By Vicky Kapur

Following last week’s announcement regarding deregulation of fuel prices in the UAE, the Ministry of Energy has announced new prices of petrol and diesel in the country.

Starting August 1, 2015, 95 octane petrol (special grade) across fuel stations in the UAE will cost Dh2.14 per litre, up 24.4 per cent from Dh1.72 per litre that UAE residents currently pay.

The super grade of petrol (98 octane) will cost Dh2.25/l, up 22.9 per cent from Dh1.83/l that residents currently pay (until July 31, 2015).

UAE’s fuel price deregulation: New petrol & diesel retail prices Product Current (Dh/l) New* (Dh/l) Change (%) Unleaded Gasoline 98 (Super) 1.83 2.25 22.9 Unleaded Gasoline 95 (Special) 1.72 2.14 24.4 Gasoline E Plus 91 1.61 2.07 28.6 Diesel^ 2.90//2.35 2.05 Source: Ministry of Energy; *New retail prices as announced on July 28, 2015. To come into effect from August 1, 2015; ^Diesel prices in Dubai and N. Emirates, and Abu Dhabi, respectively

The price of diesel, on the other hand, has been reduced to Dh2.05/l. Diesel currently retails at Dh2.90/l in Dubai and the northern emirates, including Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah and Fujairah. The current price of diesel in Abu Dhabi is Dh2.35/l.

The ministry’s move to deregulate the fuel price came as per a decision issued by the UAE Cabinet based on a study submitted by the ministry.

The Fuel Price Committee, chaired by Dr Matar Al Nyadi, Undersecretary for the Ministry of Energy, today announced the gasoline and diesel prices for the month of August 2015 across all petrol stations in the UAE.

The announcement was made at the committee’s meeting that was attended by its members including Younis Khouri, Undersecretary for the Ministry of Finance, Abdullah Salem Al Dhaheri, CEO of Adnoc Distribution, and Saif Al Falasi, CEO of Emirates National Oil Company (Enoc).

Dr Matar Al Nyadi said the committee based the new prices on the average global prices for gasoline and diesel during the month of July with the addition of transport, distribution and operating costs – as approved by the Cabinet for distribution companies.

He added that 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.

He noted that the reduction of diesel prices for August from Dh2.90 to Dh2.05 will serve as a stimulating factor for the economy. This will enhance the competitiveness of the national economy, reduce the prices of commodities and eventually reflect positively on the economy.

He added: “The Ministry has coordinated with all relevant entities in the country including the Ministry of Economy and the Supreme Committee for Consumer Protection to monitor the movement of prices and safeguard the rights of consumers. This will ensure that people across the country benefit from lower diesel prices, which would mean lower operating costs for a wide number of vital sectors such as industry, shipping and cargo.

As for the increase in gasoline prices, the impact on individuals is estimated to be minimal, with the price to completely refuel cars with four cylinders will increase on average by nearly Dh18, for 6 cylinder on an average by nearly Dh25 and 8 cylinder by Dh45.

The ministry maintains that such an increase will not create an additional burden on car owners with limited incomes. In addition, it will promote rationalised consumption and incentivise people to choose most fuel-efficient cars while curbing the increase in the number of cars on the country’s roads in the future.

The ministry had previously clarified the reasons behind the deregulation move and the mechanism behind determining and monitoring the fuel prices in the local market.

A committee has been formed, which includes representatives from the Ministry of the Energy, Ministry of Finance, Adnoc Distribution and Enoc, which will meet in the last week of every month, and announce the next month’s price on the 28th of the previous month.

In a detailed FAQ section on the Ministry of Energy’s website, the ministry explains why the decision cannot be implemented in phases.

“It is important to note that this is not a price increase, but a change in pricing schemes to correspond to international market prices. Therefore, it’s not possible to implement it in phases as deregulation means linking local and global prices,” the ministry has said.

In addition, the ministry also quashed rumours that UAE citizens will be given special fuel discount cards to avail a rebate in petrol prices.

A question in the section reads: “Will Emiratis be given financial assistance to offset the increase in their cost of living?” And the answer reads: “The decision does not include such a thing.”

The ministry has also clarified that the deregulation decision does not include any provision of fuel cards that offer special discounts to Emirati citizens.

The FAQs suggest that the petrol price at the pump may witness “a slight” increase even as diesel is set to become more affordable, thus boosting business activity in the country.

“The decision has been studied thoroughly and there will be a slight price increase based on the global prices. Businesses will not be impacted since the price of diesel, which is often used for transportation, freight and import and export operations, will decrease,” it noted.

“The decision will be applied across all the emirates, without exception,” it added. In addition, the ministry also clarified that the “price of LPG will not be affected as LPG is not included in the deregulation decision.”

Global ratings agency Fitch maintains that the UAE’s fuel subsidy move may indeed set a positive regional precedent, and other oil exporters in the region may emulate the move.

Several international agencies including the International Monetary Fund (IMF), the World Bank and think tanks such as the Economist Intelligence Unit (EIU) have, for some time, been advising the UAE and other Gulf countries to do away or at least reduce energy subsidies in order to support their respective budgets as well as increase fuel efficiency.

Even as the UAE’s economy remains strong and resilient, fuel subsidies put enormous strain on public resources.

According to IMF’s calculations, the UAE’s pre-tax energy subsidies in 2015 will amount to Dh46.42 billion ($12.64bn), or 2.87 per cent of GDP.

Lower global oil prices since 2014 have cut fuel subsidy costs, but have also reduced government revenues among Gulf oil exporters, Fitch said in a statement.

This, it noted, is evident in the agency’s near-term fiscal projections for Saudi Arabia and Bahrain, where it forecast budget deficits of 13 and 10.9 per cent of GDP, respectively, in 2015.

A newswire report in early July said that fuel and electricity subsidies in Bahrain would be gradually reduced from August, citing an unnamed government official, but no details were given.

In the UAE, the oil distribution firms had first announced their intention of raising domestic prices in 2010 when they had formed a committee to monitor and discuss petrol prices and the losses that the retailers were incurring owing to the subsidised prices.

Local distribution companies including Abu Dhabi National Oil Company (Adnoc), Emarat, and Emirates National Oil Company (Enoc) – which also operates through its affiliate the Emirates Petroleum Products Company (Eppco) – had in 2010 announced their plans about increasing prices gradually to get them on a par with international prices, but the move wasn’t ratified by the government at that time.

Now, the move comes at a time when global oil prices are at multi-year lows, around the $50/b mark, which will help minimise the financial burden of any price hike on the residents, according to the ministry.

Suhail bin Mohammed Faraj Faris Al Mazrouei, Minister of Energy, has noted that the cost of gasoline represents 3 to 4 per cent of an average income in the UAE, which is a reasonable percentage compared to international costs.

Consequently, deregulating prices would not have a notable impact on individuals’ costs of living.

Nevertheless, the ministry clarifies in its FAQs that “[a]ny increase or decrease in oil prices globally will cause an increase or decrease in local petrol prices.”

However, the chances of any major fluctuations in the forthcoming years remains slim, with Morgan Stanley forecasting that global oil prices will remain under $70/b until 2017.

According to a Reuters report this morning, US crude dropped 20 cents to $47.19 a barrel after ending the previous session down 75 cents. It fell below $47 post-settlement, the lowest since March 24.

On the other hand, Brent dropped 36 cents to $53.11 as of 8.30am UAE time after a 2 per cent drop in the previous session. It dipped to $52.89 earlier, hovering close to a four-month low of $52.83 reached on Monday.

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