3:30 PM
15


Last week there was a front-page story on the Oman Observer that proclaimed that the Government of Oman's fuel subsidies have reached RO 1.3bn (here's a link to the re-published story on Zawya, the OO website's search function could use a little work, I couldn't find it).

That's a lot of cash to spend on subsidies in any country, but for Oman with about 2.9 million people, that's effectively RO 448 per person in the Sultanate per year (assuming 1,300,000,000 divided by population of 2,900,000).

Assuming the average driver fills their tank once a week, and spends RO 7 per time (assumptions based on the RO 13 per fill monster land cruisers and the RO 4 per fill Hyundai Cappuccinos averaged out). That's, for the purposes of this blog post,  58 litres per driver (not person, which is where the RO 448 is from - kids and such don't drive!) per week. So that's 3,016 litres a year (on average) and currently at RO 0.120 (for super) per litre (we'll ignore the RO 0.121 for those outside Muscat) that's a yearly fuel bill of RO 361.920, IE, less than what Oman is paying out for you, your partner and your kids on an annual basis.

I'm sure the actual gap between what Oman is shelling out for it's drivers and what drivers are actually paying at the pump is even greater, this was just a metric to really explain the costs. My point is, the price of RO 0.120 per litre for Super has been set here in Oman for years, and according to local Omani Twitterati, @Muscati the last price jump was from RO 0.118 per litre to RO 0.120 when Oman switched to Unleaded fuel way back in 2001.

With the rolling out of the synchronized work weeks and statutory holidays, and the increased minimum wage, I wonder when we'll see a jump in the prices at the pump, and just how much of a jump we'll see. I guess it's not even beyond the possibility of freeing the market and letting the domestic fuel companies compete with each other.

We all pay RO 0.120 at the pumps, but I figure the real cost is somewhere closer to RO 0.270 per litre (based on actual cost of fuel - what you pay + the RO 448 subsidy, divided by average annual consumption of 3,016 litres). So when we do see the inevitable increase at the pumps, social tensions aside, what do you think we'll see?

RO 0.150?
RO 0.175?
RO 0.200?
RO 0.225?
RO 0.250?
RO 0.275?

I've no idea at all, but my guess is, RO 0.200 a litre. Whatever it is, you can be sure there is going to be a lot of angry people. Perhaps it's time to rethink the V8 6l pick up truck as a sensible option when you know your commute is more than 20km a day? And of course is the knock-on effect on inflation here, the cost of commodities will increase because it'll cost more to deliver goods.

One obvious point to note is that the subsidy is for Fuels and Cooking gasses, so the real cost of fuel at the pumps is probably lower, but probably not by too much.

What do you think?

le fin.

15 comments:

Anonymous said...

I agree that there will be a lot of angry people and there will probably be riots/sit-ins and possibly some burned tyres in front of Shell and BP but if Oman wants to step up with the rest of the world- and it should, that is the price it will have to pay.
I presume all Omanis who are now on the minimum of RO350 p/m didn't write to the government thanking them for the increase but will be the first in line at the demonstrations.
My guess would be that it will be in-line with what the UAE is paying so there is cross-border parity once again. I'm sure Muscati will correct me but I believe they used to be until the UAE stepped it up to where it is now and Oman didn't follow.
Omanis need to know that if they want to play big they have to pay big.

muscati said...

But is fuel subsidy just petrol and diesel at filling stations, or is it also the subsidized fuel and gas to power stations and desalination plants, the LPG that's filled into the cooking gas cylinders, and so forth?

The cutting of government subsidy will result in higher fuel prices, higher electricity bills, higher cost of living across the board as the cost increase hits everywhere.

The government will not completely cut out the subsidy. They are looking at various mechanisms including giving part of the subsidy as a per family cash handout or a gradual reduction in the subsidy.

Either way, in the long run it's a good thing. It's about time people learn to be responsible. If you buy a gas guzzler you pay a much higher percentage of your income at the pump. If you have limited income you think twice before buying a car and get something economical.

The one BIG unfortunate part of this is that it is not part of a compressive plan that gives alternatives to the people, such as a working public transport system.

Anonymous from above said...

The above post sounds jingoistic but it's not- a lot of other people will also complain, especially the Asian sub-continental workers who depend on transport for their work but realistically their voice wont start to be heard now over this.
Most Western expats will lament the rise but still compare it to their home countries where it is stupidly more expensive anyway.

Anonymous from above again said...

'The one BIG unfortunate part of this is that it is not part of a compressive plan that gives alternatives to the people, such as a working public transport system.'

And this is where other countries have taken up the slack of rising fuel costs- especially in terms of LPG powered buses and taxis for public transport and LPG trucks for commercial purposes. This is cheaper to produce and easier to subsidise as it fits in with government compliance to environmental norms and corporate CSR.

Anonymous said...

good heavens! muscati back on blogger. Good to see you here.

Anonymous said...

Good analysis from the economic perspective. The socio political angel is quite different. I don’t think the state will cut on its subsidy.

Mti

Anonymous said...

With production of crude oil in Oman costing on average US$15/bbl or roughly 10c a litre vs pump price of 30c in all likelihood the subsidy is more lost revenue than having to sell at lower cost than it costs as is happening in parts of UAE.
This revenue however could be better spent elsewhere in Govt Services, so that is the real cost.

Anonymous said...

what's wrong with the 0.140 gas? nobody seems to use it...I do.

Anonymous said...

sorry I meant 0.114

Anonymous said...

You mean Regular? Instead of Super?

Good question- anyone?

I can't imagine they are putting engine cleaning additives etc but would be good to hear is anyone knows any different.

Anonymous said...

I only use regular in the Prado and don't see any difference.

Don't know where anon thinks he can buy BP petrol. They left several years ago.

THAT anonymous said...

BP has an office in Shatti opposite the Hyatt. Easy foreign target.

Anonymous said...

"THAT anonymous said...

BP has an office in Shatti opposite the Hyatt. Easy foreign target."


Would you be kind enough to expound on the above?
“Easy foreign target”.??

Mti

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Anonymous said...

Petrol actually "costs" about OMR0.400/l depending on the oil price and the cost of distribution so 120Bz is seriously cheap. Fuel for power generation and industry is also massively subsidised but that isn't included in the number refered to in the original article. My guess would be either parity with the UAE (which would stop all the cross-border smuggling and seriously annoy some people in Hatta!) or no change (as it gets put in the politically "too difficult" box). The problem is once you start to subsidize fuel it is very difficult to stop - look at India's problem with LPG subsidies.

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