SEC chief calls for review of energy subsidies

Saudi Arabia should cut energy subsidies that are burdening public finances, Economy and Planning Minister Mohammed Al-Jasser and Saudi Electricity Co. CEO Ali Al-Barrak said. “This has become an increasingly important issue as these subsidies have become increasingly distorting to our economy. This is something we are trying to address,” Al-Jasser said. “Rationalization of subsidies, particularly on fuels for non-targeted participants,” is needed to improve Saudi productivity, he told a financial conference in Riyadh. Saudi Arabia keeps its domestic energy prices low for everyone, regardless of income levels, paying the subsidies out of the hundreds of billions of dollars that the kingdom makes from exporting crude oil. This practice limits the potential long-term returns from oil exports. Nearly 40 percent of Saudi electricity is still produced by burning oil. Energy-hungry industry has boomed over the past decade, thanks to energy costs that are a fraction of those in most countries. This growth increases the cost burden on state-run companies that supply fuel, power and gas. “Subsidy is becoming a big part of the government budget ... Subsidy should be revised and done in a different way. It should be smarter and support low income people,” said the SEC chief. Al-Jasser also said Saudi Arabia should also resolve imbalances in its labor market, including the low level of private-sector employment among Saudi citizens, particularly women. He said it was important for the country to diversify its economic base and develop more medium-sized companies. There has been talk before about raising low fuel prices, including domestic natural gas prices, for years, but there is no clear sign that it will happen. Reducing subsidies available to higher income groups while maintaining cheap power supplies for millions of Saudi nationals who are relatively poor could help lighten the burden on Riyadh without sparking unrest. “Over the last two years we have seen a real debate happening in government and among the wider public, so that’s a definite step forward,” John Sfakianakis, chief investment strategist at Masic in Saudi Arabia, said. “But now we need to look at how this can be addressed in terms of actual decisions.” Source: ArabNews