GCC states should “rethink generous subsidies” and tackle soaring domestic energy consumption, according to a report by a Qatar-based think tank.
The Abdullah Bin Hamad Al Attiyah Foundation for Energy and Sustainable Development urges Gulf countries to curb domestic energy consumption or risk losing out on export revenues that account for up to 90% of government revenues.
“Energy is sold more cheaply in the Gulf than almost anywhere else in the world. Prices that appeared munificent in the 1970s have remained constant – or even been reduced, in a few cases – despite the eroding effects of income and inflation,” the foundation said in a statement.
While in 1973, oil consumption in the region was less than 1% of global demand, forty years later, the Gulf nations consume 5% of the world’s oil with just 0.5% of the world’s population, the report said. Moreover, the GCC’s primary energy consumption in the past decade has grown more than twice as fast as the world average of 2.5% per year.
These factors mean the region will have to take steps with regards to subsidies, said H.E. Al Attiyah, Qatar’s former Minister of Energy & Industry and Deputy Prime Minister.
“The Gulf countries have to rethink the generous subsidies they have; they cannot afford them anymore and will have to look at alternatives,” Al Attiyah said.
“They have to reduce subsidies and prepare people to accept that change. Young, educated people will be instrumental to that change.”
One of the main arguments for subsidy reform is that the public funds and national resources being used to underwrite subsidies could be used to “generate greater social benefit,” the statement said.
“In this sense reformed prices that make energy products more expensive would raise additional revenues for the state, while inducing consumers to adopt habits and technologies that increase conservation and benefit the environment. This, in turn, would reduce state spending and preserve resources for export.”
The UAE made the move to scrap subsidies and deregulate fuel prices in July. The decision has been praised by vehicle manufacturers as a step in the right direction towards encouraging consumers and business to purchase more fuel-efficient vehicles.
“The [UAE] has made this strategic decision to remove fuel subsidies to protect the environment, preserve natural resources and encourage people across the country to consider using more fuel efficient vehicles such as hybrids,” said Samir Cherfan, managing director at Nissan Middle East.
“We do not expect that the changes in fuel prices will negatively impact the sales of any of our models in the UAE.”
Meanwhile, Franz Freiherr von Redwitz, managing director of MAN Truck & Bus Middle East, said that the German manufacturer expects fuel consumption to play a bigger role in the operating costs of its customers in the future.
“The less subsidies there are on fuel, the higher the fuel costs will be. Thus, a vehicle’s fuel consumption will be evaluated more by customers when it comes to the question of which brand they’re going to purchase,” he told MEConstructionNews.com in a recent interview.
“At the moment, diesel has become cheaper but if the fuel price rises, the selection of an efficient vehicle becomes even more important than it is now.”