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29 March 2024

What fuel price deregulation means for you

Published
By Vicky Kapur

The UAE’s Ministry of Energy has announced that it will deregulate fuel prices in the country starting August 1, 2015.

Petrol and diesel prices in the country have, until now, been heavily subsidised by the government, and unlike many other countries in the world, fuel in UAE is currently dispensed at a flat rate notwithstanding the fluctuations in global oil prices.

With the ministry set to announce the revised petrol and diesel prices in less than a week (on July 28), residents should gear up for the change.

The move has been in the works for some time now, with several international agencies including the International Monetary Fund (IMF), the World Bank and think tanks such as the Economist Intelligence Unit (EIU), 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.

While making the announcement, Suhail bin Mohammed Faraj Faris Al Mazrouei, Minister of Energy, said that the cost of gasoline represents 3 per cent 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.

Globally, the average petrol prices as of July 20 stood at $1.09 (Dh4) according to GlobalPetrolPrices.com. One of the most expensive places to get a tank full of petrol is Hong Kong, where a litre of gasoline will set you back by $1.96 (Dh7.2). On the ohter end of the spectrum is Venezuela, where a litre of petrol is dispensed at just $0.02 (about 7 fils). In the US, a litre of gasoline is retailed at $0.79 (Dh2.9).  

In January 2015, Emirates 24|7 reported that the Supreme Council of Energy had submitted recommendations to the Ministry of Energy, which suggest that fuel subsidies being provided be gradually reduced over a period of time.
 
According to that report, “The recommendations come after a significant increase in the number of vehicles in the country and the high value of current government subsidies,” the council said.
 
Read: UAE urged to cut fuel subsidies gradually
 
Even as the UAE’s economy remains strong and resilient, fuel subsidies put enormous strain on public resources.
 
Earlier last year, the Minister of Energy unveiled a new draft ‘Rationalisation Law,’ being prepared in cooperation with the Ministry of Environment and Water ahead of referring it to the Cabinet for endorsement.
 
In an interview with Emirati anchor Khadijah Al Marzouei during the ‘Emirates Tonight’ Programme on Dubai Radio, the Energy Minister said: “The general features of the country's general strategy in the field of energy, focuses on resources and future challenges, as well as rationalisation and consumption patterns, in addition to the focus on the role of technology, green economy and buildings on the preservation of environment.”
 
Early in 2010, the three UAE petrol distributors – 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), formed a committee to monitor and discuss petrol prices and retailers’ losses.
 
Local distribution companies had then 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.
 
As with everything else that the UAE does, this move has now been thoroughly thought through and is being implemented at a time when global oil prices are at multi-year lows, at just above $50 a barrel.

According to latest IMF and World Bank reports, global crude oil price is expected to remain well under $60 this year.

This will mean that the increase in the UAE price of petrol and diesel as a result of the deregulation would not be as dramatic as it would have been if the move had come at the time global oil prices were above $100 a barrel.

Making the announcement, Suhail Al Mazroui, Minister of Energy, said: “The decision to deregulate fuel prices has been taken based on in-depth studies that fully demonstrate its long term economic, social and environmental impact.

 
“The resolution is in line with the strategic vision of the UAE government in diversifying sources of income, strengthening the economy and increasing its competitiveness in addition to building a strong economy that is not dependent on government subsidies.
 
“This step will put the UAE on par with countries that follow sound economic methodologies.
 
“It is also anticipated to improve the UAE’s competitiveness while positioning the nation on international indices.”

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UAE fuel prices to be deregulated from August 1, 2015