By Florian Neuhof
The days of utility subsidies in the Gulf are numbered, writes Florian Neuhof
One of the surprising things when talking to the region’s utility heads is the frankness with which they urge a change in government policy. Over the past couple of months, I had opportunity to quiz a host of these power players on the issue of electricity and water tariffs.
This month, I met Dr. Abdulmajeed Ali Alawadhi, Bahrain’s EWA’s chief executive officer.
“If you ask me, I’d say definitely, tariffs have to be changed,” he told me. “Eighty percent of a conservation programme is tariff. Hit the pocket, and everything will go well.”
Unfortunately, changing prices is not in his remit, so conservation will have to take a back seat in Bahrain for now.
A couple of month’s back I intercepted Ali Saleh Al Barrak, the head of the Saudi Electricity Company (SEC) at a conference in smart electricity in Dubai. “We are requesting for higher tariffs in general to meet the increase in the cost of production,” he freely admitted.
Industrial and commercial users already pay variable tariffs, which encourage the use of power outside peak hours, by increasing at various times of day. But so far, households are subject to highly subsidised rates for electricity and water.
To pave the way for such a measure for the retail consumer, the SEC has initiated pilot projects for smart meters, installing the devices in districts of various towns. The plan is to eventually roll out smart meters across the Kingdom. Does this forestall variable tariffs for households, I asked the CEO?
“Exactly,” he replied.
Speaking a month before higher tariffs for electricity and water were announced in Dubai, Dewa’s CEO Saeed Mohammed was a little more cagey about the issue. But while he declined to comment on future tariff changes, he was happy to expand on the authority’s smart metering pilot project.
10,000 smart meters are being installed across the emirate, and will be commissioned early in 2011.
Will this lead to a change in the tariff structure, I asked. “No. It is good to have a time based meter in order to give incentives,” he answered prophetically.
In December, Dubai’s Supreme Council of Energy announced a rise in utility bills for expats of around 15 percent, starting from January, to reflect the price of energy on the international markets.
The measure fails to address the issue of Emirati wastefulness, and heavily watered lawns will remain a feature of Dubai’s ice-cooled suburbia for the time being.
But by increasing tariffs for households, Dubai is the first to curb consumption by ‘hitting the pockets’. The cash –strapped, energy - poor emirate is acting out of necessity, adding weight to the idea that financial incentives are the best way to encourage frugality.
Abu Dhabi has refrained from raising tariffs, and is hoping to persuade consumers to reduce wasteful use by publishing the actual cost of power and water next to subsidised rates on utility bills. But for once, Dubai has (inadvertently) stolen a march on its progressive neighbour.
(Florian Neuhof, is the editor of Utilities Middle East. The opinions expressed are his own.)For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Wastefulness by Subsidised Utility customers will always be the real reason for lack of education. If the Expats use the utilities like Elec, being charged NOW at 23 fils @ unit, and the Emirati customers are charged something like 7 fils, who do you think is going to be wasting a lot of these resources? Make it standard, like 15 fils, one rate for all, and see the results. People will definitely appreciate the lower rate, if not more, the equal rate.
Expat paying again for the bad usage of others? Good to attract investors to the ailing property market. Someone has understood it all.
Dr Alawadhi was totally right, tariffs are critical to regulate consumption. This is basic micro economy. This is also the first thing that most governments chose to ignore when designing
Energy policies in the west so I am not very optimistic here either.
@punky The only way this tariff equalization could be done would involve some cash handout to make most emirate homes revenue neutral. I haven idea if that is even under consideration.