UAE state oil marketing companies are losing an estimated Dh16.5 million a day on petrol sales as the gap between state-set prices and the cost of imports widens, Gulf News has learnt.
"The petrol grade which sells at Dh1.72 a litre in the UAE needs to be sold at Dh3.16 a litre to reflect its true market price," a well-placed source at one of the country's oil retailing companies told Gulf News.
As matters stand, the oil retailers are losing about Dh6.50 for every gallon of petrol sold with the subsidy being calculated at an average Brent crude price of $115 (Dh422) per barrel. The country's petrol consumption is estimated to be slightly higher than five million litres per day. The current pump prices reflect international crude oil prices at about $55 a barrel.
The four UAE oil retailers — Abu Dhabi National Oil Company (Adnoc), Enoc, Eppco and Emarat bear the subsidies on petrol sales. While the government allowed petrol prices to be revised twice last year, this year there has been no revision of prices, despite sharp rises in international crude and oil product prices. The state oil firms cannot unilaterally revise pump prices without the federal government's intervention. Spokespersons for oil companies weren't immediately available for comment when contacted by Gulf News.
The price of petrol is a sensitive matter as price increases invariably stoke inflationary pressures with producers of goods and services tending to pass on the increase in transportation costs to consumers. The UAE's petrol prices are well above those in Saudi Arabia and Oman.
Last year, the UAE announced plans to gradually reduce subsidies on petrol, which cost the government hundreds of millions of dirhams a year, until prices match international market levels.
While national subsidy figures are not made public, Abu Dhabi has spent an average of $6.5 billion a year on various subsidies in recent years, from water to energy.
While Abu Dhabi processes its own crude at its two refineries for petrol, Dubai has to buy all its petrol from outside.
When the price of oil in the international markets shoots up, Dubai's oil retailers become particularly vulnerable as the difference between the purchase price and the local selling price of petrol widens.
"The high petrol subsidies are draining the UAE economy. The problem will remain until the government allows the petrol prices to be market-linked. The international oil prices are unlikely to come down substantially in the foreseeable future," says a local energy expert.
He added: "The people in the UAE can afford to pay higher prices for petrol as the oil prices are relatively low, compared to the standard of living. Only those who fall under the social security net...people with low income and pensioners should get the subsidy on petrol."