GCC urged to cut fuel prices to lure capital

Gulf oil producers need to align and cut their fuel prices to attract industrial investment, which is needed for their ongoing economic diversification programmes, a semi-official study said yesterday.

Although most of them are major hydrocarbon producers, the GCC nations suffer from a big gap in the prices of petrol and other petroleum products, said the study by the government-controlled Emirates Industrial Bank (EIB).

It noted that cheap fuel in the GCC, which controls over 40 per cent of the recoverable crude deposits, had always played a crucial role in attracting industrial capital to the region.

"Now the liberalisation and gradual increases in energy prices in the GCC countries will deprive them of one of their most important advantage that had largely boosted growth in the industrial sector over the past years. The high growth in this vital sector has turned it into the second largest component of GDP after oil," EIB said.

"Raising energy prices in some members will also lead to imbalances in the structure of the GCC common market as it means a bigger gap in such prices within the region. GCC countries are called upon to find a common ground to bridge that gap by revising high prices to provide equal opportunities to investors and maintain the strong competitive edge of GCC products in the international markets."

GCC states – the UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman – have been locked in a major industrialisation drive to diversify their economies and lessen reliance on unpredictable crude exports. The focus has been on manufacturing, given the limited potential of other sectors like farming because of their desert nature. Regional nations have often boasted that they offer one of the most feasible environments for light and medium industrial projects because of their strategic location and cheap energy and labour.

Manufacturing

Official data showed the six nations pumped more than $30 billion (Dh110.19bn) into the manufacturing sector in 2009, mostly in petrochemicals, metals, building materials, machinery and other light products.

From around $151bn at the end of 2008, total industrial investments in the GCC grew to nearly $180.4bn at the end of 2009, showed the figures by the Doha-based Gulf Organisation for Industrial Consulting (GOIC).

Saudi Arabia, the world's oil powerhouse and the largest crude exporter, was the top investor in industry, pumping a total $112bn, nearly 62 per cent of the GCC's combined capital in manufacturing, said GOIC, which advises on the GCC's non-oil manufacturing policies. Qatar came second with around $20.7bn, followed by the UAE, which accounted for around 9.5 per cent. The remaining GCC members Oman, Kuwait and Bahrain constituted 6.5, 5.6 and 4.9 per cent respectively.

A sector breakdown showed petrochemicals have received the lion's share of the GCC's industrial capital, accounting for around 55.9 per cent at the end of 2009, with an estimated investment of about $100bn. Aluminium and other metals were the second largest beneficiary, receiving around 12.8 per cent of the total.

Petrochem gets the most

"GCC countries have always counted on their cheap energy sources in attracting local and foreign capital into their vital industrial sector over the years. This trend accelerated after they joined the World Trade Organisation and sought free trade agreements with the European Union and other major economic powers," EIB said.

"The policy of liberalising or increasing energy prices in the GCC countries will deprive them of a strong factor that had tempted investors despite the high costs of manufacturing projects and their nature as long-term investments."

Official statistics showed energy prices in the GCC widely vary as they are heavily subsidised in some members.

The figures by the Organization of Arab Petroleum Exporting Countries (Oapec) showed that at the end of 2008 gasoline prices stood at $0.45 per litre in the UAE, while they were as low as $0.15 in Saudi Arabia and $0.19 in Qatar.

The 10-nation Oapec put such prices at $0.27 in Bahrain and $0.26 in Kuwait, but gave no figures for Oman, which is not a member of the Kuwaiti-based group.

Diesel prices were also fluctuating, with those in the UAE standing at $0.45 per litre and as low as $0.1 in Saudi Arabia.

They were $0.2 in Kuwait, $0.16 in Qatar and $0.19 in Bahrain.

UAE fuel price may keep rising

The EIB report gave no updated figures for 2010, but the UAE has raised petrol and diesel prices this year.

In April, prices for diesel and petrol were raised by 11 per cent.

At that time, there were reports that the four government-owned petrol distribution companies – Adnoc, Enoc, Eppco and Emarat – would increase prices again in May, though the second hike has not come yet.

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