Wednesday, October 07, 2015

The other day I was travelling and didn't get a chance to read the local papers, but I did see this story from the Gulf News flash across my feed. The headline was, "Oman to cut fuel subsidies from next year". Quite the bold headline I thought as I read the story and then promptly started doing something else thinking I'd see similar articles in the local press.

Except I didn't - the only other places I've seen this story reported are business websites that are basically citing the unnamed source quoted by the Gulf News. Now, there have been a few articles in the local press recently that are softening towards the inevitable (a reduction / review of fuel subsidies here in Oman), so I think it's fairly obvious that this political stink bomb is going to go off eventually. Just strange that the usual daily papers here in Oman have so far remained silent on this issue.

So either the Gulf News went on a hunch, or they got the exclusive and then the shit hit the fan, I'm not really sure, and I'm certainly not saying that fuel subsidies WILL be reduced next year, but it seems very likely. I wouldn't say they WILL be reduced until an official statement was released by the Government. However, it's not just paying more for fuel at the pump should fuel subsidies be reduced; it'll be reflected in electricity and water bills too, as most of that is generated using LPG (which is subsidised as well, and is considered fuel). It'll also increase the cost of doing business here, postage stamps might go up, goods in stores, delivery costs. The cost of fuel effects so many elements of the economy.

Which is bad, it means I'll have to spend more money on running costs, and so will you, if you live here and are responsible for your running costs. But perhaps not so bad in the long run - no more leaving your AC's running 24/7, and perhaps my LED lights at home will start to earn their keep now, all better for the environment anyway.

The article states that there will be a gradual reduction in the fuel subsidy, "to ensure that the public will not suffer from the move" and that seems like a logical approach, but as to how they will  allow their subsidies to help their citizens that are most effected by this potential move, there's quite a few ways to do that, but I'd say the best way would probably grant a fuel card to qualifying citizens (much like Dubai taxi drivers get, refills every month as opposed to every 24 hours for the cabbies), and have a special electricity and water tariff for qualifying households. Who knows though - certainly not me.

Out of interest to see how much fuel my car uses when I run the A/C I ran a very inaccurate experiment yesterday whilst I was driving around. I have a VW and one of the dashboard computer functions shows me how many litres of fuel I'm burning per 100km. Whilst idling with the car in park or neutral - no drive with the brakes on, my car uses somewhere between 1.1 and 1.9 litres per 100km. When I turn on the AC this jumps to between 1.6 and 2.4 litres per 100km. In other words, running my AC costs me about 0.5 litres per 100km, and my average city driving gets me around 400km per tank (which is about a 60 litres fill up). Which basically means my AC running in my car will cost me approximately 2 litres per tank - aka, not a lot. So don't go worrying about not running your AC!!!

Across the border in the UAE, as I'm sure you all know, they have moved to tie the price of vehicle fuel to the world market, and the prices are announced at the end of the month for the next month. The current price for a litre of Super in the UAE (for October 2015) is 1.90 Dhs/Litre (which is 199bz a litre) - but did you know that Super in the UAE is actually better than Super here in Oman? Super in the UAE has an Octane of 98, whilst here in Oman it's 95. The price per litre for 95 Octane fuel in the UAE is 1.79 Dhs/Litre (which is 188bz a litre). Oman charges currently 120bz litre (or 121bz in outlying areas), so it's deficit for October 2015 is approximately 68bz for every litre of "Super" fuel sold. Personally I don't think an increase from 120bz to 179, or 140, or 160 or whatever it will be, will be too bad. For the average driver, who fills up say 5 times a month, for 60 litres a time, that works out to RO 20.400 per month more if we pay the full increase to 188bz a litre.

Yes it'll certainly hurt some people, but for those expats living here, we're here as guest workers, and technically it's up to the employers to compensate (at least in some part) for the transport costs. I can't speak for everyone, but certainly for me and most of the people in my social network, an extra RO 20 a month isn't going to break the bank for me. What will hurt more is the electricity and water costs! Will legislation be brought in to protect employee's here? What will the PACP do when supermarkets inevitably increase their prices?

Some interesting months ahead I think. Time will tell.

le fin.


Anonymous said...

Who knows what is going to happen or when but the lions share of fuel subsidy goes to liquid fuels for road transport (well over 60%) so while you might see something like a doubling of fuel prices at the pump over time if subsidy is to be eliminated entirely the fuel subsidy in water and power is a much smaller fraction of the overall cost (and most of it is powered by gas which has already gone up in price to a level above the cost of gas). Power and water is subsidised heavily but a lot of that subsidy is for the networks and operational costs and not fuel.

The UAE experience has shown that there is a willingness to accept quite large fuel price increases if it is done carefully, I wonder how much cross-border fuel smuggling has increased since then - in Europe the significant fuel price difference between Northern Ireland (UK) and the Irish Republic led to a massive smuggling operation (which is/was a major source of funds for terrorists) but that border is not controlled like the Oman/UAE one is.

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