The UAE Ministry of Energy will announce new fuel prices for the month of August on Tuesday afternoon, the first such announcement under the UAE's new fuel pricing scheme.
Petrol prices are expected to go up slightly and diesel prices to go down because of the decision, but analysts were hesitant to provide estimates before the decision.
This is the first time the UAE government is undertaking such an initiative. The government had subsidised fuel for three decades, which kept prices lower than the international average.
The new price will be based on average international levels and will be reviewed by a fuel price committee every month prior to its implementation in the UAE, the ministry of Energy said last week.
Credit ratings agency Moody's said the new fuel price measures are credit positive for the UAE and Abu Dhabi, as they will bolster government finances dented by the downturn in global oil prices. In a report released on Monday, the rating agency said despite progress in diversification, hydrocarbon revenues comprised 75 per cent of the UAE's consolidated revenues in 2014.
"Given our forecast for Brent crude oil prices to average $60 per barrel in 2015, versus $101 in 2014, we expect a 27 per cent drop in consolidated government revenue,” it said.
Moody's said In 2015, the UAE will likely face a fiscal deficit of 2.3 per cent of GDP, its first deficit since 2010, and a decline from a 10.3 per cent surplus in 2014. Phasing out fuel subsidies will partly offset the negative effect of lower oil prices, it said.
Per capita, UAE fuel subsidies equal $730 per resident per year, compared with $2,810 in Qatar and $2,522 in Kuwait.
Bank of America Merrill Lynch said the introduction of UAE fuel subsidy reform is a seminal development and is likely to have a moderate fiscal and inflation impact initially. Similar reforms are likely to gradually gain pace over the medium-term regionally, it said in a research report.
Matar Al Neyadi, Undersecretary of the Ministry of Energy and head of fuel price committee, previously said the increase would be minor and will not impact people much.
"There is nothing to worry about the prices as the increase would be minor. We would announce it on Tuesday,” he told Gulf News.
Abdulla Salem Al Daheri, Chief Executive Officer of Adnoc Distribution, in a statement said the UAE Ministry of Energy decided to deregulate the fuel prices as a positive step towards preserving the country's precious oil wealth for future generations and rationalising its consumption.
"The move will also enhance the competitiveness of our National Oil Companies that have long incurred huge losses running to billions of dirhams in the form of subsidies to fuel prices, while supporting their ongoing endeavours to elevate the quality of services and improve the overall customer satisfaction.”
He said the UAE's decision is aligned with the ongoing global reforms in energy sector to bring about operational efficiency and cut down carbon emissions.
Source: Gulf News