UAE energy ministry says to liberalise gasoline, diesel prices

Gasoline and diesel prices will now be based on an average of global prices
UAE energy ministry says to liberalise gasoline, diesel prices
United Arab Emirates Minister of Energy Suhail Mohamed Al Mazrouei. (Getty Images)
By Reuters
Wed 22 Jul 2015 09:57 AM

The United Arab
Emirates said it would let domestic fuel prices move more freely in a
politically sensitive reform that could save the government billions of dollars
and begin reducing the wealthy country's love of gas-guzzling cars with big
engines.

Gasoline and diesel will be deregulated
from Aug. 1 and a new pricing policy linked to global levels will be
introduced, state news agency WAM quoted the energy ministry as saying on
Wednesday.

"Deregulating fuel prices will help
decrease fuel consumption and preserve natural resources for future
generations," said energy minister Suhail bin Mohammed al-Mazroui.

"It will also encourage individuals
to adopt fuel-efficient vehicles, including the use of electric and hybrid cars."

Matar al-Nyadi, undersecretary of the
ministry and chairman of its new Gasoline and Diesel Prices Committee, told
Reuters that gasoline prices might initially rise slightly because of the
reform, while diesel would fall.

At present, state subsidies keep
gasoline and diesel in the Arab world's second biggest economy at some of the
lowest prices in the world. Motorists pay 47 U.S. cents for a litre of
gasoline, less than a third of levels in western Europe.

Cutting subsidies and letting fuel
prices rise could boost UAE state finances, which have been weakened by a
plunge of oil export revenues since 2014 due to the fall in global crude
prices.

The International Monetary Fund projects
the UAE will post its first fiscal deficit this year since 2009; it estimates
the country spends $7 billion annually on petroleum subsidies.

The ministry's statement did not give
details of the new pricing policy, beyond saying the prices committee would
announce on the 28th of each month prices for the following month, basing its
decision on "average global prices with the addition of operating
costs".

The global price of Brent oil is
currently around $56 per barrel, not far from six-year lows. But linking UAE
prices to global levels could clear the way for substantial hikes in the
future, if Brent starts to recover.

Mazroui said fuel price changes would
not raise the UAE's cost of living significantly, while diesel's expected fall
next month would help the economy.

"This will stimulate the economy as
a lower diesel price would mean lower operating costs for a wide number of
vital sectors like industry, shipping and cargo among many others."

The announcement put the UAE at the
front of economic reform among the rich Gulf oil states. Other governments are
grappling with similar financial pressures but have mostly not had the
political will to push through major change.

Kuwait raised its domestic diesel and
kerosene prices in January but partially reversed the hikes a few weeks later
after criticism by some members of parliament.

Abu Dhabi, the biggest emirate in the
UAE, hiked electricity and water tariffs in January as part of efforts to cut
subsidies.

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