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Sun 24 Jan 2016 11:14 AM

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UAE ‘to cut remaining energy subsidies’

Gas and electricity subsidies expected to be scrapped, following the removal of domestic fuel subsidies last summer

UAE ‘to cut remaining energy subsidies’
UAE Energy Minister Suhail al-Mazrouei. (AFP/Getty Images)

The UAE’s energy minister has pledged to remove further subsidies on energy, including on gas and electricity, it was reported on Saturday.

Suhail Al Mazrouei told the World Economic Forum in Davos, Switzerland, that additional reforms are planned following the removal of domestic fuel subsidies last summer.

In particular, he said, subsidies on electricity and gas sold to power generators are to be scrapped, although he did not provide any indication of timings, according to a report in The National.

The UAE and other GCC states are implementing widespread reforms in an attempt to diversify their economies in response to the falling oil price.

“We need to think about major reforms to make the budget less dependent on the oil price, and to build an economy that is vibrant but also taking advantage of the lower oil prices,” Al Mazrouei was quoted as saying.

“We saw the opportunity to do the right thing and to get people to pay the right price for energy. We have done it with petrol and diesel, next is electricity. We must remove remaining subsidies from electricity generation.

“Most of it is not subsidised, the majority of the tariff is fair. But there are old gas contracts that are not realistic and do not reflect fair pricing.”

Al Mazrouei claimed the UAE population could be persuaded to accept increased consumer prices if they understood a larger portion of the national budget would be pumped into public services.

“If you have a good story and tell it to local people they will be convinced. The majority of the population is young and they’re different from past generations.

“The economy is still growing but the challenging thing is to get more efficiency. We are redirecting the subsidy as an opportunity to invest in other parts of the economy, like building schools and hospitals. It’s a convincing story. It’s not so difficult to understand.”

However, the minister also said that the current low oil price is unlikely to last. “Cartelment is unfair and unethical and has the result of bringing more expensive production to the market. But this price is not sustainable.

“It is very low and will not last. You have to remember that 60 to 70 percent of oil production comes from outside Opec, and North Sea oil, for example, costs $50 to $60 per barrel to produce.

“I think we will see sustainability of a fair price for the producers and consumers by the end of this year or early next.”

The low oil price has resulted in an $400 billion of energy industry investment being cancelled, he added.  “We will have a problem in two years’ time. You cannot produce oil out of air.”

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