(MENAFN- Khaleej Times)The UAE government's decision to deregulate gasoline and diesel prices from August 1 has attracted mixed reactions from residents with majority supporting the move as a step in the right direction.
Recently the Ministry of Energy announced that a new pricing policy linked to global levels would be introduced. It was implemented on August 1. The state argued that taking away local oil companies' rights to set petrol prices will make the cost at pumps better reflect low global oil prices. Up until August 1 state subsidies kept gasoline and diesel at some of the lowest prices in the world as motorists only paid Dh1.72 (47 US cents) for a litre of gasoline. The Fuel Price Committee will monitor the global prices of gasoline and diesel on a daily basis and will announce the prices for the following month on the 28th of each month based on average global prices during that month. To start off for the month of August the petrol price of Octane 95 (Special) which is commonly used by motorists was set at Dh2.14 per litre having gone up by 42 fils from Dh1.72 per litre. Diesel prices have been reduced from Dh2.9 per litre to Dh2.05 per litre. The price of diesel was reduced by 85 fils per litre. The price of Octane 98 (Super) petrol was fixed at Dh2.25 per litre and Octane 91 (E-plus) at Dh2.07 per litre. There was an increase of about 24 per cent in the price of Octane 95 petrol (Special) and 23 per cent increase for Octane 98 (Super). Diesel prices were reduced by 29 per cent. In a statement posted on the ministry's website UAE Energy Minister Suhail bin Mohammed Faraj Al Mazroui said that deregulating fuel prices would help decrease fuel consumption and preserve natural resources for future generations. He added that fuel price changes would not raise the UAE's cost of living significantly while the fall in diesel prices would help the economy. "This will stimulate the economy as a lower diesel price will mean lower operating costs for a wide number of vital sectors like industry shipping and cargo among many others" Al Mazroui said. The move to free up gasoline and diesel prices will eventually have a positive impact on the environment as it will rein in the country's love of gas-guzzling cars with big engines and encourage use of public transportation. "Rationalising fuel subsidies should encourage motorists to switch to more fuel-efficient cars including the use of electric and hybrid cars and increase the use of public transport" he said. "It should also encourage greater investment in public transport renewable energy and energy efficiency" he added. The UAE is among the world's 10 largest oil producers and is a member of the Organisation of Petroleum Exporting Countries (Opec). The country relies on its large oil and natural gas resources to support its economy. According to the International Monetary Fund (IMF) in 2013 hydrocarbon export revenues were $123 billion up from approximately $75 billion in 2010. IMF statistics show that the UAE's real gross domestic product grew by 5.2 per cent in 2013. However a sustained decline in oil prices could lead to a reduction in spending in the near future. The economies of the GCC region rely heavily on revenues from oil and hydrocarbon products. In recent months these countries' budgets have suffered a dent owing to plunging oil revenue. While oil prices were over $100 per barrel a couple of years ago today they are around $55. The UAE is however making notable progress in diversifying its economy through tourism trade and manufacturing. Over the past year Oman and Kuwait have taken measures to reduce subsidies on a range of products. Bahrain recently considered cutting budget subsidies on fuel and food and replacing them with cash transfers for Bahraini nationals. A recent report by the IMF showed that the GCC spends 3.4 per cent of its GDP on fuel subsides substantially higher than other regions. In contrast advanced economies spend less than 0.1 per cent of their combined GDP on fuel subsidies. It estimates the UAE has spent more than Dh46 billion on fuel subsidies this year more than 10 per cent of the total budget. It further projects the country will post its first fiscal deficit this year since 2009. Cutting subsidies and letting fuel prices rise will boost UAE state finances as this would allow the government to channel funds into productive investments infrastructure spending education and healthcare. Ultimately for ordinary citizens a reduction in subsidies will free up resources that could be directed at social spending. In the UAE the emirate of Abu Dhabi holds 94 per cent of the UAE's proven oil and gas reserves. The remaining six per cent is held by the other six emirates with Dubai holding four per cent of the UAE's oil reserves and 1.5 per cent of its gas reserves. Sharjah holds 1.5 per cent of the UAE's oil reserves and four per cent of its gas reserves. A member of the Opec since 1967 the UAE holds the world's seventh largest proven reserves of oil and gas estimated at 97.8 billion barrels of oil and 6.09 trillion standard cubic metres of gas. Under Article 23 of the UAE Federal Constitution the natural resources of each emirate are considered the public property of that emirate. Consequently each emirate is responsible for regulating the oil and gas industry within its borders. As a result each emirate pursues its own policies regarding the development of oil and gas with the ruler in each emirate retaining ultimate control over the development of its reserves. In Abu Dhabi the Supreme Petroleum Council (SPC) regulates the extraction of oil and gas and sets its petroleum-related objectives and policies. Given Abu Dhabi's status as the main player in the UAE's oil and gas industry the SPC is the most important entity in the country when it comes to establishing oil and gas policy. In Dubai the Dubai Supreme Council of Energy oversees Dubai's oil and gas policy development and coordination. The DSCE includes representatives from several key entities including the Emirates National Oil Company and the Department of Petroleum Affairs. The Department of Petroleum Affairs is responsible for the overall administration of oil and gas exploration and production within the emirate. In Sharjah the Sharjah Petroleum Council is responsible for regulating policy regarding the development of oil and gas. The Council is responsible for granting concessions on behalf of the Ruler and also represents the Sharjah government in companies that invest in oil and gas developments. The writer is the managing partner of Crowe Horwath UAE (DIFC branch). Views expressed by him are his own and do not reflect the newspaper's policy.
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