UAE fuel price deregulation will cost $387 per head, says Moody’s

Report analyses likely impact on UAE citizens, as government committee prepares to release subsidy-free prices today
UAE fuel price deregulation will cost $387 per head, says Moody’s
(Getty Images)
By Sarah Townsend
Tue 28 Jul 2015 11:26 AM

Scrapping fuel subsidies will cost UAE residents an average of $387 per head this year, rating agency Moody’s claims.

The UAE announced last week that gasoline and diesel will be deregulated from August 1 and a new pricing policy linked to global levels will be introduced.

The Ministry of Energy on Monday confirmed that Emiratis will not receive compensation for the expected rise in living costs as a result of the changes.

The move is likely to hit some households harder than others, said Moody’s Investor Service in a report this week.

It analysed data from the IMF to show that the annual subsidy rate for transport fuels in the UAE is $730 for each of its 9.6 million residents based on an average 2015 oil price of $58 per barrel.

But 47 percent is “external” costs related to environmental damage, traffic congestion, road maintenance and other taxes that would not be transferred to the public.

Therefore, the direct subsidy this year would be about $387 per head, compared to a direct subsidy of about $583 per head in 2013, when oil prices averaged more than $90 per barrel, the report said.

Moody’s joined other rating agencies including Fitch Ratings in saying that the policy move would have a positive fiscal impact on the UAE and Abu Dhabi’s finances, and those of other countries across the GCC.

The government has yet to announce a timeframe for moving transport fuel prices towards market prices, and on what basis it will define market prices.

However, the UAE’s new Gasoline and Diesel Prices Committee is expected to announce its first monthly fuel prices for August, which will clarify the actual cost increase drivers will have to bear.

The committee, chaired by Dr Matar Al Nyadi, undersecretary of the Ministry of Energy, will meet on the 28th of every month to fix oil prices.

The committee comprises senior representatives from the ministries of energy, economy and finance, and the CEOs of oil distribution and marketing companies, such as Abu Dhabi National Oil Company and Emirates National Oil Company.

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