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Sun 16 Oct 2011 12:47 PM

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Petrol price hike on the cards as Enoc flounders

Fuel retailer appeals to UAE as government-set petrol prices squeeze margins

Petrol price hike on the cards as Enoc flounders
The UAE has long subsidised fuel prices in an effort to cut living costs for residents
Petrol price hike on the cards as Enoc flounders
The UAE has long subsidised fuel prices in an effort to cut living costs for residents

The UAE is under fresh pressure to close the gap between fuel prices and the heavily subsidised cost at the pump after state-backed retailer Enoc said it expects an AED2.7bn ($735m) loss this year.

The Gulf state has dragged its heels over increasing the cost of petrol in the wake of the Arab Spring, despite $100 oil spurring more than six days of fuel shortages in June across Enoc stations.

The Dubai-owned fuel retailer said Saturday that the cost of providing subsidised fuel to customers was “not sustainable or viable” and called on the government to address the shortfall.

“The announcement really pertains to Enoc increasing the rhetoric on how long it can sustain operations,” said Thaddeus Malesa, an independent energy analyst in the UAE.

“This is a continuing discussion between Enoc and the federal authorities. Enoc is saying ‘we should all be operating like private companies’, and the Abu Dhabi government is saying ‘no’, especially in light of the Arab Spring and inflationary forces coming from food prices.”

The low cost of fuel is hampering the ability of state-backed fuel retailers to grow their operations and maintain their balance sheets, he said.

“Prices should be following market forces - this gives the right type of incentive to encourage investment in production and refineries. The optimum solution would be where you have direct compensation for people who really are struggling.”

The UAE, the world's third largest exporter of crude oil, has long subsidised fuel prices in an effort to cut living costs for residents, a move that costs the state millions of dollars a year.

Enoc and rival state-owned retailer Emarat have suffered from rising oil prices because they buy fuel at market prices and sell it at government-set rates.

The UAE has hiked gasoline prices twice since April 2010 – though fuel remains well below market prices – but a third increase was scrapped in the wake of widespread social unrest in parts of the Middle East.

Emarat blamed an April petrol shortage on logistical problems, though industry sources said a supplier, trading house Vitol, had refused to discharge a fuel cargo at port because Emarat had delayed a payment.

In January, chairman Obaid Humaid Al Tayer said the company was restructuring and needed bank loans because it must sell gasoline at below-market prices.

“Things have reached a breaking point – something has got to happen,” said Robin Mills, a Dubai-based energy analyst. “There has been pressure on increasing the prices for quite a while. The price was raised a couple of times last year, but since then the world oil price has gone up a lot and there haven’t been any more price rises so that gap has opened up again.

“There are only two solutions to this. Either the government has to increase the prices, which will have to be quite substantial, or some part of the government has to provide a direct subsidy or a direct payment [to the petrol retailers] for these losses.”

UAE authorities in June raised the capital of the indebted fuel retailer Emarat by 50 percent to AED9bn ($2.45bn). In January, the UAE's Federal National Council (FNC) passed a bill allowing Emarat to borrow the equivalent of up to 50 percent of its capital. Emarat had debt of around AED1.9bn, the FNC said in January.

“This is a wealthy country, people can afford to pay market prices for fuel,” said Mills. “And when you have this cheap fuel it just encourages congestion, waste and pollution.”

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chaz 7 years ago

Good. Increase petrol. Promote diesel - for cars, as well as trucks. Bring in some hybrids, put pressure on low fuel economy car drivers.

And build some bus lanes so it's actually worth using the buses.

Red Snappa 7 years ago

Petrol prices really do need to be increased to realistic levels at least to pre-tax levels for the rest of the world. Hybrids are expensive, buses get as badly stuck in traffic but Chaz is correct bus lanes would help. Give UAE nationals a special petrol card if needs be.

The RTA principle I always thought was to price motorists out of their vehicles unless shared to and from work and move them on to public transport.

Peter 7 years ago

Promote Hybrids Cars...I don't see any Hybrid cars either in the streets or in car showrooms. Promote small sedan cars by giving discounts to buyers (rather than give a way big incentives, gifts and prizes for 4x4 and big SUVs). Recently I visited 4 major car show rooms in Dubai asking for electrical or Hybrid cars...Answers: We don't have it and not interested to bring it and sell it here either! When you provide alternatives and solutions to people to choose then you can just hike the prices as much as you want.

Louie Tedesco 7 years ago

Here we go again… after putting this to rest a few months back the price of fuel is once again in focus.

Why is there no free fuel for Emirati families? Just give fuel-ration swipe cards with microchips to every Emirati with a driving license and grant them 20,000 gallons of fuel per month – just like DEWA granted free water rights and very low electricity rates. With 20,000 free gallons per month, they will have enough to drive any fuel-hungry 4x4 all month long. To prevent back market sales, any fuel credit left at the end of the month is paid out as a financial subsidy at the current pump price. An indirect financial participation of being a citizen of an oil exporting country.

Raise the price of fuel for all expats and tourists to the same level as in London. The few who can continue to afford fuel will enjoy emptier streets without traffic jams. But no parking spaces as they will be filled with vehicles having empty fuel tanks. Those who can’t afford the higher fuel can use the metro

Omar 7 years ago

I believe that this is politics at play between Abu Dhabi and Dubai. Abu Dhabi does not want to increase pump prices and as it pumps and refines its own gasoline does not have the pressures that Dubai retailers have.

If Enoc were acquired by Adnoc, which can afford to sell gasoline at current prices, the problem is solved. I think this decision by Dubai to maintain gasoline retail independence is suicidal. There is no reason why the whole country cannot be served by one state owned retailer...Adnoc! This political "energy independence" strategy of Dubai is not sustainable.

opsecusa 7 years ago

Build a new refinery, produce your own refined products using your own crude instead of buying it from the open market. Local production of crude oil in the UAE cost much less than the $100 pbl. UAE is still an oil producing country therefore, should be able to offer refined products at a much lower rate than what the market is charging. UAE is the most expensive fuel market in the GCC.

David 7 years ago

News flash for the analyst who says "this is a wealthy country, people can pay more", petrol prices are quite lower in Qatar which is a wealthier nation. Maybe he should direct his advice to the rest of the GCC which somehow manages to keep far cheaper prices at the pump .
A lot of people in favor of price rises seem to be Europeans who want the whole world to pay the same prices that they do, forgetting the fact that not everyone gets paid in Euros

Telcoguy 7 years ago

News flash 1 for you. People in poorer countries pay more for petrol than we do in the UAE
News flash 2 for you, people in the GCC do not get paid in euros
News flash 3 for you, subsidies are never a good long term policy, as we have discussed ad nauseam here. People who dislike them may have a more mature approach to economy or a concern for the long term, I know I know.

asad khan 7 years ago

sorry but alredy business is down putting more pressure on us expats will make more new business less viable to setup due to high cost of living alredy as compared to gcc as well as migration of companies alredy operating .

Telcoguy 7 years ago

Yes, that would be the most rational approach. I can not think of a single problem with that approach, our hosts would also be happier as there would be less annoying expats driving in their lanes.
I am all for it