A utility bill increase would add to soaring inflation in Dubai, which already has the highest cost of living in the United Arab Emirates. Inflation in the UAE hit a 19-year high of 9.3% in 2006.

Dewa made a loss of 223 million dirhams ($60.75 million) in the seven months to July 31 compared with a profit of 423 million dirhams in the same period last year.

The volume of electricity and water sales for the first seven months of 2007 grew 15% and 11% respectively, because of population growth, according to the prospectus. Dubai aims to almost double its workforce by 2015.

"Tariffs, which are set by the government of Dubai have not changed since January 1998, despite the fact that Dewa's costs of electricity and water production and capital expenditures... have increased," Dewa said.

A shortage of natural gas in Dubai has forced Dewa to buy more fuel oil and purchase power from the Abu Dhabi Electricity and Water Company in the UAE's largest emirate.

The diesel needed to produce a kilowatt of electricity cost about 10 times more than natural gas in the first seven months of this year, according to the document.

Dewa spent more than 1.9 billion dirhams in fuel oil in 2006, an almost 75-fold increase since 2004. It receives its natural gas from the government through the Dubai Supply Authority, which "has been unable to meet all of Dewa's requirements", the prospectus said.

Tariffs at current levels "could have a material adverse affect on Dewa's business", the prospectus said.

Dewa could borrow as much as $19 billion over five years for investments as it seeks to increase capacity by 150% by 2012 from 5,000 megawatts of electricity and 255 million gallons per day of water, the prospectus showed.

Dewa estimates that demand for power and water will grow as much as 20% a year in Dubai as the population grows 10 percent annually, Chief Executive Officer Saeed Mohamed Ahmed al-Tayer told Reuters on Sunday.