UAE fuel price change may cost $390 a head this year

The cost increase drivers will have to bear will be determined by the new fuel price-setting committee, which will announce its first monthly petrol and diesel prices for August.
Photo for illustrative purposes only.
Photo for illustrative purposes only.

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The UAE government’s move to cut transport fuel subsidies would cost the country's residents an average of $387 per head this year, although some households would be hit harder than others, according to debt rating agency Moody’s Investors Service.

The National reports that the UAE has been praised for its move to cut fuel subsidies as part of its efforts to increase use of public transporation and reduce environmental damage.

It is not yet know how quickly the government will move transport fuel prices towards market prices, how it will define market prices and how much that will add to the average resident’s annual fuel budget.

The agency's analysis – which relies on IMF data – states the annual subsidy rate for transport fuels in the UAE is $730 for each of its 9.6 million residents, based on an estimated average oil price of $58 per barrel this year, the newspaper reports.

Nearly half of that is external costs, such as the environmental damage, traffic congestion, road wear and tear and forgone taxes which would not be transferred to drivers.

The direct subsidy this year would total about $387 per head, according to Moody’s.

That compares to a direct subsidy of about $583 per head in 2013, when oil prices averaged more than $90 per barrel.

The actual cost increase that drivers will have to bear will be determined by the new fuel price-setting committee, which on Tuesday is due to announce its first monthly petrol and diesel prices for August.

Mathias Angonin, Moody’s UAE analyst, noted that the burden of higher prices will not be borne equally, with multi-car households and fuel-guzzling vehicles paying disproportionately more, and that would increase as oil prices rise.

The benefit to public finances will also increase if oil prices rise.

With the current low prices, the subsidy saving this year is estimated at $7bn (annualised), compared with $10bn in 2013.

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