Fossil Fuel Prices in the Arab World and the Fear of Reform

15.10.2010 Seite 1

Fossil Fuel Prices in the Arab

World and the Fear of Reform Challenges Facing Reform Attempts and

the Way Forward

Increasing the Momentum of Fossil-

Fuel Subsidy Reform:

Developments and Opportunities

14-15 October 2010

Ahmed Ragab

15.10.2010 Seite 2 Page 2

Content

1. Status Quo

2. Difficulties Facing Reform

3. Recent Developments

4. The Way Forward

15.10.2010 Seite 3 Page 3

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

11,000,000

Production in bbl/day Consumption in bbl/day

1. Status Quo

Oil-Exporting Non-Movers:

- abundance of oil and oil reserves

- some of the cheapest fuel to be

found in the world

- prices set via administrative

decrees

- low transparency

Oil-Producers:

- production barely

covers

consumption

- relatively poor

countries

- prices set via

administrative

decrees

- under pressure to

reform system

Reformers:

- subsidies

eliminated or

capped

- systems of

automatic

price changes

- relative

transparency

15.10.2010 Seite 4 Page 4

2. Difficulties Facing Reform

Violent riots in reaction to increases in the prices of administered

goods

High inflation rates

Lack of offical public transport - high dependence on the automobile

and informal public transportation

Interdependence:

millions of Egyptians, Syrians, Lebanese and Jordanians work in oil rich

countries

Low comprehension for different prices in different countries: “What is

the difference between Saudi, Kuwaiti and Emirati oil? Why is it more

expensive here than there?”

15.10.2010 Seite 5 Page 5

Egypt, 1977

Jordan, 1996

15.10.2010 Seite 6 Page 6

2. Difficulties Facing Reform

Violent riots in reaction to increases in the prices of administered

goods

High inflation rates

Lack of offical public transport - high dependence on the automobile

and informal public transportation

Interdependence:

millions of Egyptians, Syrians, Lebanese and Jordanians work in oil rich

countries

Low comprehension for different prices in different countries: “What is

the difference between Saudi, Kuwaiti and Emirati oil? Why is it more

expensive here than there?”

15.10.2010 Seite 7 Page 7

-3

2

7

12

17

22

MENA Yemen China Brazil Egypt

Annual Change in the Consumer Price Index in % Source: IMF: International Financial Statistics

15.10.2010 Seite 8 Page 8

2. Difficulties Facing Reform

Violent riots in reaction to increases in the prices of administered

goods

High inflation rates

Lack of offical public transport - high dependence on the automobile

and informal public transportation

Interdependence:

millions of Egyptians, Syrians, Lebanese and Jordanians work in oil rich

countries

Low comprehension for different prices in different countries: “What is

the difference between Saudi, Kuwaiti and Emirati oil? Why is it more

expensive here than there?”

15.10.2010 Seite 9 Page 9

2. Difficulties Facing Reform

Violent riots in reaction to increases in the prices of administered

goods

High inflation rates

Lack of offical public transport - high dependence on the automobile

and informal public transportation

Interdependence:

millions of Egyptians, Syrians, Lebanese and Jordanians work in oil rich

countries

Low comprehension for different prices in different countries: “What is

the difference between Saudi, Kuwaiti and Emirati oil? Why is it more

expensive here than there?”

15.10.2010 Seite 10 Page 10

Demonstrations in Bahrain in Summer 2010

Source: Aljazeera.net

15.10.2010 Seite 11 Page 11

3. Recent Developments

Pressure since 2007 for action

Jordan eliminated subsidies on most petroleum products in 2008 and

established a system of monthly automatic price changes

Tunisia adopted a system in January 2009 whereby prices increase by

a fixed amount if international oil prices were above 52$ by more

than10$ for consecutive 3 months – reference price raised to 60$ in

2010

15.10.2010 Seite 12 Page 12

Egyptian Budget Breakdown for the Financial

Year 2008/2009

17%

11%

24%

48%

Subsidies for Petroleum Products

Infrastructure Investments

Budget Deficit

Others

15.10.2010 Seite 13 Page 13

3. Recent Developments

Pressure since 2007 for action

Jordan eliminated subsidies on most petroleum products in 2008 and

established a system of monthly automatic price changes

Tunisia adopted a system in January 2009 whereby prices increase by

a fixed amount if international oil prices were above 52$ by more

than10$ for consecutive 3 months – reference price raised to 60$ in

2010

15.10.2010 Seite 14 Page 14

15.10.2010 Seite 15 Page 15

3. Recent Developments

Pressure since 2007 for action

Jordan eliminated subsidies on most petroleum products in 2008 and

established a system of monthly automatic price changes

Tunisia adopted a system in January 2009 whereby prices increase by

a fixed amount if international oil prices were above 52$ by more

than10$ for consecutive 3 months – reference price raised to 60$ in

2010

15.10.2010 Seite 16 Page 16

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 17 Page 17

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 18 Page 18

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 19 Page 19

GTZ International Fuel Prices

15.10.2010 Seite 20 Page 20

GTZ International Fuel Prices

15.10.2010 Seite 21 Page 21

GTZ International Fuel Prices

15.10.2010 Seite 22 Page 22

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 23 Page 23

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 24 Page 24

Published Price Breakdown of Gasoline and

Diesel in Lebanon in August

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Octan 95 Diesel

Taxes and Fees

Commercial Mark up

Refinery Price

15.10.2010 Seite 25 Page 25

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 26 Page 26

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 27 Page 27

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 28 Page 28

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 29 Page 29

Electrification Rate in %

0

10

20

30

40

50

60

70

80

90

100

North Africa China andEast Asia

Middle East South Asia Sub-SaharanAfrica

15.10.2010 Seite 30 Page 30

4. The Way Forward

Short-term strategies:

