Enoc subsidy spend up by 80%

Emirates National Oil Company (Enoc), one of two fuel marketing and distribution companies in Dubai, said on Saturday it expects to spend 80 per cent more this year on providing fuel subsidies compared with what it did in 2010.

In a statement, the company said it expects to bridge the difference between the internationally increasing price of oil and the subsidised rates in the local market – estimated by the company at Dh2.7b for 2011 – through internal resources.

This subsidy, the company’ statement showed, is 80 per cent more than the Dh1.5b it spent in subsidizing fuel last year. “[D]ue to the rise in price of fuel in the international markets, the company had to internally meet the cost of providing fuel at subsidised rates in the local market, valued at Dh1.5b during 2010,” Enoc said in the statement.

“Also based on the financial review of Q1 2011, it is expected that during full year 2011, Enoc will have to meet an additional Dh2.7b internally to cover the fuel subsidies offered locally. This arises from the difference in the increasing price of petrol sourced from international markets and Enoc’s fixed sale price at its stations,” the statement further explained.

Despite the huge subsidies, the company said that it made a profit in 2010 and achieved most of its targets. “As per the Annual Report, during 2010 and the first quarter of 2011, Enoc recorded positive results and achieved most of its business objectives,” it said.

After a gap of about five years, the UAE increased retail prices of fuel at stations in April last year for the first time since 2005. There were two increases in fuel prices at the retail stations in 2010 (April and July), which together increased the price of petrol in the UAE by 35 fils per litre.

“The announced rise comes within efforts to gradually mitigate accumulated and growing losses these companies are sustaining due to continuous surge in cost of the product,” a joint statement issued by the UAE’s oil distribution companies in July last year, when they raised the prices for a second time that year, said.

The Economist Intelligence Unit (EIU), a global think tank, said last year that the losses of the UAE’s oil marketing and distribution companies was estimated at about Dh3bn ($817m) in 2009.

Following the rise of 20 fils in July last year, the cost of fuel in the UAE is the highest in the GCC at Dh1.72 (46 US cents) litre, which is four times as high as in Saudi Arabia, and more than triple the price in Qatar.

According to an EIU report after the last price hike, the rethink of the UAE’s petrol pricing policy came about for two primary reasons. “Oil companies have been pushing for price rises for some time, because the revenue from sales has not been covering the cost of production, leading to losses,” it says.

“The price increases are also aimed at curbing rapidly growing domestic consumption, which, encouraged by subsidies, has put pressure on government budgets and fuelled wasteful practices. Cutting waste should help to reduce the UAE’s high per capita greenhouse gas emissions and free up oil for export, which in turn will improve public finances,” the EIU report added.

Last year, the three major UAE petrol distributors, Abu Dhabi National Oil Company (Adnoc), Emarat, and Emirates National Oil Company, which also operates through its affiliate the Emirates Petroleum Products Company (EPPC), formed a committee to monitor and discuss petrol prices and retailers’ losses.

The committee, which meets every other month, then recommended increases in prices at the pump. The EIU maintains that the situation of the UAE’s three fuel dispensers differs only slightly. “Enoc and Emarat source the majority of their petrol on global markets paying the prevailing international rates, suffering sizeable losses when they sell petrol to Dubai consumers at the government capped price,” the EIU explained.

“Adnoc is in a slightly better position, as it obtains its fuel from the parent company’s refineries, but still claims not to be able to make a profit on retail sales in Abu Dhabi and the smaller emirates,” it added.

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