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Sat 15 Oct 2011 02:19 PM

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ENOC expects $735m loss on fuel price subsidies

Dubai's state-owned refiner and retailer says situation is 'not sustainable or viable'

ENOC expects $735m loss on fuel price subsidies

Emirates National Oil Company (ENOC), Dubai’s state-owned refiner and retailer, said on Saturday it expects a loss of AED2.7bn ($735m) this year.

It blamed the loss on the gap between international fuel prices, which it said were at their highest since 2008, and local retail rates that are set by the state.

"The cost of providing subsidised fuel to our customers is expected to lead to a loss of AED2.7bn for the company this year. This also has a serious impact on our ability to expand our retail network to meet the growing demand," the company said in a statement.

The company said the situation was “not sustainable or viable,” adding: “ENOC looks forward to the support of the concerned authorities in addressing the concern.”

ENOC said the substantial rise in the price of fuel in the international markets has put a "severe burden on ENOC and EPPCO".

It added that very few stations had been added in Dubai recently and a number of stations had to be closed to undertake infrastructure development work.

During the summer, the UAE faced a fuel shortage, which spread from the northern emirates to Dubai.

The shortfall, which the company blamed on filling station upgrades, was likely a reflection of the gap between fuel prices and the heavily subsidised cost at the pump, analysts said.

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Stephen 8 years ago

Please paint a clearer picture. Your article does not have figures broken down properly. For instance;

1 - What price does Enoc and Eppco feel is their breakeven price?
2 - What is the amount of UAE Government subsidy per litre?
3 - What does Eppco/Enoc see as a justified price per litre?

If you can answer those three questions, then it paints a much clearer picture of the situation for us readers.

With those answers we can better understand why this situation is costing Enoc/Eppco so much money and why they are struggling financially.

procan 8 years ago

How about some competitors open up private sector stations offer additional profit making services and sundries,that should put a bug in their bonnet to improve their service delivery. It certainly works here in Canada.

Naufel 8 years ago

I am confused with regards to your point no. 2 - that is, how is it a loss for these retailers when the Goverment is paying the subsidy?

And Enoc/ EPPCO ought to make public the profits they make from the sale of Diesel, LPG and their Zoom/ Aqua/ Star Mart stores. The only thing the are highlighting here is the "loss" from Petrol.

Chand 8 years ago

I agree with Stephen. Releasing numbers will paint a clearer picture and further involve readers into discussion.

expat dubai resident 8 years ago

Everytime only enoc is pushing for hire fuel prices which also increases inflation extraordinary and if its not viable for enoc to operate it should handover its stations to emaraat and adnoc.

Jad Aoun 8 years ago

@Naufel, the government does not pay the subsidy. Companies are just required to sell at a lower price - there is no money coming in to cover the difference.

Chef 8 years ago

Can anybody explain how these losses are working?
The current prices are production prices without any profit and taxes (Fees in this country) as far as i know.
I think this is just loss of revenue if they would sell it abroad but a loss in cost?? I do not think so!
Anybody has an answer?

Asif 8 years ago

The loss actually equates to the lost profit they would make if they sold fuel at international market price instead of subsidized rates, they are not actually loosing any money, they are writing off the anticipated profits. The prices they sell the fuel is actually the international market price (just do the math) only thing missing is their markup.

AC 8 years ago

I shall divide my comment into 3 categories, background, issue and recommendation.

Background: According to Enoc/Eppco, since they are providing fuel on "subsidized" prices to general public, they are encountering year on year consecutive heavy losses.
Issue: "Subsidy" is the key word here. Which reminds me, Enoc/Eppco isnt the one providing subsidies, it is the government. So why the losses? Government is reimbursing them for the gap in the Income Statement.
Recommendation: Before hiking prices, 1-open market to Adnoc and Emarat to have a fair competition. 2-Publish detailed financial statements supporting the claim. 3-subsidise only for nationals (only 10% of the total population) 4-Shut down. How is the company surviving for years with such losses? Shouldnt they already have been bankrupt?Which sheds light upon: Are they really making losses?Or is it coporate greed?
If this happens, inflation is imminent, and thus salary hikes too need to be addressed (additional cost for entities)

Louie Tedesco 8 years ago

When will this country build its own oil refining capacity to meet demand?

Selling raw oil at cheap(er) prices to later re-import expensive petroleum based products is a poor business plan.

I have been told that KSA refines its oil locally to produce fuel which is why the petrol prices are much lower there. Why isn’t that done here?