1. Governments have to organize mass information campaigns

2. Stop sending mixed signals

3. Start comparing fuel prices with poorer countries (e.g. SSA).

4. Inform customers at every point of sale of the actual cost of the current

purchase and the amount of subsidies just received.

5. Transparency on the cost of the subsidies and which groups benefit

Medium Term Strategies:

1. Reform of the price setting mechanism

2. Create an infrastructure investment fund

3. Development of safety nets for the protection of the poor

4. Utilize universal electricity access to reach the poor

5. Use large number of state employees to compensate the middle class

15.10.2010 Seite 31 Page 31

Annex (1)

Country Links to Diesel/Gasoline prices Info on Pricing Mechanism

Gulf Countries

Saudi Arabia No official website with information on prices Prices are changed per Royal decree.

Apparently the last price change was in 2006, when prices were lowered.

UAE No official website with information on prices

Ministry of Energy: http://www.moenr.gov.ae/Web/Default.aspx

Prices are set in discussions between the government and the state owned retail companies. UAE has the highest fuel prices among the GCC countries with two prices increases already this year. Plans to eventually liberalize the market according to a state oil company official.

UAE has to import refined fuel products because they have too few refineries. Prices should be reviewed periodically every three month by a pricing committee.

Oman No official website with information on prices

Ministry of Oil and Gas: http://mog.gov.om/

http://www.moneoman.gov.om/arabic/index.asp

NA

Qatar No official website with information on prices NA

Kuwait http://www.knpc.com.kw/knpc/product_oils.html

The Higher Council of Petrol is responsible for setting the price. The council consists of several ministers. Apparently prices haven't changed in years.

Bahrain No official website with information on prices Government had to back more than once from plans to increase prices. Legal dispute whether parliament's approval needed to increase prices or if the government can change them per administrative decree.

15.10.2010 Seite 32 Page 32

Annex (2)

Yemen No official website with information on prices Yemen adopts a system of ad hoc price changes. Currently under pressure from IMF and World Bank to reform the system due to dwindling resources and high budget deficits.

Prices have increased twice already this year.

Maghreb

Libya No official website with information on prices.

Unofficial website with up-to-date information:

http://www.temehu.com/Prices.htm

Libya adopts a system of ad hoc price changes.

Tunisia http://www.tn.total.com/Os/ostunisia.nsf/VS_OPM/CCE9E20F6FE9BDDEC1256F460033A2FC?OpenDocument#8CC6

http://www.tunispro.net/tunisia/tunisia-prices.htm

Oil products are being subsidized. Till 1.1.2009 there were ad hoc price changes.

New mechanism adopted in 2009. Since then prices change every 3 month by an apriori fixed amount if the reference price of 52$ per barrel is exceeded 10$ over a period of three consecutive months. In early 2010, however, the reference price was raised to 60$ per barrel.

http://www.industrie.gov.tn/fr/directdoc.asp?docid=281

Marokko NA Oil products are subsidized and apparently price changes are ad hoc. Information, however, not clear.

Algeria http://www.mem-algeria.org/english/index.php?page=tarification-des-produits-petroliers-reglementes

http://www.mem-algeria.org/english/index.php?page=700

Apparently price changes have to be approved by parliament. Parliament refused to change the price of diesel twice: in 2007 & 2008.

15.10.2010 Seite 33 Page 33

Annex (3)

Mashreq

Jordan http://www.memr.gov.jo/ A system of monthly price changes has been adopted since 8.2.2008. Prices set by a committee that includes the Minister of Trade, of Finance and of Energy. Price adjustment supposed to reflect changes in Brent oil price. Applied formula not announced and unclear.

Syria NA Syria adopts a system of ad hoc price changes. Prices can be changed by a prime ministerial decree upon the recommendation of the Finance Minister and the Minister of Transport.

Lebanon http://www.energyandwater.gov.lb/pages.asp?Page_ID=44

http://www.abillamaapetroleum.com/products.php

Prices are set weekly by the Minister of Energy and Water. Prices and price breakdown (taxes, etc) are published on the ministry's website.

Sudan http://www.spc.sd/sudan_petroleum_1.php

Apparently prices are not the same all over the country and they change from state to the other.

Egypt http://www.petroleum.gov.eg/LawsPricingFuel.aspx

http://www.petroleum.gov.eg/LawsPricing.aspx

Prices are changed per decree from the Minister of Petroleum, Prime Minister or by law. Last price change took place in 2008.

15.10.2010 Seite 34

Thank you for your attention!

For more information please visit:

www.gtz.de/fuelprices

[email protected]