UAE Official: Cutting fuel subsidies is about encouraging 'responsible' energy usage

A recent decision by the United Arab Emirates to cut fuel subsidies for its citizens in wake of the oil price decline was about promoting “responsible” energy usage, according to a high ranking government official.

Dr Matar Al-Neyadi, Undersecretary of the UAE Ministry of Energy and Chairman of the country’s Gasoline and Diesel Prices Committee, told delegates at Gulf Intelligence Energy Markets Forum in the Port of Fujairah, that a decline in oil prices provided the opportunity to “increase long-term sustainability of the energy sector.”

In August 2015, the Ministry of Energy, which oversees the world’s seventh-largest proven oil reserves, announced that gasoline and diesel, hitherto subsidised for Emirati citizens, would be linked to global prices.

In doing so, the UAE followed major global consuming nations such as India, Indonesia and Malaysia who have moved to cut fuel subsidies this year. However, UAE’s move did make the country standout among OPEC exporters as being the only one to have taken such a stance.

Al-Neyadi said it was not about the oil price alone but rather about seeking an opportune moment. “The UAE has long understood the value of energy subsidies and their advantages for citizens. However, we also felt that as a pioneer nation in the energy sector, we should build and promote a responsible energy profile. Eliminating subsidies goes a long way towards encouraging responsible consumption.”

Fitch Ratings said the move may set a positive regional precedent, apart from the obvious indirect fiscal savings for Abu Dhabi, a large contributor to the UAE federal budget. “Governments in the region understand the benefits of subsidy reform, including both fiscal cost savings, and more efficient resource allocation and energy consumption,” the ratings agency added.

However, apart from the UAE, none of the other regional exporters have followed suit. Bahrain and Kuwait governments promised reform, but have failed to deliver so far.